Electricity hits price cap on exchanges as mercury rises
4 min read . Updated: 10 Apr 2023, 11:38 PM IST
Premium- Consumer electricity prices too are expected to soar in tandem with demand
- Temperatures are likely to soar, and therefore, this may have an impact on market prices
NEW DELHI : Power prices on the exchanges have seen an increase in the past week as temperatures rise after easing in the second half of March. With the mercury expected to rise further with the onset of summer, consumer electricity prices too are expected to soar in tandem with demand.
Prices on the exchanges are up from around ₹4 per kWh (kilowatt hour) last week to over ₹6 per kWh now. Data on the Indian Energy Exchange website showed that the weighted average price for the day ahead market (DAM) on Monday was ₹6.14 per kWh, compared with ₹4.15 a week ago.
The prices have already started touching the ceiling of ₹10 per kWh set by the Central Electricity Regulatory Commission (CERC), said industry stakeholders.
“The power demand in the country is expected to go up further in the coming days. As per IMD and according to our own analysis, we expect the temperatures to soar higher and therefore, the same will have an impact on the short-term market prices including exchanges. The prices have already started hitting the ceiling rate of ₹10/kWh during the peak hours, and the average rates too have gone above ₹6/kWh, which was around ₹4.6/kWh a week ago," said an official with Hidustan Power Exchange (HPX).
Trades in power exchanges have almost doubled in the past few weeks, the official said. “In the past few weeks, the overall demand requirements have seen an increase among both DAM and Time Ahead Market (TAM) segments, with overall buy requirements touching more than 3000 million units (MU) in all the segments across all three power exchanges over the past few days. We can thus see that the demand requirements from the participants have gone significantly higher and will remain to higher due to increasing temperatures. Therefore, to meet the increasing demand, we can thus expect more entities to trade in power exchanges."
The India Meteorological Department (IMD) in a statement on Monday said the maximum temperature will rise gradually by 2-4 degree celsius over many parts of the country in the next five days.
According to data from the Grid Controller of India, the peak power demand met on April 10 stood at 182.65 GW. It is expected to hit a new record of 229 GW, way above 212 GW reported last year. The CERC in an order dated 31 March 2023, capped the price of all electricity contracts at ₹10/kWh, against last year’s 12/kWh. The commission has also capped the price cap for High Price Day Ahead Market (HP-DAM) segment at ₹20/kWh which was capped at ₹50/kwh earlier.
“Prices have already started touching the ceiling level of ₹10/kWh during the peak hours. Therefore, with the increase in demand, we not only expect the prices to remain at the ceiling level during the peak hours but also during the other hours of the day, as supply is limited and may only catch up with the demand as hydro stations start running at full load. Further, we can also expect volumes to be traded over HP-DAM at a higher price, as an increase in demand for the coming months are foreseen," said an official with Hindustan Power Exchange.
Electricity tariffs in the country are also set to witness a rise in FY24 with the onset of summers and anticipation of a record demand. The increase in prices may range from single digits to as high as 40%, if the recommendations of power distribution companies are accepted. Discoms in several states including Uttar Pradesh, Maharashtra, Madhya Pradesh and Himachal Pradesh have sought a hike in tariffs.
The likely increase in tariffs comes in the backdrop of higher fuel expenses, cost of power purchase agreement (PPA) and requirement to blend imported coal in a bid to meet the anticipated record demand in April-May.
In the past couple of months, Centre has also come up with a slew of directives to ensure adequate coal supply to meet the peak power demand in summers. The power ministry, in January directed all power generation companies in the country to blend imported coal up to 6% of their requirement till September amid projections of a 24 million tonne deficit of coal during first half of the next fiscal.
According to a CareEdge Ratings report, the base energy demand increased by 8.1% in FY22 and the estimated demand growth in FY23 is 9.5% due to the rebound of economic activities after Covid-19 lockdowns eased, leading to increased consumption. It noted that there may be a moderation in the growth rate for FY24 and FY25 due to the base effect, but the demand during the fiscals would surpass the Compound Annual Growth Rate (CAGR) witnessed in the ten-year period of FY12 to FY22, which was 3.9%.
It noted that the steps to boost supply during the peak demand season, including the introduction of electricity trading from plants having high input costs (including gas-based plants) in the recently introduced High Price Day Ahead Market (HP-DAM) would help in providing the required power availability.