Gradual rise in power demand, coupled with shortfall in supply, has led to a surge in electricity prices in the spot market.
Average power prices on the day-ahead-market increased 72% m-o-m to INR 5.06/unit in Aug’21 compared with INR 2.95/unit in Jul’21, as reported by the Indian Energy Exchange (IEX). On a y-o-y basis, prices saw a two-fold jump from INR 2.43/unit in Aug’20.
Driven by improved economic and industrial activities, power generation from conventional sources surged to 120.69 billion units (BU) in Aug’21, which was the highest at least since Apr’17 (the period from which CoalMint started tracking this data).
On the other hand, supply constraints such as high cost of imported coal and liquefied natural gas (LNG) as well as lower generation from renewables caused power outage which supported the hike in electricity pricing.
Notably, power supply shortage across the country was registered at 77.7 million units (MU) on 28 Aug’21, pushing up power prices drastically on the subsequent day which touched an all-time high of INR 20/unit on IEX.
Moreover, as a result of the mismatch in power supply-demand, overall electricity traded on the exchange had touched an all-time high monthly volume of 9,538 MU in August.
Ongoing scenario
After a brief spell of abrupt rise, electricity prices have started to cool down in tandem with the improvement seen in electricity supply.
Average power supply shortage has fallen to 7.76 MU on a daily basis assessed during 1-12 Sept’21, thus reducing demand from the spot market.
Consequently, average spot prices have decreased to INR 3.76/unit in the period under review. The highest price was assessed at INR 16/unit for one 15-minute time block on 1 Sept’21, but since then prices have been on a declining trend.
Overall, daily average prices were between INR 3.2-5.2/unit in the first week of September which in the second week came down to INR 2.4-4.1/unit.
Will coal demand ease?
Lately, power plants have been facing coal shortage largely on the back of drastic increase in coal-fired generation.
While, desperate efforts are put in place to enhance coal supply of power plants, these have proven to be insufficient as coal stock at plants are continuously receding.
Providing relief to the plants, demand for power has slightly dipped due to rainfall across several parts of the country. Average demand was assessed at 3868.8 MU/day during 1-12 Sept’21, down 6% from 4129.3 MU/day in the corresponding period of Aug’21.
As on 12 Sept’21, coal stock at power plants was assessed at 11.26 mn t, sufficient for 6 days of power generation. Nevertheless, the lower power demand scenario is likely to offer these plants some relaxation in order to replenish their inventory levels.
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