Power prices shoot up to seven-year high of Rs 9.91 in spot market

Industry said this happened due to lack of hydropower and states rampantly backing down wind, solar power

Power supply prices in the spot power market shot up on Tuesday to a seven-year high at Rs 9.91 per unit. The average price prevailing currently is Rs 5.13 per unit, which is higher than the contracted price for both coal and renewable through long-term agreements across states. The spot market has been witnessing such high prices for a week now.

The average market clearing price during this financial year (FY) is Rs 2.87 per unit until September 2017. Whereas, the last high price of Rs 5.19 was discovered in FY 2009-2010. Though, in August and October 2014, Rs 9.5 was discovered for a 15-minute trading period on one day.

The increased price is also a major jump from the prevailing price of Rs 2-3 per unit that pushed the Centre to launch a mega drive towards short-term power market. The Central government launched a web dashboard to monitor prices so that states could purchase cheap power to bring down their costs.

Industry executives say the scenario has arrived due to lack of hydropower and states rampantly backing down wind and solar power. “The shortfall was being met through spot market. But the demand overshot supply, which led to an escalation in price,” said an official.

The prices are, however, a much-needed relief for the power suppliers who were reeling under low prices. As no state has come forth to sign long-term agreements for power purchase for past four years now, most of the developers had started selling through spot market.

However, they had to sell in the spot market at half the tariff they quote in bidding for power purchase agreements (PPAs). This suited them as instead of complete shutdown due to lack of demand from the states, the power developers were trying to recover at least the variable cost by selling in open market. A sector expert said the high prices would help project developers in recovering their cost.

He also pointed out that this exposes the distortion in the power market due to states. On one hand, the states are not signing long term agreements, on other most of them are relying on short term market for bringing down their cost. “That also is fine till the point that they started backing out renewable and diverted their demand to spot market. With hydropower scarcity this month, an imbalance has hit the market. It’s time states and centre work on a balanced energy mix,” said a Delhi-based sector expert.