NTPC to step up sale on power exchanges

To increase spot sales and share benefits of lower price with cash-short discoms

NTPC, the country’s largest, state-owned electricity generator, is pushing sales in the spot market through a different model.

It says it will increase its portion of sale on power exchanges and share the benefit with the respective power distribution companies (discoms). This could also lead to rate reductions.

As prices in the spot market have dipped to as low as Rs 2 a unit, this is becoming attractive for the cash-short discoms. More and more of them are choosing this market over the long-term power purchase agreements (PPAs) with generators.

The price of power in the spot market is around half of that in PPAs. NTPC plans to share the discount available in the spot market with the discoms. “In most cases, it would be 50:50. With some states, it could be more or less, depending on how much power they procure from us or the price,” said a senior NTPC executive. “This saves a lot of money for the discoms. They will not only get cheaper power but the discount arising from it. We get both power sale and payment surety.”

The amount of power it sold on the exchanges has increased to 26 million units this month, from eight mn in June 2016. Total generation last month was 186.55 billion units.

With 48,000 Mw of generation capacity, NTPC also has close to 20,000 Mw of coal-based plants under construction, with PPAs for most of these. However, as the state-owned discoms are financially beleaguered, they either procure less or there are payment backlogs. This impacts the plant load factor and revenue of power stations.

The increasing risk in long-term power sales is pushing developers to sell in the spot market – as reported earlier, at half of what they quote in bidding for PPAs. Instead of complete shutdown due to lack of demand from the states, they are trying to recover at least the variable cost by selling in the open market. While that quoted in long-term PPAs has touched Rs 3.9-5.5 a unit in the past three years, the spot rate has gone down to Rs 2.16 a unit in the same period. The day-ahead spot market is three per cent of the total power market but sets a benchmark for medium-term and long-term power rates.

“The demand-supply gap is widening. Hence, states need to have a strategic approach to buy spot power during their (discoms’) restructuring. It will help them manage cash flows better, reduce transmission losses,” said a Delhi-based expert.

NTPC’s new approach is also in line with its plan to have spare capacity as the share of renewable energy increases in the power basket. Thermal power acts as the balancing power, to make up for vagaries in renewables. The current PLF of NTPC is 78 per cent, way above the national average of 65 per cent.

However, as the share of renewables increases, the average PLF is estimated to go down to 55 per cent, estimates the Central Electricity Authority in its National Electricity Plan (2017-2022). The assumption is based on a record share for renewable power and that the country would not need any more coal-based capacity addition till 2022.