On The Verge Of A Fall?

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Short-term power prices, which hit a record high of Rs 14.50 per unit last week on the power exchanges, may come down soon. Prices for short-term power, part of the merchant power available for buyers at an extra cost, had collapsed in December 2008 to as low as Rs 1.50 per unit before recovering in January 2009 only to go up to Rs 11.4 (for peak hour) last April thanks to various state governments who paid a few rupees more to avoid power cuts during the recent general elections. Now that the elections are over and states are ready to pull the plug on regular power supplies, prices may fall to a low of Rs 4-6 by June and further to Rs 3-4 by September. This may bring down the power bills of consumers though marginally. &ldquo;Factors like planned capacity addition, availability of KG-Basin gas which could lead to an additional 4 GW generation and a decline in imported coal prices may help lower power generation cost to Rs 2.5-2.8 unit,&rdquo; says Satyam Agarwal, an analyst with Motilal Oswal. The significant difference this fiscal is the availability of 18 million metric standard cubic metre per day (mmscmd) gas from KG Basin, which may help restart 4 GW of gas-based electricity generation capacity, lying idle with various players. &ldquo;Any additional gas may help recover fixed and variable costs through higher capacity utilisation,&rdquo; says Girish Solanki, an analyst with Angel Broking. Lower imported coal prices may further ease stress on power prices. &ldquo;Global coal prices have dropped by two-third of their mid-2008 high, and this certainly lowers variable costs,&rdquo; says Kameswara Rao, executive director and industry leader (energy, utilities and mining) at PricewaterhouseCoopers. &ldquo;However, the proportion of thermal coal imports for power plants is still small, and the impact will be seen in plant profitability than on tariffs in the near term.&rdquo; The average price of short-term power during March and April 2009 at the Indian Energy Exchange was Rs 8.11 and Rs 10.47 per unit, respectively. The overall generation peaked in March 2009 to 64.7 billion units (BU) from 61.1 BU in March 2008 with plant load factor (PLF) soaring to about 67 per cent. Reflecting this trend, the Power Trading Corporation (PTC) had posted a 116 per cent in net sales at Rs 1,179.6 crore for the last quarter of 2008-09. Average realisations had also increased by Re 0.94 per unit to Rs 5.41 per unit though the average cost of power went up by Re 0.93 per unit to Rs 5.34 per unit. However, the peak deficit, too, had soared to over 13 per cent in this period, forcing the Central Energy Regulatory Commission (CERC) to impose a higher Unscheduled Interchange (UI) as a penalty against violators on overdrawing and &lsquo;under-injecting&rsquo; by both sides. This now has been revised to Rs 7.53 per unit from Rs 10, which may soon translate into lower prices. &ldquo;Though the revised cap rate for UI is already in place, the reduction in prices is a misnomer in the sense that UI rate for overdrawal at frequency below 49.2 Hz is Rs 10.29 per unit whereas for underdrawal UI rate is Rs 7.35 per unit,&rdquo; says T.N. Thakur, chairman and managing director of PTC. According to analyst Girish Solanki, this anomaly in penalty was also misused by many state utilities as a trading platform. That leaves us with the planned capacity addition of 1.6 GW for 2009-10 that would boost the availability of short-term power. India has a total generating capacity of 147.9 GW as of March 2009. However, considering the poor implementation track record, analysts say the actual capacity addition could be nearly half. Sreevalsan Menon (Businessworld Issue Dated 19-25 May 2009)