The electricity prices are hovering at their lowest levels on power exchanges that account for over 2.5% of the power transacted in the country. Increased power generation, congestion in the grid and poor financial health of distribution companies have brought down electricity prices. Power companies, especially those in the private sector, have cut down generation drastically owing to lack of fuel availability as well as a dip in demand.
According to a report by Religare Institutional Research, seven private power utilities including GVK Power and Infrastructure, JSW Energy, Lanco Infratech and Reliance Infrastructure (formerly Reliance Energy) have reported lower plant load factor (PLF) — a measure of average capacity use.
"The all-India average thermal PLF declined 5.7 per cent, year-on-year, in August. It reduced to 55.8 per cent as state thermal units saw a drop to 47.5 per cent," said the report. This means, less than half of the power assets are being used to generate power.
Gas-based power generation remains more or less halted, bringing down the average PLFs. GVK's PLF reduced the most as its gas-based power plant Gautami stopped operating, and Jegurupadu plant's utilisation fell by half. Reliance Infra's PLF, too, reduced by 5.9 per cent from its Dahanu and Goa plants. JSW Energy's PLF dropped by 27.7 per cent this August compared to the year-ago period.
While coal-based and gas-based power plants reduced their PLFs, hydro-powered plants generated more electricity thanks to a good monsoon. According to analysts, the main reason for the overall reduction is not just lower coal supply.
"Some plants are operating at sub-optimal level due to contractual and negotiation issues," said Umesh Agarwal, associate director, PricewaterhouseCoopers.
Owing to financial problems, only few state discoms have called for tenders to buy power.
This has led many power utilities to cut generation. The current economic slowdown also took away the incentive that generators would have got from spot sales.
"Short-term power rates are depressed at around Rs 2-2.75 a unit. If these prices were better, generators would have bought costlier, imported coal to generate more," said Agarwal. State discoms have reduced the power they buy from the spot market in the power exchanges, leading to price reduction.
Peak power deficit — the difference between the requirement and generation of power — has also come down. While this was expected, experts are of the view that it has come too soon.
"Peak power deficit across India declined to 2.7 per cent in August this year. This was at 11 per cent in August 2012 on lower demand growth and higher supply," said the Religare report.
While Maharashtra, Gujarat and Chhattisgarh are heading towards power-surplus, the still-high demand from southern states could not bring much cheer to companies as grid connectivity to these states is still a problem.
However, as some of the roadblocks such as coal supply are being cleared by the government, experts said that PLFs might improve in the second half of FY14 and by the start of the next year financial year, grid connectivity could also become better.
However, some other are skeptic. "The increase in PLFs will depend on how fuel problems will be solved, and whether or not there will be an increase in off-take," said Akshay Narang, research analyst at Angel Broking.
General elections, which would be held in the next year, offers an opportunity as well as a threat. While states want to reduce power cuts before elections, they may be unable to increase prices. Without an increase in price, very few discoms might be able to buy more power.
"Discoms may not be able to pass on the high prices by increasing tariffs due to elections ahead," said Narang.
From around Rs 7 per unit in 2008 when country's two electricity trading platforms became operational, electricity is traded at an average price of little over Rs 2 today. Also, electricity price has never crossed Rs 3 per unit during current fiscal. Since April 2010, average price of electricity on Indian Energy Exchange ( IEX), which dominates market with over 90% share, crossed mark of Rs 5 per unit only once.
Average electricity price on IEX came down by 10% to Rs 2.05 per unit in August from Rs 2.28 in July. It attracted sellers for 5200 million units (MUs) in August, substantially higher than buyers for 2899 MUs during the same month. The similar trend was witnessed on both IEX and Power Exchange of India Limited (PXIL) during July when they witnessed demand for 3040.32 MUs, which was 60% of available 5,111.02 MUs of electricity in the market.
"We have been witnessing electricity prices going down since beginning of this fiscal. There is over supply of electricity in the system while some of the buyers are unable to draw power on account of congestion in the network. It is resulting in lower electricity prices," said an IEX executive. According to estimates, at least 10% of the electricity trade is not happening due to lack of adequate transmission network.
According to PXIL MD MG Raoot, there is congetion in the transmission grid, particularly in South India. However, he added that electricity prices are related to the seasonal variations that affects its demands. Raoot expected electricity prices to go up in coming months if the distribution companies meet demand for power in the agriculture sector. "Distribution companies, which have poor financial health, are unable to buy power from the exchanges as they have to pay money in advance unlike other avenues to procure power," said Raoot.
source - ET