Two of the past three years have seen spot electricity prices climbing to their highest annual levels in the month of September. After removing the yearly high filter, prices in the months of September and October this year were generally above the annual averages in the previous five years. Beginning the monsoon season, thermal plants see maintenance shutdowns. As the monsoon rains gather pace, hydro and wind power generation is expected to pick up pace, offsetting the thermal power plants’ maintenance shutdowns.
However, as weather patterns change, this arrangement is increasingly being undermined. For instance, August-October last year saw lower wind power generation. Nor was hydropower generation up to the mark. Add to this concerns about sufficient availability of domestic coal, and electricity prices rose in September 2017.
The rise has been sharper this year. Prices have doubled in just two weeks. The paucity of rains and general rise in temperatures, and festive demand are said to have driven up the prices in the spot electricity market on the Indian Energy Exchange.
But the price rise this time was also preceded by a supply side shock. The latest capacity availability report (as of 5 September) from the Central Electricity Authority (CEA) shows a sharp rise in capacity under maintenance, which went up from 23,195 megawatts (MW) last year to 89,826MW this year.
As a consequence, the available capacity dropped to 184,159MW by the first week of this month from 247,583MW last year. That is barely 7.7% higher than the 170,976MW peak demand the country clocked last month. In short, seen together, the data shows tightness in the demand-supply situation.
What explains this? One has to wait for more data giving details of the plants that have seen shutdowns. Even so, CEA’s recent numbers show a sharp rise in forced plant shutdowns (other than the ones that are planned). As of the first week of September, 63,646MW were under forced shutdowns, compared to 19,546MW a year ago.
According to analysts, the sharp depreciation in the rupee and the rise in international coal prices have forced plants running on imported coal to crimp generation or declare outage to contain cost under-recoveries or working capital pressures. Most of these imported coal-based plants are situated in the coastal regions of the western and southern parts of the country, impacting supply in the region. This forced the respective power distribution companies to step up purchases from the spot electricity markets, driving up prices.
Companies with access to cheaper domestic coal, spare generation capacity and access to market (transmission access in western and southern regions) will benefit from the situation. However, few are as lucky. For example, JSW Energy Ltd has untied generation capacity. But the company’s plants are dependent on expensive imported coal, which can crimp gains.
More importantly, the frequent spike in spot electricity prices indicates the vulnerability of the country’s power sector.