States ready to pay to meet peak demand, but where are the power sellers?

Demand-supply mismatch has been the nature of Indian power sector with seasonality playing a huge role. In current times, the situation is more precarious with demand registering a healthy, if not laudable growth, while supply options are shrinking.

The current installed power generation capacity in the country is 300,000 Mw. There are 40,000 mega watts of privately-owned coal-based power plants which are on the verge of sale or are set to land in insolvency courts. Not that any were fully operational for couple of years, but as they battle financial woes, the operations will suffer further. As per government data, 80,000 MW of power generation capacity across energy sources is under outage. Of the operational capacity, the average plant load factor (PLF) across India is 60 per cent.

There are 14,000 mega watts of gas-based power units that are shut and another 8,000 Mw functioning at 40 per cent PLF. The peak supply period of hydro power is nearing end. At this juncture, the maximum bid price in the spot market touched Rs 12 a unit.

While spot power trading is barely three per cent of the total power market, it is used as an indication of the trend in the sector.

The high price quoted indicates low supply rather than high demand. The states are ready to pay to meet their peak demand, but there aren’t any suppliers. Against the purchase bid of 10,000 Mw, the supply bid was 6,000 Mw on Monday morning with the final average clearing price of Rs 6 per unit.

The festive season in the states have commenced especially in north and western India. At the same time, the state run units are functioning at 40 per cent PLF, owing to at times shortage of coal and high operational cost.

This leaves the major supply of power on to state owned NTPC Ltd., to which also states are reluctant to pay in time. NTPC which is running its 50,000 MW capacity at an average PLF of 67 per cent. The average tariff of NTPC is Rs 3.5 per unit. But the financially beleaguered state power distribution companies only pay the fixed cost portion of the tariff to honor the long term power purchase agreement with NTPC. And in times of dire need, shift to short term measures like spot market, where prices shoot up with the demand.

Most of the private power units which don’t have any long term PPA with any state or those that have spare capacity sell it as merchant power in spot market. This trend also slipped due to low returns and intermittent demand.

The Rs 12 per unit quoted today in the spot market will ween off in a day but the question over the mismatched demand and supply would continue to linger. The answer lies in fixing the power distribution system in the states but it is the same place where four reform schemes died.