Power Trading Conclave on 5th September 2008

The government should create an enabling situation for the orderly and efficient growth of power market in the country to ensure optimum utilisation of existing generation capacity, usher in innovative pricing and competition leading to a fall in unit costs and also act as a catalyst in the development of new power generation projects by giving the right price signals to potential investors in planning their generation and transmission capacities, according to PHD Chamber.

In a background paper for the forthcoming Conference on “Developing Power Market for Attracting Investment” to be held on 5th September 2008 in New Delhi, PHD Chamber has highlighted lack of adequate transmission capacity and transmission congestion, ineffective operalisation of open access, poor distribution and supply systems, poor paying abilities of State utilities, etc. as constraints in the development of the power market.

To achieve the objective of a matured power market and trading, PHD Chamber has stated the need for development of the national grid, large transmission capacity both inter-regional / inter-State and intra-State to connect generating areas with consumption centres; a conducive policy and regulatory framework and a well developed financial mechanism that ensures the financial viability of all the stakeholders, especially the States utilities.

Significantly, the Conference is being held in collaboration with PTC India Ltd, a Government of India initiated public–private partnership, whose primary focus is to develop a commercially vibrant power market in the country.

PHD Chamber points out that the capping on short term margins by CERC at 4 paise / Kwh is not adequate. The risk appetite of the market has come down. Because of this, the market is not able to come out with innovative products and services. The developers / investors expect a higher return on investment. The practice of investors / developers using intermediaries (trading companies) for initial thrust and for financial closure and then find ways to terminate the contracts for better market based returns is growing.

When the market is moving from fixed market return to market determined returns, the intermediation business has returns of only 3-4 percent of the tariff. The low margin with high associated risks may not be able to give high returns to the shareholders of the power trading companies. The intermediaries have to continuously innovate and create value added services and products to remain relevant to the market. Also, there is a need for increasing the generation capacities and reserve margins in the transmission system to enhance the saleable surplus power in the country.

PHD Chamber points out that as of now there only two types of open access access available, short term that is for a period up to 3 months and the other is for 25 years or more on long term. The number of open access avenues has to be increased to cover various timeframes including medium term ones.