Spot Power to get costly as Regulator proposes hike in transmission charges
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In what could hurt the growing market for spot or short term transaction of power, Central Electricity Regulatory Commission (CERC) has proposed to increase the transmission charges by 1.35 times. States and open access industrial consumers are increasingly shifting to short term power purchase due to uncertainty in power demand. They might have to face increased charges almost similar to long term power rates.
Lately, the central government has also been promoting spot market as increased competition reduces cost of power. While the tariff quoted in the long term power purchase agreement has touched Rs 3.9-5.5 per unit in past three years, spot has gone down to Rs 2.16 per unit during the same period.
While private players and some states have been active in the spot market, NTPC has also recently started selling un-requisitioned surplus power at the exchanges.
The Commission is of the view that increasing short term transaction of power is leading to congestion in the grid and also affecting the transmission planning which is typically for long term transactions. It has come to the conclusion after submissions from the Central Transmission Utility (CTU) aka Power Grid Corporation of India.
The volume of short-term transactions has increased to 63.96 billion units (BUs) in 2014-15 from 24.69 BUs in year 2008-09. However, the prices of electricity of short term transactions has come down to Rs 2.5/unit from about Rs 7.29/unit during 2008-09.
CERC has expressed concerns that generators may not apply for Long Term Agreement (LTA) and to evacuate power under Short-term Open Access (STOA) and/or Medium-term Open Access (MTOA). “It is likely that there is less long term PPAs leading to lack of LTAs thereby inefficient transmission planning," said CERC in its draft regulations dated October 28, 2016.
The regulations are open for comments till November 25, 2016.
All power generators apply for LTA as the Connectivity Regulations provides for free connectivity. The transmission capability is at times more than the installed capacity of the power generator. This leads to under-utilisation of the network. Also, some of them remain connected with the grid but at the same time relinquish the LTA in order to avoid the commitment for payment of transmission charges.
“There are number of petitions and applications before the commission wherein the generators are relinquishing their LTA quantum but at the same time evacuating power under STOA/MTOA markets. This causes burden of higher transmission charges on other long term customers. This scenario is likely to lead to under building of transmission capacity thereby leading to instances of congestions," CERC observed in its detailed regulations.
It said that keeping in view requirement of transmission planning and at the same time ensuring that power market is affected minimally, “it is proposed in draft amendment of connectivity regulations to increase the MTOA and STOA charges to 1.25 and 1.35 times respectively that for normal POC (point of connect) rates specified so that adequate capacity augmentation takes place". This also helps in alleviating problems of congestion, said the draft regulations.
Power sector which has been hailing the shift to short term or day-ahead power market, is opposing this sudden change. The industry is of the view that in current scenario when discoms are trying to reduce power tariff in a bid to reduce losses, short term market creates competition and helps in decreasing power rates.
“The power market prices are definitely below the total cost of generating station in most of the cases and below variable cost for some other generating stations. As the states are no longer inviting long term power tenders, the generators are selling power in short term market as the last resort to schedule its generation," said senior power sector executive associated with short term power transactions.
The increasing risk in long term power sale is pushing the developers to sell in spot market at half the tariff they quote in bidding for power purchase agreements (PPAs). Instead of complete shutdown due to lack of demand from the states, the power developers are trying to recover at least the variable cost by selling in open market.