CERC cap on price of power may lead to grid instability

CERC cap on price of power may lead to grid instability
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First Published: Thu, Sep 04 2008. 01 31 AM IST

Current situation: About 7-8% of the total power produced in the country is traded in short term. Rajeev Dabral / Mint
Current situation: About 7-8% of the total power produced in the country is traded in short term. Rajeev Dabral / Mint
Updated: Thu, Sep 04 2008. 01 31 AM IST
New Delhi: Private power producers may be able to find a way around a proposal by the Central Electricity Regulatory Commission, or CERC, to put a price cap on the short-term sales of power generated by hydroelectric and coal-fired plants.
Electricity producers could take recourse to a route called the unscheduled interchange, or UI, the difference between the actual generation and the scheduled generation from a power project for a particular period of time.
Current situation: About 7-8% of the total power produced in the country is traded in short term. Rajeev Dabral / Mint
The regulator has proposed a cap of Rs6 per unit on sale of power between the peak hours of 6pm and 10pm, and Rs5 for power drawn in off-peak hours, as reported by Mint on Wednesday.
To bypass the cap, private power producers, including captive and merchant power projects, or MPPs, that generate electricity to sell on the open market, would not supply power on a short-termbasis. Instead, they would produce unscheduled power, channel it to the national grid and earn Rs10 per unit of UI that has been fixed by the regulator.
The catch is that unscheduled electricity generated and fed into the national grid could promote the tendency of state electricity boards to draw extra power and expose the grid to the risk of collapse.
“Why will there be any short-term sale if the tariff is capped at Rs5 per unit? It makes more sense for a developer to sell that power through the UI route as there is always a shortage of power. It is already happening and by doing this there will be a surge of UI power,” said the head of a power trading firm who didn’t want to be named.
While earlier there was a huge difference between the volume of short-term power sales and UI sales, the volumes have narrowed and have become comparable at around 25 billion units per annum each.
It is for the so-called regional load dispatch centres, or RLDCs, to collect UI charges from states and make payments to generation firms. RLDCs are also responsible for maintaining grid discipline and supervising optimum scheduling and dispatch of electricity in their region. At present, there are five regional grids in India—northern, southern, eastern, north-eastern and western.
Even the regulator is aware of this route being exploited and has mentioned in a paper that, “The distribution utilities may be tempted to avoid bilateral trading or sale through power exchange and prefer to sell power under UI mechanism through withdrawal. This would defeat the purpose of price ceiling. Increased unscheduled flows could pose problem of grid security.”
The paper also says that, “the sellers in the bilateral market may resort to discriminatory methods in selecting buyers.”
The volume of electricity traded in short term, through power exchange and through UI mechanism, is in the range of 7-8% of the total electricity generation.
Though India has total installed capacity of 143,000MW, the actual generation is around 100,000MW.
“This implication has been highlighted in the staff paper. However, grid codes put restrictions on overdrawing and underdrawing. Even then this concern, to some extent, is valid. There may be some requirement of tightening of overdraw limits under UI,” said a senior CERC official, who didn’t want to be named.
Due to the scarcity of power supply, overdrawal of power by states has become a cause of concern. As a result, CERC had recently increased theUI rate from Rs7.45 per kWhto Rs10 per kWh when the grid frequency goes below theleast permissible value of 49Hz. It is this rule that the developers could exploit to their benefit.
“This will affect all projects selling in the power market including MPPs and the captives. It is an extremely retrograde step and will send wrong signals, seriously affecting price formation in the power market,” said Anish De, chief executive of Mercados Asia, an energy consulting firm.
“It may also lead to consequences such as high unscheduled interchange trading which beyond a point can lead to compromising of the grid security,” De added.
So-called grid frequency is a critical aspect of power system operations. Global standards require that grid frequency be kept as close to 50Hz as possible, but power-short India has had a history of frequency fluctuating from below 48Hz to above 52Hz, leading to innumerable grid collapses in the 1980s and 1990s.
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First Published: Thu, Sep 04 2008. 01 31 AM IST