 "Can Rajasthan show the way on power reforms?")
The price discovery for power through the recent e-auction mechanism has been lower than the bilateral power trade prices, thus pushing down reference prices for short-term power tariffs, says India Ratings and Research (Ind-Ra). Bilateral markets are a playing ground for large power traders and they provided a reference price for majority of the short to medium term price assumptions.
Ind-Ra, in its report released today, notes that the power tariffs in the e-auction compares quite favourably with the all India average price of Rs 2.91 per unit in April 2016 on the Indian Energy Exchange, with the bilateral all-India weighted average price of Rs 3.90 per unit in March 2016 and with the average power purchase cost for the distribution utilities (discoms) in the respective states.
Till date four utilities have procured power through the reverse eauction route, namely Kerala State Electricity Board Limited (KSEBL) at an average tariff of Rs 3.23 per unit, Torrent Power Limited (TPL) at Rs 3.02 per unit, Uttarakhand Power Corporation Limited (UPCL) at Rs 2.80 per unit and Bihar State Power Holding Company Limited (BSPHCL) at Rs 3.30 per unit. TPL emerged as the largest bidder in terms of quantity since it procured power over the longest time period, between May to October 2016.
In the current round of auctions, the procurers had the option of either requisitioning round the clock power (RTC) or power under different time slots. Most of the states needed different quantities under different time slots, while UPCL had two bids for supply of RTC power at tariffs of Rs 2.69 per unit in August 2016 and Rs 2.66 per unit in September 2016 which again compares quite favorably with the weighted average RTC price of Rs 3.97 per unit during March 2016.
Additionally, under the short term bidding guidelines for the reverse e-auction, the tariff quoted is a single part tariff unlike a two part tariff consisting of fixed and variable costs. According to Ind-Ra, given the large fixed charges that distribution companies end up paying on the basis of availability and their weak financial health, they had been wary of singing a two part tariffs and were keen to sign a single part tariff.
Ind-Ra associate director (corporates) Vivek Jain says that in the event the e-auction platform emerges as the most efficient mechanism for price discovery, bilateral trade prices may track the e-auction prices. The decline in bilateral power prices can impact the credit profiles of independent power producers (IPPs) with untied capacities which were trading through the bilateral route earlier.
The other critical aspect of the e-auction tariff is that it is quoted by the IPPs at the delivery point of the respective state periphery of the procurer and hence includes the costs that the IPP will have to bear including intra-state open access charges, transmission charges, point of connection injection charges and losses. Therefore, the net realisation to the IPP will be lower, which highlights the fact that the power market continues to be a procurers market and low net realisation for the IPPs can impact their cash flows. In fact leveraged IPP's may need to look for refinancing of debt.
Currently, the reverse e-auction is applicable on short-term power purchases (period of more than one day but less than one year) but consequently, due to the success of this method of bidding, the government may introduce the e-auction mechanism even for the purchase of medium to long term power.
