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With India bracing for a scorching summer, electricity spot prices will continue to surge in the near term, driven by both structural and seasonal reasons, Crisil Infrastructure Advisory said.
This comes against the backdrop of the India Meteorological Department’s summer temperature forecast of normal to above-normal and likely heat wave conditions over the core heat wave zone in India that spans 17 states—from Punjab in the north-west to coastal Andhra Pradesh in the south.
“The monthly market clearing price at the Indian Energy Exchange (IEX) has spiked 25% from Rs3.20 per unit in January this year to Rs3.97 in March, taking the average cost to Rs3.43. That’s a huge leap from the Rs2.50 average logged in the corresponding period of the past two fiscals. What’s more, monthly peak prices on power exchanges this year have averaged at Rs7.1, which is almost twice the levels in fiscal 2017,” the Crisil note said on Tuesday.
India’s coal-fuelled power projects have been facing low capacity utilization due to muted demand for a while and operating at a low plant load factor (PLF). PLF is a measure of output of a power plant, with a higher PLF indicating more output at a lower cost.
“We are staring at a huge problem because peak power deficit scenario is unlikely to improve anytime soon,” Vivek Sharma, senior director, Crisil Infrastructure Advisory, said in the statement. The price rise has been building up with the average market clearing price from December to February on IEX, rising 27-29% from a year ago.
Also, there was a spike in spot power market rates in August-October 2017 due to an unexpected slowdown in wind, nuclear and hydropower generation. This led to an unexpected surge in coal demand from power plants.
According to Central Electricity Authority (CEA), India’s apex power sector planning body, the country had a peak power shortage of 1.1% in February as compared to a peak shortage of 0.5% in February last year. Of India’s installed power generation capacity of 334,147 megawatts (MW), 58% or 193,821.50MW is fuelled by coal, making it the base load to meet India’s electricity demand.
“These include unmet and suppressed demand, no new thermal capacities announced in the past two years, and inability to meet peak demand because of mismatch with renewable energy generation curve and insufficient domestic coal supplies,” the statement said.
This comes in the backdrop of an uncertain outlook for the power sector, with the CEA earlier stating that the country’s current installed capacity and projects under construction are expected to meet the nation’s electricity demand till 2026.
“In light of a structural increase in spot power prices over the medium term, it is imperative that discoms realign their power procurement strategies,” Pranav Master, director, Crisil Infrastructure Advisory asdded in the statement.
Also, the Rs16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya), launched last year to provide electricity connections to over 40 million families in rural and urban areas by December 2018, will require an additional 28,000MW of power, considering an average load of 1 kilowatt (kW) per household for eight hours in a day.
“To boot, demand will surge afresh given an additional 4 crore households will be electrified over 2018 and 2019, and also because general elections and some state polls are imminent. Additionally, domestic coal supplies would come up short, which means continued dependence on imported coal, the prices of which are expected to stay elevated. This will only push the marginal cost of electricity further up,” Sharma added.
State-run Coal India Ltd on its part is confident of meeting the power sector’s demand and has set a target of mining 650 million tonnes of coal in 2018-19. The world’s largest coal miner, which accounts for 84% of India’s primary fuel production, will register a 2.52% or 14 million tonne increase in coal production for the current financial year to reach 568 million tonnes.
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