Captive power producers turn to exchanges

Fall in demand leads to historic slump in spot electricity prices

The historic slump in spot market electricity prices, triggered by an unprecedented fall in demand and the inadequate availability of domestic coal, has forced captive power producers to turn to exchanges for firing their end-use plants, something unseen in the Indian energy sector.

About a dozen companies, mostly in the cement, fertiliser, textile and paper sectors, are using the low spot-power prices to their advantage by shifting the energy mix of their manufacturing units. Experts say the rise in the number of captive power companies buying power from exchanges is triggered by stalled gas-based captive plants and lack of linkage coal.

“Owing to the price drop, companies are finding it economically viable to buy from the exchange. The rising participation from captive power companies has further boosted volumes, leading to higher competition and robust price discovery,” said Rajesh Mediratta, director (business development) at India Energy Exchange (IEX).

IEX is India’s largest power exchange, trading about 80 million units of power daily.

POWER PLAY

• Cement, fertiliser, textile and paper companies sectors, are shifting the energy mix of their manufacturing units
• More captive power companies buying power from exchanges due to stalled gas-based captive plants and lack of linkage coal
• Rising participation from captive power companies has boosted volumes, leading to higher competition and robust price discovery
• In 2013-14, RSWM has bought 13.4 million units of power a month from exchanges, compared with 8.6 million units in 2012-13

IEX says captive power companies that buying and selling power at the exchange include Hindustan Zinc, RSWM, JK Cement, Hindalco Industries and Shree Cement. “We are aware of the new trend. The reason is coal is not available under the linkage route. Coal India is supplying only 50 per cent of the needs of captive producers. Coal supply to new projects is blocked, and this a cause of concern,” said Rajiv Agrawal, secretary, Indian Captive Power Producers Association, which represents companies with about 45,000 Mw of captive capacity.

Consider the case of RSWM, the flagship textile company of the Rajasthan-based LNJ Bhilwara Group. The Rs 3,000-crore textile giant operates about 100 Mw of captive power production capacity in Rajasthan, including a 46 Mw coal-based power plant in Banswara district. At its captive plant, RSWM generates power at an average coal cost of Rs 4.20 a unit---coal cost (linkage and imported) of up to Rs 3.60 a unit and the cost of transmission losses and auxiliary consumption of Rs 0.6 a unit.

The company has, therefore, started bidding at exchanges to secure supply available at rates lower than Rs 4.2 a unit. This is possible as power prices have fallen to less than Rs 3 a unit on the regional periphery (a 23 per cent fall, compared to rates in 2012-13). “There are times when power sourced from exchanges comes at a lower cost than power generated at captive plants, even after paying transmission costs and levies of Rs 1.3-1.5 a unit,” said N K Bahedia, deputy chief operating officer (commercial), RSWM. “We are adopting the strategy to minimise energy cost to stretch viability of final products, enabling us to compete.”

This financial year, RSWM has been buying 13.4 million units of power a month from exchanges, compared with 8.6 million units a month in 2012-13. A senior executive from Hindustan Zinc confirmed the company had been actively buying power from the spot market to meet the energy shortfall at captive plants, which fire its smelters.

India generates 911 billion units of power a year. About 90 per cent of this is sold through long-term power purchase agreements, while the rest is traded in the short-term spot market, largely through IEX and Power Exchange India, and through licensed traders such as Power Trading Corporation. Average spot power prices have declined from a peak of Rs 5.5 a unit in 2008 to Rs 2.5 a unit.