How Power Distribution Firms Can Cool Costs This Summer
Sourcing power from the spot market on power exchanges could help distributors mitigate costs in the summer.
With the Indian Meteorological Department projecting higher-than-normal temperatures this summer, power demand is likely to surge across the country. This means power distribution companies will have to manage power procurement strategies in a cost-effective manner, and sourcing power from the spot market on power exchanges—like the Indian Energy Exchange Ltd.—might just be the way to do it.
Surplus Power
On April 2, the Press Information Bureau said that surplus power should be offered for sale via energy exchanges.
The government has mandated thermal generating stations to offer their unrequisitioned or surplus power in power exchanges, the release said.
It has also been directed that compliance needs have to be monitored regularly and notices should be issued in case of violation of directions.
High Price Contracts
There are concerns about rising power costs during March, April, and May due to heightened demand stemming from the potential rise in temperatures.
According to an IEX data, to mitigate higher prices, numerous distribution companies are proactively engaged in monthly agreements on power exchanges as well as forward contracts via the Discovery of Efficient Electricity Price portal—which is a e-bidding and e-reverse auction portal for procurement of short-term power by distribution companies.
However, in most instances, the distribution companies procured power at elevated prices, the data indicated.
Better Prices On Power Exchanges
Data from the Indian Energy Exchange website shows that while power prices are more volatile in the Term-Ahead Market segment, they remain stable for the Day Ahead Market segment.
The TAM segment is a market for forward contracts on the exchange. Here, participants can buy or sell electricity for delivery at a future date, ranging from the same day up to 11 days in advance.
The DAM segment is a spot market for electricity, where participants buy and sell electricity for delivery the very next day. Prices are determined through a bidding process, and reflect the real-time supply and demand situation.
A Rs 5 Difference
During March and April, DAM remains steadfast. Average DAM market clearing prices for March 2024 stood at Rs 3.91 per unit, marking a 28% year-on-year decline.
Between April 1 and 11, the average price discovered was around Rs 5 per unit for DAM, and Rs 4.6 per unit for the Real Time Market segment—which allows for trading electricity in real-time.
RTM trading sessions are held every half hour, with power delivered within four time blocks (around one hour) after the auction closes. This helps the market manage short-term fluctuations in demand and supply and ensure grid stability.
For the bilateral segment of the DEEP portal, average traded price of monthly contracts for March and April was Rs 8 per unit. Even on the exchanges, the average traded price of monthly contracts has been close to Rs 10 per unit.
Data shows the difference between DAM prices and the bilateral prices to be Rs 5 per unit. This difference, thereby, gives distribution companies an opportunity to leverage DAM and procure power cost effectively.
