Spot electricity prices on India’s power exchanges slumped about 25 percent on average in May from a year earlier, briefly hitting zero on May 25, as unseasonal rains lowered temperatures and cut power demand for cooling devices such as air conditioners.
India had projected a peak power demand of 266 gigawatts (GW) in May this year, but unseasonal rains and thunderstorms kept the peak demand low at 231 GW until May 26. Overall, India’s electricity consumption in May so far has declined at least 4 percent year on year (YoY).
Rohit Bajaj, Joint Managing Director of Indian Energy Exchange (IEX), which has a nearly 90 percent share of the trading volumes of all the three power exchanges combined, told Moneycontrol that the drop in prices is due to the surplus electricity available on the bourses. This simply means that more electricity is available for supply compared to the current demand – a situation rarely seen in India, where power demand is growing at a compound annual growth rate (CAGR) of around 6 percent.
Data shared by IEX with Moneycontrol showed that the real-time market segment, on May 25, recorded average day-hour prices of just Rs 0.56 per unit. In fact, near-zero prices were recorded in multiple time blocks (9:15 AM to 2:30 PM) that day. Overall, the average daily price dropped to Rs 1.53 per unit on May 25.
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For May, the real-time prices fell by 25 percent YoY at an average of Rs 3.56 per unit. A similar trend was also observed in the day-ahead market prices this month, where the average market clearing price reduced nearly 18 percent YoY.
Discoms opted for cheaper renewable power
The unusual oversupply of electricity triggered distribution companies to further engage in cost optimisation by choosing cheaper renewable power over thermal power. Besides, the low power prices came as a boon to the exchanges as trading volumes spiked, data for which was not available till the time of filing this report.
“These trends underscore the growing importance of the real-time market in providing discoms open access and C&I (commercial and industrial) consumers with the flexibility to procure power in near real-time and optimise costs amidst dynamic supply-demand conditions,” Bajaj said.
Power exchanges account for at least 7 percent of the electricity traded in the country, while the rest is through power purchase agreements (PPAs).
Govt reassessing this year’s peak demand
With the monsoon arriving sooner, the Ministry of Power plans to reassess its peak power demand projections for this year. The government had projected the peak demand to touch 270 GW this summer, with May and June flagged as “critical months” when power utilities were asked to carefully balance the demand-supply curves.
“So far, the power demand has been lower than our projections due to unusual weather conditions. We’ll review the situation with the Central Electricity Authority (CEA) and see if there are any readjustments needed,” said a senior power ministry official.
On May 27, IIFL Capital flagged that low spot prices could slow down renewable energy projects in the country. “If this trend persists, expect a slowdown in renewable energy power purchase agreements and capacity addition, as discoms wait for demand revival, having a cascading negative impact across the value chain of developers (execution delays, generation curtailment), solar cell-module manufacturers (adverse change in the domestic demand-supply equation), wind and transmission equipment suppliers (ordering slowdown), EPC players, financiers, etc,” the brokerage said.
However, power ministry officials said it is “too soon to make such conjectures”.
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