The factors include unmet and suppressed demand, no new thermal capacities announced in the past two years, and inability to meet peak demand because of mismatch with renewable energy generation curve and insufficient domestic coal supplies.
New Delhi: Prices of power in the spot market in India have risen 25 per cent to Rs 3.97 per unit in March from R 3.20 per unit in January and are expected to shoot further in near future thanks to a host of structural and seasonal factors, CRISIL Infrastructure Advisory said today.
The factors include unmet and suppressed demand, no new thermal capacities announced in the past two years, and inability to meet peak demand because of mismatch with renewable energy generation curve and insufficient domestic coal supplies. Also, plants stressed owing to ongoing litigation and change in law provisions are unable to run at full capacity thereby adding to supply constraints.
The average spot power price this year of Rs 3.43 per unit is a “huge leap from the Rs 2.50 average logged in the corresponding period of the past two fiscals. What’s more, monthly peak prices on power exchanges this year have averaged at Rs 7.1 which is almost twice the levels in fiscal 2017,” the agency said in a statement.
According to Vivek Sharma, Senior Director, CRISIL Infrastructure Advisory, India is looking at a “huge problem” because peak power deficit scenario is unlikely to improve anytime soon. “Demand will surge afresh given an additional 4 crore households will be electrified over 2018 and 2019, and also because general elections and some state polls are imminent. Additionally, domestic coal supplies would come up short, which means continued dependence on imported coal, the prices of which are expected to stay elevated. This will only push the marginal cost of electricity further up,” he said.
However, the surge in demand will help power producers recover a part of their fixed costs, which has been a challenge in the past. This is important because fixed costs are expected to rise following tighter environmental norms.
CRISIL’s assessment also shows installation of flue gas desulphurisation systems and upgradation of electrostatic precipitators in both new and old thermal power plants would increase generation cost by around Rs 50 paise per unit. Also, there are additional costs because of construction delays, interest payments during construction, and past losses from stranded capacities that can reflect in future prices.
“On the other hand, as India focusses on installation of 175 Gigawatt of renewable energy by 2022, power purchase cost is expected to rise as solar modules becomes costlier following the levy of Goods and Services Tax, customs duty and potential levy of anti-dumping duty,” the CRISIL statement said.
The agency also said the charges levied owing to only around 25 per cent utilisation of transmission lines by renewable energy sources will add to the cost of the grid. Variable cost of generation will also go up owing to the rising penetration of renewable energy which will result in frequent cycling and lower plant load factors at coal-based plants.