Short-term power auction can bring down cost by 4-5 paise

Government's decision to allow reverse auction for short-term power procurement via e-bidding will benefit discoms and lead to better transparent price discovery, which will lead to a price dip of 4-5 paise per unit for end consumers, says rating agency Icra.
Under assumption of cost-plus tariffs for discoms and a 10.5 per cent share of short-term traded power (based on trends in the last five-six years) in the total procurement mix, this is estimated to provide a relief in the average retail supply tariff by about 4-5 paise per unit (or 0.8 per cent) for end-consumers of discoms on a national level," Icra said.

For discoms with relatively higher dependence on short-term power, especially those in the South, the benefit could be even higher, it said.
The report also said that e-bidding with reverse auction for short-term power procurement would benefit the discoms and their end consumers. Procurement through such mode would result in a competitive price discovery in a more transparent manner.
The Power Ministry recently notified the amended guidelines for procurement of power by distribution utilities (or the discoms) on short term basis (for a period of up to one year) through a competitive bidding route. Effective this April such procurement by the discoms shall be on an electronic platform based reverse auction system.

The report expects average traded bilateral price levels on an all-India basis to moderate by about 50-60 paise per unit.

"This implies a decline by about 13 per cent over the prevailing bilateral traded price level," Icra senior vice president Sabyasachi Majumdar said, adding however while the reverse auction based procurement of short term power is beneficial for discoms.
The share of short-term based power transactions in the overall electricity generation in the country has been in the range of 10-11 per cent over the past 5-6 years.
In terms of mix of short-term traded power, bilateral route based traded power continued to have the highest share in the range of 52-53 per cent followed by power exchange transactions (29 per cent) and remaining accounted by deviation settlement.

The higher share of bilateral-based transactions can be attributed to the certainty of supply and tariff rates for the discoms.