Merchant Power Prices double in past week

Merchant / Spot Rate on the Power Exchanges

Note: Spot rate on the power exchanges refers to the rates for power to be supplied the next day (day-ahead rates)
The spot prices of electricity had been trending downwards since the beginning of May, which was also the peak summer season when one would have expected the spot rates to rule higher. From Rs15.00 per unit at the high point on 1st May,2009; by the end of May, 2009 the scenario was such that there were no buyers (implying a zero rate) for a period during the day.
However, the past three weeks since 26th July, 2009 the rates for short-term power has shot up from Rs2.68 per unit to Rs12.83 per unit on 11th August, 2009 (yesterday). More significantly in the past week alone the electricity rates have increased from Rs6.36 per unit.

Spot prices since Jan 2009

Spot prices since May 2009

Given the operating mechanism of the power exchanges in India today, all the trades are based on actual delivery and on a day-ahead basis (i.e. for power to be supplied the next day), and hence it is difficult to precisely forecast what can it expected in the next fortnight or month.
We believe that concerns stemming from lower than normal rainfall, with a possibility of drought in substantial parts of the country, is driving short-term power rates higher. We also believe that if the rainfall situation does not improve, power shortages would increase over the next two months, resulting in even higher power prices.

While utilities such as Tata Power & Torrent Power would benefit to the limited extent of merchant capacity, utilities such as GMR Infrastructure, Adani Power, etc which have larger merchant power capacities would benefit in the short term from higher merchant / spot prices. In addition, players in the metals sector with large captive power plants such as JSPL, JSW, Nava Bharat Ventures, etc would also benefit. Power trading firms such as PTC would benefit only due to increased volumes, as their margin on inter-state power trading is capped by regulation. However, it should be noted that the power is not storable & that the total volume of power traded is still very low in India.

Thus, though these rates are not a benchmark, they do offer some indication.

Note: All analysis based on data from IEX, one of the two operational power exchanges in India.