CERC has, through a draft order, annouced that power tariff for all day-ahead transactions is capped at Rs11 per unit (kWh). This cap is applicable to all merchant power transactions whether through the power exchanges or on a bi-lateral basis. The CERC has also stated that this order is valid for the next 45 days, during which time (on 8th Sept, 2009) it would hold a public hearing. The commission would review it’s decision after these 45 days.

As of now, the power exchanges trade only in the day-ahead segment, all transactions for longer durations are on a bi-lateral basis. We do not rule out CERC capping these rates in the near future.

Since the beginning of the current water year (June 2009 to May 2010) the power tariff on the IEX has been higher than Rs11 / kWh on 20 days, with the max price reaching Rs17 / kWh on 13th Aug., 2009. Similarly, in the current water year there have been 9 days when the average price has been higher than Rs11 / kWh. Today the power day-ahead rates on the IEX was Rs3 / kWh to Rs12 / kWh.

As mentioned in our earlier reports (see below) this would be negative for players with large merchant / captive capacities. Further, we do not expect this to have any impact on power traders such as PTC as their margins are capped at 4 p/kWh, irrespective of the purchase / sale price of power.

We expect this to be negative for GMR Infra which sells merchant power from its Tanvir Bawi power plant. The other stocks which could be negatively impacted are JPSL, JSW Steel, Nava Bharat, etc.

Links: (1) Draft Order, (2) Public Notice