Trading of costlier power to begin in March

Coal Insights Bureau

Trading of ‘High Price’ electricity is set to begin in March at the DayAhead Market of India Energy Exchange (IEX) following approval of the Central Electricity Authority (CEA).

In August 2022, the Power Ministry floated a discussion paper proposing to allow High-Price Day Ahead (HP-DAM) market as imported coal and gas prices touched newer highs.

IEX then filed a petition in November for starting such an exchange.

“We are expecting to start this market by February 2023,” IEX officials told analysts last month during a conference call.

“Sellers with variable costs greater than the price cap of spot of I-DAM market, i.e `12/unit will be allowed to sell power in this market. These can be gas-based power plants, imported coal-based power plants or any other entity that meets the variable cost criteria,” the discussion paper mentioned.

The government has decided to introduce such a segment because of high prices of gas and imported coal.

Currently, electricity prices at IEX spot market can’t go beyond `12 a unit as a price cap is in place introduced by the Central Electricity Regulatory Commission (CERC).

For this, generators having higher variable costs can’t participate in the market.

“In this background, it is proposed to introduce a High Price Market Segment (HP-DAM),” a discussion paper on the introduction of HP-DAM issued in August 2022 said.

“This will enable high-cost power plants to be made available during the high demand period. Only such buyers who are in deficit and can afford to pay high price will be able to participate in this segment. The other buyers and customers will not get affected,” it added.

Electricity trade grows 7% in January

The total electricity volume on IEX in January touched 8245 Million Units (MU), an increase of 9 percent on y-o-y and 4 percent m-o-m.

“In January 2023, the exchange witnessed its highest volume in this fiscal year, due to improving supply side conditions, led by gradually increasing coal supply and easing e-auction coal prices. The volume has been steadily increasing month-on-month since November 2022. Improving coal inventory at power plants due to the Government’s proactive initiatives, is expected to lower clearing price on the Exchange in the coming months,” IEX said.

This, IEX said, will provide further cost optimisation opportunities to Discoms and Open Access consumers, resulting in higher volumes on the exchange.

According to the power demand data published by the National Load Dispatch Center, the energy met in the country during January 2023 was at 126 billion Units (BU), increasing 13 percent on y-o-y basis.

Coal supply improvement to drive down power prices

Continuing high spot e-auction coal prices led to the average clearing price in the DayAhead market at `4.56 in Q3 of FY23, although lower from `5.40 in the previous quarter as coal auction prices eased.

According to Satyanarayan Goel, Chairman cum Managing Director, IEX, availability of coal in the e-auction market is still low which is keeping e-auction prices at 240-250 percent of the administered price.

“At these prices the variable cost is `5- plus, so generators cannot sell power at a rate lower than `5.25-`5.50 and that is why our clearing price is still high. But I’m sure going forward, when coal production improves, availability in the e-auction market where e-auction price was only 35 percent premium in FY22, it should come down to that level. And when that happens, you will see our clearing price coming down to `3.5 to `4.0 and the volume should also increase with that,” Goel told analysts.

“Improving coal inventory and further reduction in e-auction coal prices is expected to result in a decline in power prices on the Exchange and provide further cost optimisation opportunities to Discoms and Open Access consumers. This will result in higher volumes on the Exchange,” he added.