Price of traded power drops 20%

With industries cutting production in the wake of the overall slowdown in the economy, the average price of traded power has dropped by nearly 20 per cent in the last six weeks.

Experts say this downward trend in the electricity price could impact profit margins of power generators, especially merchant power plants, experts said.

The latest data compiled by the Indian Energy Exchange, India’s first power exchange, show that the average price of electricity traded on it slumped to Rs 6.83 per kilowatt hour (one kilowatt hour is one unit) on December 11, 2008 from Rs 8.52 per kilowatt hour on October 23.

The power traded at the exchange largely comes from merchant power plants and is bought and sold in short-term (day-ahead) contracts. It account for about 20 per cent of the total electricity produced in India annually, the rest being tied up in long-term Power Purchase Agreements (PPAs) of up to 25 years and more.
 

FREE FALL?
Date of delivery	Average price (in Rs perkWh)
Oct 23	8.52
Oct-26	8.05
Oct-28	7.66
Nov-05	7.23
Nov-15	7.89
Nov-20	7.66
Nov-24	6.90
Dec-03	6.51
Dec-09	6.42
Dec-11	6.83
Source: Indian Energy Exchange

The price of exchange-traded power, however, remains significantly higher than the average price of power tied up in long-term PPAs, which is Rs 1.50-1.80 per unit for projects with coal linkages. The price of power sourced from projects without coal linkages increases to about Rs 2.20-2.40 per unit. Trading of power takes place on a daily basis at the Indian Energy Exchange through an electronic medium between power surplus and deficient utilities.

“The current financial meltdown has cut down on demand of power from industries, which coupled with the unusual weather in the past few months has resulted in an overall reduction in the industrial load,” said Kuljit Singh, partner, Ernst & Young.

India’s factory output in October this year dipped unexpectedly to a 15-year low of -0.4 per cent. Industries account for around 30 per cent of the total power consumed in the country. “If this decreased price of electricity becomes a trend which extends to the entire trading market, it will definitely affect the profitability of power producers, especially those who rely heavily on merchant sales,” Singh said. This comes at a time when the global liquidity crunch has increased the per-unit cost of generation of power due to increased cost of securing funds, along with the reduced availability of fuel for setting up power plants.

“The average cost of generation for our stations has increased by about 10 per cent in the past one year,” said a senior official of NTPC Vidyut Vyapar Nigam Ltd, the power trading arm of NTPC Ltd, the country’s largest power generator.