Higher Demand, Coal Crunch Send Spot Power Prices To Seven-Month High

Spot power prices rose to their highest since October last year on higher summer demand from states and shortage of coal at thermal power plants.

Average and peak prices of spot power at the India Energy Exchange so far for May stood at a record of Rs 4.2 and Rs 8.23 per megawatt hour, respectively. That compares with a peak price of Rs 5.23 a unit last year.

The average power demand in May has increased from 1,52,363 MW last year to 1,55,274 MW in 2018, said Rajesh Mendiratta, business development executive at the IEX. Gujarat, West Bengal, Bihar, Maharashtra, Rajasthan, Uttarakhand, Himachal Pradesh and Tamil Nadu are buying more power, he said.

Pankaj Joshi, managing director of Gujarat Urja Vikas Nigam Ltd., said power demand in the state is 16,000 MW but it’s not getting 2,000 MW from Adani Power Ltd. and 1,000 MW from Essar Power Ltd. as per the power purchase agreements. “On average, we are purchasing 30 million units per day from the spot market.”

Heads of distribution companies in West Bengal, Bihar, Maharashtra, Rajasthan, Uttarakhand, Himachal Pradesh and Tamil Nadu didn’t return BloombergQuint’s calls.

Joshi added that customers needn’t worry as the average purchase cost per unit of Rs 4.33 is nearly the same as that in the last quarter. “The peak demand for power in Gujarat was 16,110 MW on May 5, compared with 15,858 MW on May 26 last year,” Joshi said.

Thermal power plants, which contribute about 70 percent of power generated in India, have been facing coal shortage. The average coal stock across thermal power plants as of May was 15,200 metric tonnes compared with 17,719 metric tonnes a year ago. That has led to higher spot prices as well.

The impact on distribution companies will depend on contribution of spot power to their overall procurement, according to Girishkumar Kadam, vice president, and sector head of corporate ratings at ICRA Ltd. Discoms will have to pass on the increase through retail tariff, he said.

Higher prices will benefit power producers who sell in the spot market. But that’s likely to be a short-term gain. The spike in power prices is seasonal, and largely due to better demand in some states and coal supply constraints, said Kadam. High prices are unlikely to sustain and would remain at about Rs 3.5 a unit, given the surplus thermal power capacity, prevailing subdued utilisation and improving renewable generation, he said.