Retirement of old thermal plants to shift demand to short-term power market

The phasing out of vintage and inefficient thermal power plants across the country is expected to shift demand to the short-term power market.

According to the guidelines issued by the Central Electricity Authority (CEA), thermal power generating stations which have completed 25 years of commercial operations are to either shut down or renovated. Alternatively, the thermal power plants can switch to super critical technology to still continue operations. But, the switch to the super critical technology seeks to escalate capital cost by 20-25 per cent.

Across the country, 40037 Mw of thermal power capacities were commissioned before 1993 and are headed for orderly closure, marking the end of inefficient, sub-critical plants. The Union power ministry had earlier discussed a proposal to research ultra super critical technologies. But, the upgrade from sub critical to ultra super critical technology is fraught with 40-50 per cent capital cost escalation and retains stranded asset risk.

"The volume of transactions in the short-term power market and its contribution to the overall power demand has been growing steadily. The phasing out of old thermal capacities gives an opportunity for the power exchanges to grab a higher share of the demand”, an industry source said.

An investor presentation by Indian Energy Exchange (IEX) says the overall power generation in the country increased by 3.8 per cent during April-December of FY18. The share of short-term market in generation rose to 10.7 per cent from 10.4 per cent in the comparable period. In the same period, power exchanges recorded a robust volume growth of 62 per cent.

A short-term power forecast by CRISIL has pegged the share of short-term market to 15 per cent of the power demand in the country by 2020. 

Efficient power discovery has been the biggest growth driver for exchanges in the past. While electricity distribution companies (discoms) can source cheaper power through the exchanges to tide over the shortages, industries can also buy competitive power to cut their input costs.

Another positive for the power exchange market is the reducing congested volume loss on the back of strengthening of power transmission capacity. The congested volume has reduced from 11 per cent in FY12 to 3.4 per cent in FY17.