The Central Electricity Regulatory Commission’s (CERC’s) proposal to adjust the rise in short-term power prices by capping the sale price has evoked mixed reactions from various quarters including the power industry, exchanges and experts.
CERC, in its consultation paper dated June 6, has proposed to cap the sale price at Rs 5 per unit to be applicable only for portfolio sellers and coal, lignite and hydro-based plants as they are making abnormal profits. This will not be applicable to any generation based on liquid fuel or gas. The commission has also proposed a uniform price cap based on the most expensive type of fuel, to be applicable to all types of generators based on coal, lignite, hydro and gas. It would also apply to both short-term markets and power exchanges. The size of the short-term market is only 3-4 per cent of the total generation. In absolute terms, it is valued at orders worth Rs 15,000 crore.
CERC Chairman Pramod Deo explained that the purpose of the consultation paper was to discuss what could be done about the present situation and to set the principles and create framework for any limited and temporary market intervention by the regulator in case of any compelling situation.
State distribution companies, in particular, have by and large welcomed the proposal on the grounds that the financial health of power-deficit states was impacting due to higher prices in the short-term market.
At the same time, they said power-surplus states and generators had been making abnormal profits, which CERC needed to regulate. “Prices in the short-term market need to be capped. According to CERC data for 2009, average short-term power prices in the trader market was Rs 6.41 per unit, and Rs 5.73 per unit on power exchanges,” an official of MahaVitaran, Maharashtra’s power distribution utility, told Business Standard.
On the other hand, an independent power producer, on condition of anonymity, said the capping of prices would be detrimental to attract new investments in the power sector. “In fact, because of a very high price in the short-term market, many entrepreneurs have entered the electricity business and, therefore, a number of power plants have come up,” he said.
Former power secretary R V Shahi said: “There is a correlation between the rate at which electricity is transacted under an unscheduled interchange (UI) and through trading and power exchanges. As long as the UI rate is high, we cannot expect that the rate under trading dispensation, particularly during peak hours, will be very different. Any capping effort may not bring the desired results. For better results, we need to bring larger amount of power into the trading category.”
“This will be possible provided regulatory commissions particularly in the states facilitate it to happen and transmission agencies allow open access without being too cautious about safety margin of the grid,” he added.
The Indian Energy Exchange (IEX) and Power Exchange India (PXI), which are currently engaged in day-ahead power transaction, noted that the prices at the exchanges in the absence of a price cap since January were in the range of Rs 2 and Rs 3.50 per unit.
An IEX official, however, observed that the capping of price might dampen new investments. He suggested that prices would remain in the acceptable band if there were more players and more power available.
Further, a PXI official said prices on exchanges would not vary much except for a demand-supply mismatch. Against the rate of Rs 5-6 per unit in bilateral power transactions, it remained in the band of Rs 2 to Rs 3.50 per unit on exchanges.
D Radhakrishna, a power analyst, said that putting up the price cap and denying open access on flimsy grounds were upsetting proper market development.
“The fact that the prices which were around Rs 6.41 per unit during election year have fallen almost to Rs 2.50 per unit on a day-ahead market operated by power exchanges, which has forced the number of distribution companies to cancel their orders,” he added.
