Financial Daily from THE HINDU group of publications
Sunday, Aug 15, 2004
Financial Daily from THE HINDU group of publications Sunday, Aug 15, 2004 |
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Investment World
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Industry Analysis Industry & Economy - Power Trading power on the lines Raghuvir Srinivasan
PTC, a joint venture of NTPC, NHPC, Power Grid Corporation and Power Finance Corporation, started off by trading 43 million units in 2000-01 and a loss of Rs 2.51 crore. By 2003-04, its trading volumes went up to 11,000 million units and profit to Rs 32 crore. And the company has only scratched the surface. It holds 80 per cent share of a 15 billion units trading market. There are about half-a-dozen players in power trading today, with the major ones being NTPC Vidyut Vyapar Nigam, Adani Power Trading and the trading subsidiaries of Tata Power and Reliance Energy. Power traders thrive from imbalances in the system caused by excess demand or supply in specific regions. The trading business received a leg up from the Electricity Act 2003 which permits open access to transmission systems. But the catch is that there is not enough inter-State transmission capacity for short-term transmission. Transmission capacity creation, historically, has been generation-based. But for minor opportunities in the short-term, there is little scope to use these systems for long-term power trading contracts. The redundancy that Power Grid has built into its existing systems can only take so much more load. What is needed for power trading to take-off in the long term is planning for transmission systems with extra capacity built into it that can be used by traders. But for Power Grid to build such a system, it would need the security of a long-term agreement that will ensure the utilisation of the network. This will be possible only when power traders get into long-term agreements with sellers and buyers of electricity.
PSM is critical
Payment security mechanism (PSM) is a critical aspect of the power trading business. PTC takes care of this through Letters of Credit or fixed deposit receipts from buyers now but as the business matures, more robust models have to be implemented such as a charge on the incremental revenues of the buyer.
Competition
The entry of majors such as NTPC and Tata Power will electrify competition, though PTC will retain the first-mover advantage for the time being at least. The advantage that the two new entrants enjoy is their entrenched status in generation capacities. NTPC produces some of the cheapest thermal power in the country and its average selling price for coal-fired stations was just Rs 1.27 per unit in 2003-04. Though the cost of power from its new stations would be higher than Rs 2 per unit, the benefits of averaging will enable the company to supply power at lower prices. This will be a major advantage in a competitive bidding environment towards which we appear to be moving in the near future. The trading arm of NTPC will come in handy for this purpose. As the business matures, concepts such as take-or-pay will be introduced and trading margins (PTC's margin is 5 paise a unit now) will get thinner. There are also plans for starting a power exchange in the country for free trading of power by sellers and buyers. Of course, this will take some time as, at present, there is no on-line connectivity between the various intermediaries.
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