India Power Exchanges Struggle
Large trading volumes will continue to elude India's two power exchanges as slow growth in generating capacity and dormant power sector reforms have choked the supply of tradable energy units.
File picture of power lines hanging over building tops in Mumbai, India on Wednesday, Dec. 2, 2009.
India produced 573.28 billion units (1 unit = 1 kilowatt hour) of electricity in April-December 2009, of which less than one percent was traded on the two power exchanges set up over a year ago--the Indian Electricity Exchange and Power Exchange of India.
Some founders of the power exchanges feel government indecision and a continuing electricity deficit has prevented business from sparking, though others say new capacity additions are picking up, boosted by the private sector.
"Creating these (power) exchanges was like throwing a baby into the swimming pool. The exchanges are desperately trying to get some business but when there is no water in the swimming pool how will the baby swim?" said a senior executive at Tata Power Ltd, who declined to be named.
Tata Power Co. Ltd., a unit of salt-to-steel conglomerate Tata Group, has a 5% equity stake in IEX, while another unit, Tata Power Trading, has a 5% stake in PXIL.
The power exchanges need more generating capacity to come online to grow, but India's power deficit is forecast at 12% to 16% over the next few years.
India, the world's sixth largest power consumer, plans to add 78,577 megawatts from 2007 to 2012, of which only about 80% will be achieved, Fitch Ratings analyst Girish Mahalingam said in a report.
"In realistic terms, it will take another 5-7 years for the exchanges to be evolved," said Radha Krishna Tripathy of Infraline Energy, a New Delhi-based energy research firm.
The power exchanges, which earn revenue from transaction fees, were set up to offer a transparent trading platform, equal opportunity and free market pricing, as opposed to state-regulated pricing.
Analysts feel 15% to 20% of power in the system should be outside long-term purchase agreements for proper price discovery, and the Central Electricity Regulatory Commission should not interfere in the market by capping prices, if the market is to evolve.
PXIL chief executive Rupa Devi Singh said business challenges for exchanges include low volumes, promoting efficiencies, investments and truly allowing consumers to choose their own supplier.
Despite the low volumes, big power sector companies are investing in power exchanges to get a foot in the door, as evidenced by a third power exchange, the National Power Exchange, in line to be set up by December by promoters such as NTPC Ltd. and NHPC Ltd.
"The liquidity on the exchanges has been steadily improving since inception and PXIL too has been witnessing a steady increase in traded volume of electricity with greater participation," PXIL's Singh said.
Other positive indicators were the federal budget doubling its power sector allocation to 51.30 billion rupees ($1.12 billion), to bring down tariffs and hasten capacity additions, and new producers expected to keep about 25% of their power for short-term trading.
India has an installed capacity of 159 gigawatts, having added about 6740 MW in April 2009-January 2010, half of which came from the private sector.
