Much like the National Stock Exchange (NSE) helped investors discover better share prices with its electronic trading system, its new venture with commodities exchange NCDEX for the country’s second power trading platform will have several knock-on benefits for Indian consumers.
Consumers can look forward to their utilities procuring cheaper power over time, with better discovery of prices. And thanks to the ability to buy in a more vibrant trading environment, utilities can provide more reliable supply in cases when their longer-term power purchases fall short.
India faces frequent spurts in demand, especially from the farm sector at harvest and sowing time. It is also characterized by surplus power in some regions—such as the east, and hill states with plenty of hydropower potential— and big deficits in the more industrialized states, say, Maharashtra. Sudden demand can also come from, maybe, an industrial consumer who may have an urgent shipment to export, say, to China. At the same time, with erratic and short supplies, industry has been investing in captive power, but underutilized capacity in the absence of easy power trading hurts its business.
As of now, spot trading is 2-3% of the country’s electricity generation, while in the developed countries it can be 25%-plus. Electronic trading will lower transaction costs and ensure transparency— else trading on a bilateral basis means there’s no way of knowing if the deal could be bettered. It also gives more incentive for private generators to allot capacities to spot trade as they become confident about being able to sell-- and secure payments. Overall, there would be more liquidity in the electricity market.
But, for this market to be truly competitive, the other recent reform measure—open access in distribution that allows consumers to choose between multiple suppliers in Delhi—needs to be extended by all states. The Delhi move will allow large consumers— who use more than 1MW—to shift to another distributor offering better services. More private distributors entering the spot market as buyers will enhance competition. So, if all states catalyse open access for all consumer classes, the potential of all these developments can be best realized.
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