Electricity trade returning to normalcy as monsoon picks up

The gradual picking-up of the monsoon has seen the average market price of traded electricity coming back to normal levels. Power availability has increased, with water levels in the reservoirs feeding the hydro power plants going up.

The latest data compiled by the Indian Energy Exchange shows the average price of electricity traded on it in the first 13 days of current month has slumped to Rs 4.89 a kilowatt hour (one kwh is one unit). Power was traded over 20 per cent higher, at an average of Rs 6.19 a unit, last month when a delayed monsoon had led to falling reservoir levels.

A heat wave in the northern region and the delayed monsoon had pushed up the peak demand for power to over 111,000 Mw in April-June, around 5,000 Mw higher as compared to the same period last year. This increased demand had pushed up the price of power traded at the exchange to Rs 12 a unit.

According to the Central Water Commission, the storage at reservoirs across the country was 16 billion cubic metres for the week ended July 9, around 11 per cent of the capacity at full reservoir level.It was 9 per cent of total capacity on June 25.

Power prices returning to normal levels as demand dips would come as a respite for deficit states, which were compelled to procure from the market at higher cost to tide over the electricity crisis.

“As the monsoon has arrived and the prices have started moderating, this will significantly reduce the subsidy burden of the states, especially northern states, as otherwise they have to buy power at a high cost but cannot pass it on to the consumers,” said a senior analyst from an accounting and consulting firm.

This downward trend in the price of electricity could also impact profit margins of power generators. Especially merchant power plants, as these account for a major chunk of the power traded at the exchange.

“The profits of merchant generators’ should come down now but it would not be much. They make a lot of profit in the lean period, ” the analyst confirmed. This comes at a time when the per unit cost of generation has increased in the wake of the overall financial crisis.

Though IEX, the power exchange that has been operating since July 2008, does not reveal the name of these merchant power plants, it is understood that a chunk of the power comes from state-government owned power utilities.

About 2-3 per cent of the total power generated in the country, totalling to about 20 billion units annually, is normally traded at 80-100 per cent more than the average rates at which power is bought and sold under long-term purchase agreements, but the lean season sees a jump in these rates.