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Home News Power Sector News Half the people dont have electricity and spot power trading promoted?

Half the people dont have electricity and spot power trading promoted?

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No Electricity of half of the people in IndiaIn a country where half the people have no electricity and the other half don’t have it half the time, we have two national high-tech spot markets to trade power. Surely power cuts mean we don’t have enough. So what’s to buy and sell? And do they matter at all to our bijli ka bill? Actually they do. For any company that generates electricity, the biggest question is how to profit from a scarce commodity you can’t store. If someone doesn’t switch on a button somewhere the moment you produce it, it’s goodbye to potential mega bucks. Figuring who needs electricity just then is difficult. A spot market can conveniently do that.

The sellers include utilities, merchant power plants, hydel, wind and solar power plants, sugar factories, and even steel, cement and metal companies that have excess power. Delhi, for instance, is power surplus. Buyers include factories, distribution companies, or basically any one with too much to lose from a power cut.

The price discovery mechanism is rather simple. The idea is to dispatch the cheapest power to the person willing to pay the most for it. Buyers and sellers name a price and quantity for each of the 24 hours in the day ahead in what is a closed double auction. The exchange matches the demand and supply bids and where the curves meet is the day’s provisional price. It can be as low as a rupee at night or cross Rs 7 per unit. The average is around Rs 2-2.25.

However, delivery is the key here. The guys with a bird’s eye view of the country’s power lines are at the National Load Dispatch Centre. It is quite possible that they find transmission lines are congested in one region and can’t take any extra load from another flush region even though buyers have bid for it in the spot market.

This constraint forces the exchange to work out a new price for the congested area. It also means not all the power on offer can be consumed. So those who put an inflated price tag and those who wanted it dirt cheap get knocked out of the reckoning. The rest are sent a delivery schedule by the exchange with a penalty for tardiness. What seems like a painful process is actually over by 2.30 pm each afternoon all days of the year.

For companies spot trading brings several advantages. Buyers can get competitive rates, sellers can enjoy a premium during peak demand hours, a buyer can easily turn seller if the factory is idle but captive power plant is running (which happened during the industrial slowdown). These prices can act as benchmark even for direct deals between a buyer and seller.

Exchanges too can smell the money. MCX and NCDEX have set up the Indian Energy Exchange and Power Exchange India Ltd respectively. NTPC has joined the fray with National Power Exchange.

More importantly, electricity doesn’t get wasted while consumers can reduce losses caused by erratic supply. Industry watchers have calculated that Indian customers are willing to cough up anything between Rs 3.4 and Rs 11.3, depending on use and location, to avoid an hour’s power cut.

Already the market is becoming more sophisticated. Spot electricity markets, like any other mandi, are volatile places. If you are a regular buyer, it makes more sense to get a better deal through longer contracts, where the seller is willing to give a discount because his risk is lower. So exchanges have introduced weekly contracts where average prices are lower. Month-ahead contracts will follow.

On the anvil next year is a way to encourage sustainable electricity through the trading of Green and Golden certificates that prove the seller used eco-friendly technology and solar power respectively. The idea is to ensure buyers meet a part of their needs through eco-friendly power.

Sure, the spot market is not without problems. The biggest one is the ceiling on prices set by the electricity regulator, which caps potential returns. Plus, there is no way to hedge spot market risk, which makes companies understandably nervous. Liquidity is another hurdle. Just 1% of India’s total electricity is traded in this market.

Often sellers offer 2000 MW but find buyers for only 900 MW in a day. State electricity boards feel threatened as this market could chip away their monopoly status. Let’s not even mention inadequate transmission lines here.

Yet an electricity spot market is good news for small consumers like us and all those households that don’t even have a connection. It has allowed producers to finally profit from the power they would otherwise have lost or sold at a loss. They have taught consumers a new way to buy at market-driven rates.

This new inflow of money becomes an incentive for more production at competitive prices, for transforming power into a viable business, thus creating a virtuous cycle of wealth creation through electricity for producers, consumers and the nation. Every kilowatt of power adds Rs 100 to the GDP.

Spot trading itself is vital. But what it truly signifies is the more exciting and bigger change. Competition and a free market are the two sparks that could eventually fill our homes and our lives with affordable reliable light. Power corrupts. Uninterrupted power is kind of neat.

Source - Times of India

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