Soaring heat pushes up spot power prices

The ongoing heat spell, coupled with congestion in the transmission capacity, has led to a surge in power prices in the spot market — a fortnight after the completion of the general elections. This is the time when spot prices ease. However, the unusual trend, which has seen prices rise past Rs 4 a unit, might not last long.

The average price of power in the spot market traded for day-ahead delivery was constrained under Rs 3.5 a unit until the end of April but crossed the Rs 4 a unit mark last week. This is 42 per cent higher than the average price of Rs 2.8 a unit recorded in the last financial year. Also, prices have continued to rise further over the past week.

“This is unusual. We normally expect prices to go up to a maximum of Rs 3.5 a unit. Power was traded at Rs 4.1 a unit last week,” said Rajesh Mediratta, Direct (Business Development) at India Energy Exchange (IEX), the country’s largest power exchange. “This is because temperature has gone up due to the scorching summer raising demand. Also, severe congestion is being noticed in the transmission capacity, particularly in the North-West corridor.”

The soaring temperature has started pushing up power deficit. Data from the National Load Dispatch Centre, controller of the flow of electricity in the country, the national power deficit had increased to 6,532 Mw on Friday from 4,000 Mw in April this year.

India generates 863 billion units (BUs) of power annually. Around 14 per cent — 120 BUs — of this is traded in the short-term market, while the rest is traded under long-term power purchase agreements (PPAs). Power exchanges account for nearly a fourth of the short-term power market. Prices at the exchanges have dropped consistently from Rs 7.3 a unit in 2008-09 to Rs 5.1 per unit in 2009-10 and Rs  3.4 a unit in 2012-13. Prices dipped further to Rs 2.8 a unit in the previous financial year before touching Rs 4 a unit now. Experts say soaring temperature will continue to push prices up. Bucking the trend, spot prices had remained subdued before the general elections, as financially struggling discoms could not buy power. “Spot prices are expected to be higher in the summer months but their sustainability will depend on discoms ability to buy power which is linked to increase in tariffs,” Debasish Mishra, senior director at Deloitte said.

He added the growth in generation capacity would be another factor pulling down spot prices in the short term by supporting demand growth. India added close to 12,000 Mw of power capacity in FY14 after two successive years of 21,000 Mw capacity addition. Demand for power in the country grew by a per cent to in the previous financial year as compared to 5.2 per cent growth in 2012-13.