DINESH NARAYANAN
A host of power generators and utilities have picked up small stakes in Indian Energy Exchange (IEX), a company promoted by Financial Technologies and Multicommodity Exchange (MCX), which hopes to draw away electricity traders from the telephone and hook them to the keyboard. Among those who have bought shares in IEX — which got permission from the Central Electricity Regulatory Commission (CERC) to start up a few days ago — are Reliance Energy, Tata Power, Adani Power and Lanco, according to Joseph Massey, deputy managing director of MCX.
India is perennially short of power and many areas of the country such as Maharashtra face up to 12 hours of rolling blackouts, dubbed load-shedding, every day, infusing uncertainty in the operation of industries and businesses that do not own generators. An estimated 25 per cent of electricity is lost to pilferage and transmission inefficiencies, and surplus power available during non-peak hours is traded in an over-the-phone, non-transparent market.
Massey believes that IEX will help in better price discovery and efficient use of excess power in different parts of the country at various times of the day by bringing together buyers and sellers on an electronic platform. Usually, the eastern states of the country have excess power and the northern and western ones, where industries are clustered, are deficient. In April-May, the eastern region exported 1,623 million units out of the total trading of 2,730 million units. The northern states bought 1,105 million units and the western states purchased 1,061 million units. “The power exchange will act as a benchmark for various sources of power and as a barometer of the extent of shortage of power,’’ says Sameer Ranade, senior analyst at PINC Research in Mumbai.
About 90 per cent of the electricity generated in the country is sold through long-term, bilateral power purchase agreements between buyers, mostly state-owned distribution companies, and producers such as NTPC, Tata Power and Reliance Energy. However, distributors rely on traders for short-term requirements. Currently, there are about 15-16 power traders, including firms that are arms of producers such as Tata Power, Reliance Energy and Adani Power, though state-owned Power Trading Corporation dominates the scene.
Through IEX, the national load dispatch centres and regional load dispatch centres of the power grid would put out the available transmission capacity every morning. This information will be displayed on the exchange. Based on that, traders will buy and sell power until afternoon, after which the exchange will inform the dispatch centres to distribute the electricity to buyers. The transmission losses will be ‘socialised’, says Massey, meaning evenly distributed among buyers.
Initially, he says, about 50 entities are likely to be on the floor when trading begins. “Ninety five per cent of trade in crude oil, LNG and fuel oil, which are essential inputs for power generators, is done on MCX’s platform. That success will draw many of the power companies who trade in and use these commodities to IEX, too,’’ says Massey.
The price of power on the exchange is, however, unlikely to move out of a wide band of Rs 3-10 because the average price that users pay currently is Rs 3 per unit and the penalty for out-of-quota use called unscheduled interchanges from the grid is Rs 7.50 per unit.
Informally, however, buyers sometimes pay more in short-term negotiated deals. For example, Pune city often purchases power at rates as high as Rs 11 per unit. Some other states, too, buy power at Rs 8-9 per unit. However, they buy electricity at high rates only to meet peak hour shortages, which means the rise in cost, when distributed across the total units consumed, is marginal.
It would, however, be some time before an individual buyer is able to purchase power directly from the exchange. Most states are yet to draw up guidelines for open access to power. Until that happens, direct purchase of power by individual users will not be possible.
