In a significant development, the Central Energy Regulatory Commission (CERC) in a suo-motu order directed power trading exchanges to cap spot prices. The order comes as the market clearing price (MCP) has been frequently hitting the ceiling of ₹20 per kilowatt hour (kWh) due to high demand amidst low supply.
The regulator in its order on Friday said in “public interest” it had asked power exchanges to cap the price at ₹12 per kWh .
It fears that as peak summer approaches, the scenario of high demand coupled with low supply, which is leading to price volatility, is likely to persist till May. The suo-motu action to regulate price volatility in markets comes after over a decade.
On April 1, the actual coal stock at power plants stood at 25.43 million tonnes, which is 38 per cent of the normative stock. The maximum demand met during the day stood at 198.48 gigawatts (GW).
Spot market volatility
The CERC has been monitoring prices of electricity traded in DAM and RTM at power exchanges. It observed that prices discovered have remained significantly high in the past few days.
Rising temperature with early onset of summer and economic activities gathering momentum with lifting of Covid restrictions have contributed significantly to the increase in electricity demand. On the other hand, the increase in supply has been limited. The situation has been aggravated due to geo-political factors affecting fuel supply and certain domestic supply constraints, it pointed out.
“This has widened the gap between demand and supply, with average buy to sell bid ratio reaching more than 2 and MCP frequently touching Rs 20/kWh. Needless to say, such abnormally high prices, even for a short period, without any significant increase in supply is not only against consumer interest but also erodes the buyer’s confidence in the market’s credibility,” CERC said.
Directions to exchanges
“The commission is of the view that this price moderation will be in keeping with the present market realities and shall not have any significant impact on the volume transacted and safeguard the consumer interests,” CERC order said. Exchanges have to comply with it within two days, beginning Friday.
The regulator directed trading platforms to re-design, with immediate effect, the bidding software in a way that members can submit their bids in price range of ₹0 per kWh to ₹12 for the Day Ahead Market (DAM) and Real Time Market (RTM).
Price movement
The regulator said that electricity demand has been increasing substantially in March and touched 199 gigawatts (GW) on March 17, 2022. Since then, it has been hovering around 195 GW. Against this increase in demand, on March 25, 58,719 megawatt (MW) of installed generation capacity was on outage due to various reasons wherein, 4,323 MW of thermal capacity was on outage due to coal shortage itself.
On March 25, the recorded peak shortage was 4,060 MW and energy shortage was 68.86 million units (MU). The high price of imported coal is leading to high variable charges for imported coal-based plants. Similarly, due to an increase in the international price of gas, the existing gas-based plants are not able to sell in the market, it added.
CERC pointed out that in the DAM at Indian Energy Exchange (IEX), the MCP of Rs 20 per kWh was observed in 31 blocks for a month beginning February 24. A similar trend has also been observed in the RTM segment where MCP touched Rs 20 per kWh.
“In the present stressed scenario, where demand at power exchanges is nearly double the supply volume, buyers are putting buy bids at the maximum of price range, Rs 20 per kWh, to ensure that their bids get cleared. This indicates a desperate buying scenario in the prevailing conditions,” it added.
Government monitoring situation at exchanges
On March 26, the Power Ministry in a communication with the regulator also expressed concern in this regard.
“..it is expected that this kind of demand-supply position is likely to persist for some more time with continuous increase in demand as summer intensifies and increase in supply not forthcoming until May when wind and hydro based generation are expected to come on stream,” CERC warned.