Spot power rates fall: Gencos’ plan to raise output likely to be hit

Spot power prices have dropped by half in the last one week on the India Energy Exchange from the highs of Rs 11 per unit, largely led by the likely onset of early monsoon in Kerala and other parts of India, and improvement of wind conditions in Tamil Nadu and Andhra Pradesh.

While this would be a relief to state discoms buying spot power, it could be a dampener for gencos, who have been asked by the power ministry to scale up coal imports and increase PLF.

Spot power prices have dropped by half in the last one week on the India Energy Exchange from the highs of Rs 11 per unit, largely led by the likely onset of early monsoon in Kerala and other parts of India, and improvement of wind conditions in Tamil Nadu and Andhra Pradesh.

While this would be a relief to state discoms buying spot power, it could be a dampener for gencos, who have been asked by the power ministry to scale up coal imports and increase PLF. Profitable spot market sales were one of the incentives for imported coal-based power units apart from the promise of cost pass-through. After the power ministry asked gencos to import 10% of their coal requirement for blending purposes, the compliance has been low among power units.

Power minister RK Singh will meet the power gencos and lenders on Friday to review their concerns on import of coal.

The power prices in the day-ahead and the real-time markets on the exchange have seen significant correction. The average price in the day-ahead market for the period between May 6 to May 15 was Rs 5.41 per unit while the average real-time market price was Rs 4.63 per unit. The exchange average prices were at about Rs 10.38 per unit just 10 days ago. On Thursday, the average market clearing price on the day-ahead market was Rs 5.96 per unit.

The ministry order invoking section 11 of the Electricity Act was based on the premise that gencos will be able to sell the power on exchanges if discoms deny to purchase the power, while the profits would be equally shared with the discoms.

Gencos say now that the prices have dropped on exchanges, it will be a risky proposition to import the coal when the power cannot be sold on exchanges and in case discoms refuse to buy. “At $200/tonne the price of imported coal, the cost of producing power will be around Rs 10/unit. No discom has given the nod to buy such costly power. The central government instead of putting pressure on generators to import coal, should issue a directive to discoms to enter into an agreement to buy the power produced from the imported coal,” Vibhav Agarwal, managing director of RattanIndia Power, told FE.

“After regulating the free price on exchanges that led to reduced supply of power, now the government wants us to import coal and sell on exchanges to increase the volumes,” said Agarwal.

Experts say the current power shortage crisis can only be resolved if the discoms are directed to buy the costly power. It will also give confidence to lenders to enter into tripartite agreements with the gencos and discoms to lend working capital for import of coal.

Rahul Raizada, executive director, PwC India, said the profitability of gencos will not be hurt with falling exchange prices if the fuel charge becomes a pass through. In the absence of such a clause, the gencos will have to face several difficulties. “However, if the discoms refuse to buy the costly power then gencos can back down meaning no fuel will be burnt, thus causing no losses to the gencos. They are already covered on fixed charge changes,” Raizada said.

The power ministry on May 18 further directed gencos to place order for imported coal befor May 31 and start blending 10% coal to their requirement from June 15. If the gencos fail to do so, they will have to blend 15% of imported coal to their overall requirement, while their quota of domestic coal will get reduced by 5%.

Uttar Pradesh Rajya Vidyut Utpadan Nigam (UPRVUN), which runs four thermal generating plants, is still waiting for the government’s nod to import coal for its power plants. Not only that, the move by private gencos to import coal has also hit a roadblock, with the Uttar Pradesh Power Corporation (UPPCL) telling the independent power producers in the state not to go ahead with the initiative to import coal without its approval, which has landed the private players in a Catch-22 situation.

Speaking to FE, a senior official of UPPCL, an umbrella body of five discoms, said the matter is pending with the state government for its approval. “We are waiting for directions from the government. Only when we get the state government’s nod, we would be able to move forward on it and start issuing tenders,” he said. “The difference in cost of production with blended coal would be around Rs 1/unit, which would need to be factored in when the tariff is revised. The entire blending process would mean a cumulative cost of approximately Rs 12,000 crore on the consumers,” the official said, adding that for a state like Uttar Pradesh, where 89% of its consumer base is domestic, the pass through will be a challenge.

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