Power users in South pay Rs 9/unit more than in North

Electricity consumers in the South are paying almost Rs 9 a unit higher for the same power which is available in the North at about Rs 3 a unit.

This is thanks to the congestion rent, say the power exchanges.

Consumers in the southern region are severely impacted as this is much higher than the marginal cost of generating and transmitting electricity in other regions.

A congestion rent is the difference between price of buyer (deficit) and seller (surplus) regions multiplied by flow from surplus region to deficit region in megawatts. This rent is collected by POSOCO (Power Operation System Co Ltd) on behalf of CERC (Central Electricity Regulatory Commission) and deposited in a special fund.

Power Systems Development Fund, in which the congestion rent flows today has about Rs 3,000 crore which is lying idle, sources said. Seeking price parity between the consumers of different regions when they buy power produced from the same source, the exchanges have sought revised pricing in case of market splitting based on weighted average price in the two or more sub-markets.

Simply put, when the power from the surplus market is bought in the market which suffers deficit, the buyers are willing to pay any price. In addition to the volume and price risk, the buyers also have to pay a congestion rent.

Power exchanges such as Power Exchange India Ltd have been seeking a change in this methodology from the CERC. Sources said a mechanism that will create a level playing field between short-term bilateral markets and power exchanges by removing extra burden of congestion rent for exchange participants is needed.

This is important for the growth of a national electricity market, sources added. Congestion is further compounded as power exchange transactions are accorded a lower priority for transmission corridor hampering the flow from surplus to deficit regions through the exchange platform, the sources explained.

Power flow from one region to another requires availability of adequate transmission capacity. Congestion occurs when there is inadequate transmission capacity – lines, voltage, etc – to flow power from a region which is surplus in power to a region that is deficit.

This can be seen in the chronically congested southern region that is presently deficit whereas the rest of India is considered a power surplus region resulting in market splitting leading to high prices and erratic bidding in that region, sources explained.
Source: BL

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