Power News Commentary: December 2016 – January 2017
India
The fact that average monthly spot market price of electricity remained unchanged at Rs 2.32/kWh on the Indian Energy Exchange in December compared to November raised concerns this month. One would have hoped that with the onset of winter and fog in Northern India increase in demand for power for heating would perk up prices. The fact that demand for power has been far below projections is a concern that has failed to get the attention that it deserves.
Those who have put some thought into the issue have attributed low demand for power to growth in generation from renewable energy but this appears to be a lazy explanation that is rooted in ideological faith in renewable energy rather than in factual analysis. Data on generation from renewable energy is not as systematic and established as it is for generation from traditional sources. While the CEA reports that data is collected from renewable energy generators and the respective SLDCs, there is a built in incentive for over-reporting renewable energy generation as the financial rewards are tied to the extent of generation.
The power market received another blow from the CERC which has proposed to increase the short and medium-term transmission corridor charges for open access by 35 percent and 25 percent, respectively, from the current levels. While the regulator has comforted the market stating that this would compel participants to move towards long-term access which is critical for efficient planning of transmission networks, stake holders such as power exchanges, private transmission companies and generators are worried. Though the volume of power traded at power exchanges has increased, the price of traded power has fallen dramatically and stakeholders are concerned that further increase in access charges will serve as a disincentive for market participants.
Demand for power generating capacity is estimated at 200 GW by 2017 but current demand is reportedly lower at 150 GW. But this glut in power generation capacity does not mean that lack of access to electricity is eliminated. 60 percent of schools and 40 percent of homes in Odisha were reported to be without power. This contradiction has a simple explanation. After functioning as a provider of a social good for over five decades, power distribution companies and other players in the power sector value chain are all now expected to function as providers of a private good mediated by the market. Schools and households in Odisha and elsewhere in India cannot demand this private good unless they have the ability to pay for the good.
The central government has policies for increasing energy access (electricity as a public social good) as well as policies for decreasing power sector losses (electricity as a private good) such as the UDAY scheme which states are expected to embrace. If the central government purchases the surplus electricity in the market and distributes it to schools in Odisha it will be meeting both objectives-that of increasing electricity access and increasing profitability of state electricity boards (as the electricity will be paid for). The scheme may not only stimulate the economy but also prove to be a vote winner in this election season!
Rest of the World
Low electricity prices in the USA was the most interesting piece of news in the international press this month. Cheap natural gas, subsidised wind and solar are all blamed. Industrial slowdown and increase in efficiency of energy use are also blamed. Price in the most actively traded region was reportedly at $28.78/MWh which is said to be the same price of power more than a decade ago. At current exchange rates this is just over Rs 1.9/kWh which means that power in USA is cheaper than power traded on Indian exchanges.
Moving on, China’s investments in the power sector of various countries continued to stream in this month with news of Chinese investments in the power sectors of Ivory Coast, Greece, Tajikistan, Brazil and Pakistan. China Energy Engineering Corp is said to be leading construction of the €500 million 372 MW Songon power station (gas and coal) in Ivory Coast. Greece’s state controlled power company PPC is also reported to be selling a stake in the country’s electricity grid operator to China’s State Grid in a €320 million deal. A Chinese firm has reportedly completed a power plant worth $350 million in Tajikistan’s capital Dushanbe. The State Grid Corp of China is reported to have asked the Brazilian government and regulators to speed up environmental licensing of a planned power line connecting to the Belo Monte dam in the Amazon forest. State Grid, the world’s biggest utility is said to be worried that it may have to delay construction of the line, possibly forcing the third-largest hydroelectric power dam to begin operating in 2019 below full capacity. State Grid of China is also said to be helping Pakistan build a 4,000 MW power transmission line in a project valued at $1.5 billion. The high-capacity transmission line would be the first of its kind in Pakistan and will link Matiari town in the south, near a new power station, to Lahore. Last but not the least China’s Shanghai Electric is said to have plans to spend $9 billion overhauling electricity infrastructure in Karachi. China is said to be steeping up investment in Pakistan as part of a $46 billion project that will link its far-western Xinjiang region to Gwadar port with a series of infrastructure, power and transport upgrades.
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