Power prices on exchanges rise as soaring temperatures lift demand

Electricity prices have increased (Hindustan Times)
Electricity prices have increased (Hindustan Times)

Summary

  • As India approaches peak summer demand, heatwaves have caused a spike in prices of electricity

Power prices on exchanges have jumped by a fourth in just a month, as persistent heatwaves force homes and offices across the country to run power-guzzling cooling systems for longer.

On Thursday, electricity traded at 5.8 per unit on the Indian Energy Exchange (IEX), up from 4.6 a month earlier. Last week, prices had touched 6.7 per unit. In April, the exchange saw 9,044 million units traded, 14.1% more than a year earlier.

Peak power demand rose from 201 GW at the end of March to 224 GW on 30 April, data from Grid Controller of India showed. The Central Electricity Authority (CEA) expects it to touch a record 260 GW this year, amid rising cooling demand in a blistering summer. The India Meteorological Department (IMD) on Wednesday said that the ongoing heatwave would continue in the next few days.

Sabyasachi Majumdar, senior director at CareEdge Ratings said: "In case of stable economic growth, power demand in the country is expected to grow at the rate of 6-6.5% in FY25. However, aberrant weather conditions such as poor monsoon, extremely hot summer or cold winters can create spikes in demand."

Thermal power companies have sufficient coal stocks to meet demand, unlike the situation a couple of years ago when stocks had dwindled. However, rising demand spells financial strain for power distribution companies, which are forced to buy extra power at higher costs from exchanges, but cannot increase tariffs accordingly.

IEX data also showed more buyers clamouring for power. On Thursday, purchase bids crossed sell bids, reversing the trend from a month ago. On Thursday, purchase bids stood at 266,624.12 MWh while sell bids were 229,535.53 MWh. On 2 April, purchase bids were lower at 232,659.82 MWh, while 271,554.83 MWh of power was up for sale.

"Prices have been rising on the exchanges and today they were around 5.76 per unit and they will rise further as the demand grows. Gencos are prepared as government has directed them to make adequate tie-ups for coal and gas (in case of gas based gencos). Apart from purchase on exchanges, discoms are also tieing up more for short term purchases on the DEEP portal compared to last year," said an official with a state-run genco in condition of anomymity.

Meanwhile, a persistent heatwave may keep demand elevated until monsoon rains begin to cool the country. The India Meteorological Department (IMD) on Wednesday said heatwaves will continue over the next few days. Maximum temperatures of 44-47 degrees Celsius may prevail over Gangetic West Bengal, east Jharkhand, north Odisha and Rayalaseema till 3 May, gradually decreasing thereafter. Heatwaves are predicted over Telangana, interior Karnataka, coastal Andhra Pradesh, Yanam, Kerala, Konkan, Maharashtra and Gujarat. Karnataka will also face severe heatwaves during the next 4-5 days, it had said.

The IMD said East India will experience heatwave for the next three days. Also, a red alert has been issued for severe heatwave conditions in Gangetic West Bengal for three days and in Odisha for two days. The weather office had earlier said that 2024 may turn out to be the hottest year for India, surpassing temperatures recorded last year.

After the panic in 2021 and 2022 over falling coal stocks, the government has taken several steps in 2024, which also happens to be an election year. All thermal power stations must blend 6% imported coal till October. Further, all imported coal-based power plants which did not operate at full capacity due to high global prices of coal must also run at full capacity till September.

Local production and supply of coal has also increased, leading to comfortable stocks of the fuel at thermal plants. Power plants running on domestic coal have total stocks of nearly 48 million tonne, which is adequate for around 16 days of operations.

In a recent interview, Union coal secretary Amrit Lal Meena said: "There would not be any major depletion of coal stock and it would be adequate to meet the rising demand even with the temperatures rising. Our target is to have at least 40 million tonne of coal at the plants by 30 June, and we are well on the way to meet that requirement."

Meanwhile, capacity addition has gained momentum, primarily in thermal power, despite the government's green push. In FY24, India added a total of 25.69 GW power generation capacity, 54% higher than 16.6 GW in the previous fiscal. A total of 5.75 GW of thermal capacity was added in FY24, from 1.25 GW in FY23.

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