Rising electricity demand: Regulator caps spot power price at Rs 12 per unit

The Central Electricity Regulatory Commission (CERC) has capped the prices of spot power traded on the exchanges at Rs 12 per unit, citing the extreme volatility in prices amid rising power demand.

The move could help reduce power purchase cost of discoms and other bulk buyers, who have resorted to increased purchases from spot market.

Spot power prices on India’s energy exchanges have risen by 380% between March 1 and March 25.

Average prices were Rs 18.7 per unit on the Indian Energy Exchange on March 25 compared to Rs 3.9 per unit on March 1. Despite the high prices, the trade continues to be brisk.

Coal shortage and rising fuel costs have reduced electricity supplies under long-term contracts in recent weeks. Spot power trade on exchanges is still only 6-7% of the total power sold in the country, but the share of spot market is expected to rise significantly given the rapid pace of capacity addition in the renewable energy sector. The CERC has estimated that the share of power under long-term contracts would fall to a little over 50% in the next four-five years.

Abnormally high prices at power exchanges, even for a short period, hurt consumers ‘interests and erode buyers’ confidence in the market, the CERC noted.

It stated that early onset of summer and increase in economic activities have resulted in a spike in power demand, even as supply has been limited. “The situation has been further aggravated due to geopolitical factors affecting fuel supply and certain domestic supply constraints,” the regulator said.

It also pointed out that with the widening gap between demand and supply, the average buy-to-sell bid ratio has risen to more than 2. Market clearing price is frequently touching Rs 20 / kWh.

Sources said discoms from Telengana, Tamil Nadu, Maharashtra, Punjab and Gujarat have been among the major buyers of spot electricity from exchanges in recent weeks. Adani Power and JSW Energy and JSPL have been among the prominent sellers.

Power demand could rise further after weather officials forecast maximum temperatures above normal in April in most parts of the northwest, northeast and central regions.

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