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MUMBAI : Power utilities and energy companies are turning to public power trading on account of better prices and increased efficiency in delivery schedules. Data from India’s two energy exchanges show that after the pandemic, the shift to power trading has remained strong, with volumes growing every month.

Indian Energy Exchange (IEX) reported trades of 6,769 million units (MU) in February, registering a 50% growth from a year ago. The day-ahead market traded 5,124 MU and grew 19.5% in February.

In February, the average monthly price was 3.39 per unit, an increase of 16% driven by a sharp spike in demand from several states. The real-time market, which was launched in June 2020 and delivers power to buyers with just 1.5 hours of notice, crossed 1 billion units of monthly trades for the third consecutive month in February on IEX.

Volumes on the term-ahead market (contracts for electricity delivery from three hours up to 11 days) at Power Exchange of India Ltd touched 480.38 MU in February, growing 16 times from the 29.47 MU traded a year ago.

The average traded power prices up to February, according to brokerage firm Jefferies, was 2.7 a unit, down 10% compared to the same period in FY20. Low traded power prices are an incentive for power distribution companies (discoms) to buy incremental power from the exchange, which has boosted volumes.

“Power demand has increased in the past five-six months and discoms, especially, have been using the exchange to buy power, where prices have averaged lower than some of their long-term power purchase agreements (PPAs)," said Nitin Bansal, associate director, India Ratings and Research.

“Public data shows that discoms owe over 1.3 trillion in unpaid dues to power generators, who in turn, have been regulating the power despatched under PPAs until at least part of their dues are cleared. So, turning to the exchange is one way to meet a supply shortfall," he added.

The Atmanirbhar relief package for discoms, offering up to 1.25 trillion, was expected to reduce the overall dues of discoms. However, disbursements, which come with conditions such as modernizing electricity metering and reducing power theft, have been much slower than anticipated as discoms struggle to implement these changes.

The inability of states to avail loans under the package may keep the outstanding dues high for a long time, making them more dependent on exchanges to keep up with consumer demand.

“I think generating companies restricting power sales under PPAs and the fact that several large states like Tamil Nadu, West Bengal and Kerala are heading towards elections soon, a time when state government-run discoms will not want to impose power cuts, mean power demand will remain stable in the short-term," Bansal said.

Eventually, a thriving exchange market for power may encourage power developers to build capacity exclusively for merchant sales (over the exchange) and not seek long-term PPAs.

“We are seeing a lot of discoms sell surplus power on the exchange and good traction from industrial customers. As more and more time-bound PPAs come to an end, states may feel more comfortable coming to the exchange and back down from expensive long-term agreements," said Rohit Bajaj, head - business, IEX.

“We are seeing a lot of queries from power developers on how they can add some generation capacity exclusively for merchant sales along with PPA-tied up capacity and gain from price fluctuations on the exchange," he added.

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