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Electricity prices in the spot power market fell to record lows in 2015. Last month the market clearing price on the Indian Energy Exchange Ltd (IEX) averaged at Rs.2.56 per unit (kilowatt hour), down from Rs.2.67 in November and Rs.3.03 in October.
For the full year, the prices averaged at Rs.2.82 per unit. In 2014, they were at Rs.3.59. The last time the yearly average prices fell to such low levels was in 2013, when they were at Rs.2.83 per unit. Prices were depressed for most of 2015. Only two months of the last year saw prices averaging above Rs.3 per unit. In 2013, though, per-unit prices remained above Rs.3 for five months of the year.
Three factors are driving prices lower. One is the falling coal cost, which is allowing producers to offer electricity at lower prices. The second is easing congestion between the south and the rest of India. Increased generation in the region (some gas power plants have restarted) and better availability of the transmission corridor led to a sharp drop in peak power tariff in December, IEX pointed out.
“In the South, the highest average price was Rs.3.10 per unit, 20% lower than Rs.3.87 per unit in the previous month,” IEX said in a statement. The third and most important factor is demand—it reflects the deceleration in electricity generation growth and sub-optimal utilization of power plants. Production growth slowed to 4% in the nine months to December 2015. During the same period, generation grew 10% in 2014 and 5.5% in 2013.
Indications are that spot electricity prices will remain depressed for some time. The government’s efforts to revive the troubled state electricity boards—the biggest buyers of electricity in India—will take time to show results. Even if it succeeds, the power sector will need a demand pull from the economy, which at present shows few signs of revival.
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