New Delhi: India’s apex power sector regulator has decided to review the 4-paise-a-unit cap on power trading margins and this, say analysts, could provide just the fillip the nascent power trading market in the country needs.
The Central Electricity Regulatory Commission, or CERC, said it is open to considering an increase in the margin.
“We had put in our affidavit in the court and that was our earlier position... This cap is very low. We may review the margin cap and the final decision may take three to four months,” said a senior CERC official who did not wish to be identified because of the ongoing court case regarding the margins.
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The regulator’s earlier decision on the cap, dating back to January 2006, is being contested by power trading firms in the Supreme Court.
According to CERC, the weighted average purchase price and sales price of power in 2007-08 were Rs4.48 a kWh and Rs4.52 a kWh, respectively. Of the 666.01 billion units (BUs) of electricity generated in 2007-08, 20.96 BUs, or 3.15% of the total, were traded. PTC India Ltd, NTPC Vidyut Vyapar Nigam Ltd, Adani Enterprise Ltd, Tata Power Trading Co. (P) Ltd and RelianceEnergy Trading (P) Ltd are among the companies that were active in the business that year.
PTC India, NTPC Vidyut Vyapar Nigam and Adani Enterprise were the top three power traders with a market share of 45.57%, 15.86% and 6.31%, respectively.
Commenting on the development, a chief executive at a leading power trading firm who did not want to be identified said, “It is a welcome step as the market can only develop with the licences being given space to operate, with some regulatory oversight, specially for erring licensees who charge very high margins.”
Though 42 power trading licences have been issued since 2004, only 13 of the licensees actually traded in power in 2007-08, according to CERC.
PTC India has tried to work around the problem by importing coal and taking stakes in power projects, as reported by Mint on 18 April 2007 and 12 February 2007. Two of the 42 licensees, Jindal Steel and Power Ltd and GMR Energy have exited the business and their licences have been cancelled.
Madanagopal R., an equity research analyst at Centrum Broking Pvt. Ltd, said: “There was a concern in the market that this trading cap could have been further reduced. The power trading companies would be proportionately benefiting from the direct increase in trading cap. This a huge positive for companies such as PTC as a majority of their trading volume is going to come from long-term power purchase agreements.”
Graphics by Sandeep Bhatnagar / Mint