‘Trading volume growing at 36% annually’

How is the trend in power market?

The Indian power market has changed significantly over the past few years. This is primarily due to factors such as the emergence of competitive bidding, growth of bilateral trading and introduction of power exchanges. The long-term market, which had traditionally operated under the cost-plus regime, is now defined by the new tariff-based competitive bidding (case-1 and case-2) process.

The volume of power sold through inter-state trading licensees has increased from 12 billion units (2.16% of total generation) in 2004-05 to 59 billion units (11.54% of total generation) up to October 2011, representing more than four-fold growth in seven years. During the current year, the transactions comprise about 88.5% through long-term, 8.2% through trading (6.4% bilateral and 1.8% power exchange) and 3.3% through balancing market.

What is your outlook on the power market growth in the current year?

During the current year, the weighted price of power sold through power exchanges was slightly lower than the price of power traded through bilateral transactions. The volume of power traded through bilateral arrangements increased by 40% and through power exchange about 17% as compared to 2010-11. The long-term market decreased from 89.92% to 88.5%, indicating a growth in the short-term market over the long-term market.

What is your outlook on power market growth over the next five years?

The power market would continue to evolve as more producers sell their power in the free market. Further, the evolution of the market has taken place with the government’s thrust on renewable energy sources as part of the National Action Plan on Climate Change (NAPCC), launched in June 2008.

The JNNSM has envisaged developing 20 Giga Watt of solar power generation capacity by 2022. In addition, states are setting up solar power projects on their own. This will reduce the dependence on fossil fuel-based power generation. Further, with purchase of renewable power becoming mandatory, the market is set to see a revolution in the use of renewable energy and a change in the power mix scenario.

The long-term outlook of the Indian power market is bright. Policy steps taken to improve the financial health of discoms will take two-to-three years to show results. Per capita electricity consumption will go up to 900-1,000 units a year by the end of 2013, from 778 units in 2009-10. These two factors will enhance power consumption, which will encourage merchant power producers to commission their projects early to benefit from the demand. But the cost of power tariff will go up because of a rise in the cost of fuel, especially coal. However, the cost of coal is likely to stabilise when production starts from the captive mines of companies like NTPC and Reliance Power.

Further, the Appellate Tribunal for Electricity gave a landmark judgment on November 11, 2011 directing the State Electricity Regulatory Commissions to initiate suo moto proceedings to determine the tariff if the licensees delayed the filing of the annual revenue requirement (ARR) and to ensure that the tariff for the financial year is decided before April 1 of the tariff year and to make the tariff applicable only till the end of the financial year so that the licensees remain vigilant to follow the time schedule for filing tariff petition. This will improve the financial health of discoms, thereby stimulating the power market’s growth.

What are the bottlenecks holding back the power market’s growth?

First, reforms in the distribution sector are required to be undertaken as per the Electricity Act 2003. Second, enough transmission networks are required to be brought into operation to ensure free power flow across the country without congestion. For this to happen, improvement in the financial health of discoms and implementation of technology in the distribution sector are needed. All state load despatch centres (SLDCs) should be equipped similar to regional load despatch centres (RLDCs) to ensure free inter-regional transfer of power. That is necessary for the stability of distribution network.

Open access has become mandatory for consumers with load above 1 MW. How far it will help boost the volume of power trading?

At present, power trading covers only about 6% of total generation. The introduction of mandatory Open Access for consumers with a load of 1 MW and above will boost trading volume.

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