A historic slump in power demand from bankrupt distribution utilities has dragged down spot prices at India's largest power exchange, India Energy Exchange (IEX), to the lowest ever in its seven-year history. Average prices crashed to Rs 2.80 per unit last financial year — lower than even the average tariff of Rs 2.92 per unit at which the country's largest and cheapest power producer NTPC Ltd supplies electricity under long-term PPAs (power purchase agreements).
The trend raises a key question: Will discoms renege on purchase commitments from NTPC? PPA terms allow discoms to curtail the committed quantum of power but they have to pay at least the fixed charges.
According to the latest market data sourced from IEX and Central Electricity Regulatory Commission (CERC), volume of power traded on the exchanges has grown from 2.6 billion units (BUs) in 2008-09 to 29 BUs last fiscal.
However, prices have declined sharply from Rs 7.4 per unit in 2008-09 to Rs 3.5 per unit in 2011-12 and Rs 2.80 per unit last fiscal. During the same time, NTPC's average tariff grew from Rs 2.12 per unit in 2008-09 to Rs 2.63 per unit in 2010-11 before rising to Rs 2.96 per unit last financial year.
Also, thanks to the downward spiral in prices, the total value of power traded on the exchange dropped in 2013-14 to Rs 8,120 crore, the first dip since August 2008 when exchanges started operations.
"The slump in power prices is due to the major drop in demand witnessed last financial year, apart from transmission constraints that block power flow," IEX director, business development, Rajesh Mediratta told Business Standard.
Demand for power in the country grew by a meagre 0.07 per cent to 1,35,561 Megawatt (Mw) between April and February last financial year from 1,35,453 Mw in the same period of the previous fiscal. Demand had grown at 5.2 per cent in 2012-13.
Apart from the historic dip in demand, the low spot prices are also due to record capacity addition and the recent improvement in coal supply for stations. India added close to 12,000 Mw of power capacity last financial year after two successive years of 21,000-Mw capacity addition each.
Source - Business standard