NEW DELHI: Even as India braces for record electricity demand this summer, power prices on exchanges recently slumped to zero in multiple trading sessions. The sharp fall has highlighted a growing challenge for India’s power sector: managing rising solar generation in the absence of adequate storage capacity.
The trend has implications for renewable energy developers, power distribution companies and grid managers. Mint explains.
Is it common for power prices on exchanges to touch zero?
Power prices on the real-time market (RTM) of the Indian Energy Exchange (IEX) hit zero for the first time on 1 May. Prices had earlier fallen close to zero on several occasions over the past year, including on 25 April this year. After 1 May, prices again touched zero on 15 May during 2.30-4.30 PM.
While such instances are still uncommon, the frequency of extremely low prices has increased in recent months. Even when prices have not fallen to zero, they have dropped below ₹1 per unit on multiple occasions, largely during the peak solar hours. Although such instances are rare and new to India, similar trends have been witnessed in several other countries where the short-term market is deeper and a greater share of the national power trade takes place through the exchanges.
Why are power prices falling so sharply?
The biggest reason is a surge in solar power generation during daytime hours, when supply is often far higher than demand.
India’s installed solar capacity has risen sharply over the past few years and currently stands at 154.23 GW. However, battery and energy storage capacity has not expanded at the same pace, limiting the ability to store excess daytime power for later use.
Renewable energy projects are also classified as “must-run” projects, meaning their power cannot usually be curtailed except for grid security or safety reasons. At the same time, weaker demand due to milder weather or lower industrial consumption can further widen the mismatch between supply and demand, pushing exchange prices sharply lower.
What is the impact of zero power prices?
When prices fall to zero, generators effectively earn no revenue for the electricity supplied during those periods. The situation also results in wastage of clean energy because surplus renewable power cannot always be stored or consumed.
Power distribution companies, or discoms, are also affected. During periods of oversupply, some discoms sell excess electricity on exchanges at rates far below their procurement cost, leading to additional financial stress for already loss-making utilities.
What can be done to prevent distress sales of power?
Industry experts say scaling up battery energy storage systems (BESS) is critical. Electricity stored during peak solar generation hours can be used later in the evening, when demand typically rises across the country.
Better weather forecasting and demand estimation systems could also help generators and discoms plan supply and purchases more efficiently.
Another proposed solution is the introduction of negative electricity prices. Under such a mechanism, buyers are effectively paid to consume excess power, encouraging higher consumption or storage during periods of oversupply. Countries such as Germany, Australia and the US already allow negative pricing in electricity markets.
What steps has the government taken?
To improve grid stability and support renewable integration, the government last year mandated storage capacity equivalent to at least two hours or 10% of the installed capacity for new solar projects. The Centre is also implementing a ₹5,400 crore viability gap funding scheme for 30 GWh of battery storage capacity.
Separately, as Mint earlier reported, the power ministry is considering rules mandating the use of locally made components in batteries manufactured in India to boost domestic manufacturing. Further, agencies are increasingly bidding out storage-integrated renewable energy projects instead of standalone solar or wind projects.