Power demand blackout sparks spot price meltdown

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.

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