MC Exclusive | Govt lowers price cap at power exchanges to Rs 10 per unit

All distribution transformers will have to be metered by March, 2024: RK Singh

The price ceiling for the trade of electricity in the power exchanges has been reduced from Rs 12 per unit to Rs 10, Minister for Power and Renewable Energy, RK Singh told Moneycontrol in an interview.

The new price cap of Rs 10/kWh is applicable across all market segments, except for the high-price market where expensive power is traded. Besides, the Central Electricity Regulatory Commission (CERC) has also slashed the price ceiling for the high price day ahead market (HP-DAM) from Rs 50/kWh to Rs 20 per unit, the latest CERC order accessed by Moneycontrol showed. Both the revised price caps came into effect on April 4.

Power exchanges currently constitute 7 percent of the total electricity consumption in India in terms of billing

When asked about power tariffs being increased across most states this year (electricity is a concurrent subject as per the Indian Constitution), Singh said tariffs in India remained level during a time when all other countries were struggling with a high cost of electricity due to an increase in gas prices because of the Russia-Ukraine war.

“In fact, I have brought down the price ceiling in the power exchanges from Rs 12 to Rs 10 per unit. A year ago, the same price cap was Rs 20. If the cost of generation is, let's say Rs 2.5 per unit, why should you sell for Rs 12 or 20? So, this will ultimately help in keeping power tariffs low even when the demand rises in the coming months,” the minister said.

The timing of the order is significant because temperatures have begun to rise, resulting in a surge in power demand. As electricity consumption increases, the trade volumes in the power exchanges also go up to cater to the high demand. The reduction of prices will not only result in lower power costs for the buyers (discoms, states, power utilities) in the bourses but will also impact in levelling of tariffs in the power bills of end consumers.

On December 28 last year, CERC extended the Rs 12-per-unit price ceiling in all the market segments of power exchanges till further orders. Back then, HP-DAM was not launched and the segment was later rolled out on March 10 this year. The price ceiling of HP-DAM until last month was Rs 50 which has now been reduced to Rs 20.

“In high demand situation, there are possibilities of buyers paying abnormally high prices, even when the cost of generation by infra-marginal producers is not that high... Therefore, the commission in the public interest, directs all the power exchanges to re-design their bidding software for the period from 04.04.2023 until further orders, in such a way that the members can quote the price in the range of (a) Rs 0/kWh to Rs 10/kWh for all contracts, viz., DAM (including GDAM), RTM, Intra-day, Day Ahead Contingency and Term-Ahead (including GTAM); and (b) Rs 0/kWh to Rs 20/kWh in the HP-DAM segment,” read the CERC's latest order issued on March 31.

“This in our view would reduce the cost of power for the buyers, while providing an opportunity to the high-cost generators and the willing buyers to participate in the HP-DAM market,” it added.

In April last year, the CERC revised the ceiling on spot power from Rs 20 per unit to Rs 12 per unit, which was applicable till June 30. The same cap was extended from July 1 to September 30, and later it was extended for the second time from October 1 to December 31. Then on December 28, the ceiling of Rs 12 was extended again until further orders.