Grid congestion causing higher price in North

Northern states have been reeling under frequent power cuts and a hike in the peak power rates due to increasing congestion in the grid.

At the Indian Energy Exchange (IEX) and Power Exchange India (PXI), the power traded during peak hours in these states is at Rs 4.85-Rs 5 per unit, compared to Rs 2.50-Rs 3.30 per unit in rest of the country. The grid congestion is causing a lot of hurdles in the transmission of power due to less pressure on other states because of winter.

The difference between the northern states and rest of the country in in transmission capacity has been falling short on a majority of days this year. This is due to the growing popularity of power markets in the form of ‘day-ahead’ markets on power exchanges. Small generators and open-access consumers have access to wholesale markets leading to more demand of transmission capacities. Grid congestion for the northern states was more severe during the months of June, July and August when congestion was experienced almost daily. It is still continuing even in the winter months.

Sources at IEX and PXI told Business Standard today that the average prices in the deficit and surplus regions were Rs 4.85 per unit and Rs 3.30 per unit, respectively, during peak hours.

The average price during this period would have been Rs 4.20 per unit for all the participants. The buyers, on an average, have paid 65 paise per unit extra during the time of congestion, thus increasing the price for them and reducing the price for the sellers who get 90 paise per unit less.

IEX and PXI suggested that the congestion in the power exchanges is expected to increase due to the implementation of medium-term open access regulations. This can increase the prices in short-term further. As a matter of fact, after meeting most of the power requirement through long-term purchases, state power distribution companies (discoms) try to manage their balance requirement in the day-ahead market. Therefore, at least 25 per cent of transmission capacities should be kept for day-ahead markets.

“Transmission corridors are first allotted to the discoms buying on a long-term basis, followed by the short-term buyers who purchase power anywhere between a week and 3 months, and then to the day-ahead buyers. A large portion of the surplus transmission corridor is reserved for long-term purchases and then by power traders who can book the corridor three months in advance. Only the remaining capacity, if any, is left for the day-ahead market of the exchanges. This is resulting in congestion and higher prices for the buyers in northern states and lower prices being received by the sellers in rest of the country,” IEX sources said.

PXI sources suggested that the congestion problem could be effectively managed with an improved market-splitting mechanism. “It is essential that the schedules of power exchanges are not curtailed because they lead to better price recovery. Across the world, there are mandatory power flow through exchanges which make the entire bilateral process dispute-free and transparent,” they said.