What is driving the volatility in India's spot power prices?

Rising renewable energy generation, erratic weather patterns and supply-demand mismatches are triggering sharp swings in India's spot electricity prices across market segments

India's spot market for electricity in India has been on a see-saw, price-wise, for a few weeks now, thanks to a perfect storm of multiple variables. Erratic weather patterns, sudden changes in industrial economic activity, and supply curve distortion have meant that both spot prices and volumes have seen almost unprecedented fluctuations.

 

The Real-time market (RTM) prices have crashed to zero on multiple days in multiple time blocks during solar hours. On one hand, RTM prices fell to Rs 0.03 a unit on April 4 and April 5, going as low as Rs 0.01 per unit on April 10. Similarly, in the day-ahead market (DAM), prices dropped to Rs 0.01 per unit on April 3. On the other hand, the price in the high price day ahead market (HP-DAM) segment touched the regulatory ceiling of Rs 20 per unit in non-solar hours on multiple days in the past month.

 

While low demand during solar hours coupled with high renewable energy (RE) generation and unpredictable weather conditions, including unseasonal rains, has kept prices as low as zero in multiple time blocks, high demand during the evening, lack of solar generation, and limited energy storage systems have resulted in prices increasing spiking as high as Rs 20 per unit. Surging power demand drove prices higher in HP-DAM in the second half of April, with the average daily price for the month rising to Rs 19.6 per unit, compared to Rs 15.3 a year ago. The average daily price in the DAM segment, where the ceiling is Rs 10, was Rs 5.3 per unit.

 

Since the price cap of Rs 10 per unit limits participation from higher-cost generators such as imported coal, gas, and battery energy storage, the Central Electricity Regulatory Commission (CERC) introduced HP-DAM specifically to allow high variable cost generators to participate when demand exceeded available supply. Sharp tariff fluctuations, primarily driven by short-term demand–supply imbalances and accentuated by rising solar penetration, are also caused by the must-run nature of RE.

Why are spot electricity prices crashing during solar hours?

“Since renewable energy has must-run status, and thermal plants continue operating at technical minimum levels, surplus power is forced into the market, clearing even at extremely low prices rather than backing down generation,” said Vikas Gaba, partner and national head (power and utilities), KPMG India.

 

He added that the HP-DAM prices hitting the regulatory ceiling reflects tight system conditions during non-solar hours, particularly evening peaks. “High prices usually emerge during heatwave-driven peak demand, transmission congestion, or localised supply constraints, and are an intended outcome of the market design rather than an anomaly,” said Gaba.

 

While this is not the first time such volatility has been observed, as near-zero spot prices were also recorded in 2024–25, the frequency of such events has increased recently. The reason is that renewable capacity has crossed 250 Gigawatt (GW) and short-term markets are being increasingly used for balancing. However, such volatile market conditions can have severe implications. Prolonged low prices during solar hours can affect merchant generators and renewable developers with high exchange exposure, particularly those without long-term power purchase agreements (PPAs), Gaba noted.

 

“Very low realisations reduce merchant revenues and may increase curtailment risk if surplus conditions persist,” he said. The problem is not limited to producers/sellers, though. Buyers who are heavily dependent on short-term markets also face the consequences, since they have to procure power at higher costs during tight periods when HP-DAM clears at elevated prices.

Who gains and loses from volatile power prices?

Only flexible resources, such as hydro, gas-based generation, and battery storage, are better positioned to benefit from arbitrage opportunities between low price solar hours and high price peak periods. “Market participants with strong forecasting and portfolio optimisation capabilities can improve margins by shifting volumes across time blocks and market segments,” Gaba said.

 

Exchange-based transactions currently are below 10 per cent of the total electricity supply. CERC’s interventions have focused on improving market design, such as calibrated price caps and specialised segments, rather than suppressing volatility. Consequently, experts view the recent developments as indicative of a transitioning market rather than a market failure.

 

However, unless the volatility is addressed, it could become even more pronounced as India adds renewable capacity at a rapid pace. The country added over 50 GW of RE capacity in FY26, the highest level achieved in a single year. Total installed capacity from non-fossil sources stands at 283.46 GW, including 150.26 GW solar power and 56.09 GW wind power. “Demand growth, though strong, is increasingly non-coincident with solar generation. The expected outcome is a structural pattern of very low prices during periods of high renewable output and relatively higher prices during evening peaks, seasonal heat events, or constrained system conditions,” Gaba said.

How can India reduce electricity price volatility?

One way to bridge the supply-demand gap is to improve system flexibility so that the market can absorb surplus energy and use it to meet peak demand. Accelerated deployment of battery energy storage systems and pumped hydro, faster transmission expansion to reduce regional congestion, improved renewable forecasting and scheduling, greater demand response from large consumers, and deeper ancillary and balancing markets are key to reducing price volatility.

 

“Over time, as these flexibility resources are added and market depth improves, extreme price spikes and collapses are expected to moderate, even though intra-day price signals will remain," says Gaba. "The current volatility is a necessary price discovery phase in India’s transition toward a cleaner, more market-oriented power system."

 

Other market watchers agree. "The extreme volatility seen in prices in the recent past is largely owing to demand supply imbalance," said Ankit Jain, vice president and co-group head (Corporate Ratings), ICRA. "Because of the huge RE capacity addition, coupled with demand moderation owing to changes in the weather patterns impacted the spot power prices. However, demand is expected to grow at 5-5.5 per cent per annum going forward, driven by expectation of normalisation of weather patterns, continued industrial activity, along with upcoming demand from data centers and electric vehicles. A sizeable capacity expansion is expected in both thermal as well renewable power segments, which is likely to meet the growing demand."    

According to Rohit Bajaj, joint managing director at Indian Energy Exchange (IEX), April 2026 witnessed highly dynamic weather conditions, ranging from unseasonal rainfall to peak summer heat, making demand and supply forecasting particularly challenging. During this period, the real-time-market (RTM) helped by enabling participants to adapt swiftly to fluctuations through near real-time power procurement, while also supporting grid stability, he said. "Surplus renewable energy during solar hours drove RTM prices to near-zero levels across multiple time blocks. Notably, RTM recorded its highest-ever single-day trade of 250 million units on April 30, underscoring its growing role in helping DISCOMs and Commercial and Industrial consumers manage procurement flexibly and cost-effectively in real time," Bajaj said.  

 

April also saw peak power demand reach 256 GW, alongside a sustained rise in electricity consumption that put pressure on available supply. "With the existing price cap of Rs 10 per unit on power exchanges limiting participation from higher-cost generators such as imported coal, gas, and Battery Energy Storage Systems (BESS), the High Price Day-Ahead Market (HP-DAM) emerged as a critical segment to bridge this gap. As an integrated extension of the I-DAM (DAM & Green DAM) segment, HP-DAM allows unmet bids to seamlessly transition into a premium price segment, ensuring that buyers with critical requirements can access power through the exchange," he added. 

 

Bajaj pointed out that by enabling additional capacity from higher-cost generators, HP-DAM helps deepen liquidity during crunch periods and supports a more dynamic, demand-responsive power system. Amid these dynamic market conditions, power exchanges balance demand and supply, helping participants optimize procurement costs by buying power at near zero levels during surplus hours, while providing a platform for high cost generators to sell at more than Rs 10 per unit during crunch periods.