Short-term power rates drop ahead of polls

Slump 20 paise a unit after Gujarat's ban on supply from outside the state

Short-term sales on power exchanges have slumped 20 paise a unit, or seven per cent  in the past week, following Gujarat’s ban on purchase of power generated outside the state.

Gujarat said such supply was clogging its sparse transmission infrastructure. As fewer people sought to buy power, exchanges saw a slump. This, however, is expected to be a short-term technical glitch. “I guess the issue should get sorted in the next seven to eight days. However, sales of as much as 300-400 megawatts were impacted,” said S N Goel, chairman of Indian Energy Exchange, the largest in the country.

Short-term sales are only a small percentage of the total electricity produced and sold. Distributors procure power mostly through long-term sales, under contracts that last for decades. However, many generators have tried to save on long-term sales to sell in the open market, in the hope of getting better prices. JSW Energy and Jindal Steel and Power (JSPL) are some of the companies that have more than 40 per cent of their power yet to be tied up in long-term contracts.

Power sales were already much lower than expectations, at about Rs 3 a unit. This is despite the fact that campaigning for general election is in full swing, which should have increased uptake.

The previous elections had sparked a boom for short-term power, also called merchant power. These went as high as Rs 10 a unit, since distribution companies wanted to ensure minimal power cuts during elections. “The state distribution companies are not buying electricity like they did in the last elections,” Goel observed.

Besides, state distribution companies are currently in huge debt and in the process of restructuring and reviving up their operations. This explains their lack of interest in buying more power than they had contracted.

Power sales have not been dramatically impacted by demand for political rallies and meetings, organised by hopeful candidates. “It is not making much of a difference to us. The major buyers have always been state distribution companies, and their purchases could have made a difference,” said the head of a power company.

While there is no sign of a boost in power sales thanks to the elections, an unduly cooler summer also doesn’t help much. “If temperatures soar, it might make a difference but as of now it is slow,” said Goel.

Last year, merchant power rates were trading at Rs 3.50 a unit. The slower sales of merchant power is also because as much as 15,000 megawatts of generating capacity was added in the past year.