The election effect on Short term power transaction in India

Introduction:

Amidst the economic downturn, there is some good news for Indian industry as stability is back with a bang with UPA getting near to the majority on its own. The reform is the first agenda for the new government and particularly the infrastructure sector looks bright in its prospect.

As far as power sector is concerned, there has been significant improvement in the growth in actual generation over the last few years. As compared to annual growth rate of about 3.1% at the end of 9th Plan and initial years of 10th Plan, the growth in generation during 2006-07 and 2007-08 was of the order of 7.3% and 6.33% respectively. However, growth rate was meager at 2.71% with 723.556 BUs generated during the year 2008-09 over 704.469 BU during 2007-08

Among the several issues faced by power sector, the short term transaction of power (via bilateral trading, UI mechanism and power exchanges) is much debated nowadays. CERC in its efforts to rationalize the short term price of power came up with new set of guidelines reducing the bandwidth of frequency to make the grid function in a disciplined manner, reducing the UI rate so as to give a proper signal to reduce price in power exchanges, making stringent penalty system for any violations including summoning of chiefs of Discoms.

Despite all these guidelines from CERC which had been effective from April 01, 2009, nothing seems to have changed in the month of April and May 2009. The two months unfolded a drama in Indian democracy as India witnessed general polls for Lok Sabha in five phase elections from April 16 to May 13. The weather was unkind at this crucial time as the heat wave was on several parts of the country and the states were finding it difficult to provide 24x7 power.

The economic recession though quite harsh on Indian manufacturing sector provided little relief to power sector. The state governments had to face all the music as elections were round the corner and states could not afford to load shedding in these turbulent times since power is one of the major issues for the general elections. Under the direct or indirect pressure from the state governments, state discoms had no option but to buy short term power at a higher rates and resort to overdrawl from the grid. Despite several warnings from the CERC, they constantly drew UI power from the grid thus pressurizing the whole system. At times, aggressive trading in power exchanges was also witnessed at unbelievable rates of Rs 15 per unit.

It is said, “everything is fair in love and war”. And so it goes for elections as well. Strict instructions from the top authority not to shed load in the areas where election were scheduled, made the distribution companies go that extra mile by purchasing short term power at a higher cost or to overdraw from the grid at the cost of grid security. So the people who otherwise faced a long duration of load shedding had the last laugh as they got power at will..thanks to the great election tamasha!

The higher purchasing rate coupled with UI payables and penalties there of, will ultimately burden the end customer only.

In India, elections are fought with 3 basic things Pani, bijli and sadak i.e water, electricity and roads. Electricity is one of the prime needs of the electorate, the state government irrespective of any party can not do much but to provide power at any cost. Infraline study highlights the ill effect of making 24x7 power available during the election journey in India.

Short term power transaction in India

Though most of the power generated in India is in the form of long term PPA, distribution utilities very often prefer to take the route of short term buying of power bilateral trading and through UI mechanism to reduce their demand supply mismatch in the crisis. After the introduction of power exchanges, buying power through exchanges also started. However, the volume traded in power exchanges is only a meager 3 to 4 % of the total short term power transacted in the country. According to the market monitoring report for February 2009 by CERC,

1. It was found that of the total electricity generation, 3935.62 MUs (6.89%) transacted through short term i.e. 2148.94 MUs (3.76%) through Bilateral (through traders and direct between distribution companies), followed by 1569.11 MUs (2.75%) through Unscheduled Interchange (UI) and 217.57 MUs (0.38%) through Power Exchanges (IEX and PXIL).

2. Of the total short-term transactions, Bilateral constitute 54.60% (42.63% through traders and 11.97% direct between distribution companies) followed by 39.87% through UI and 5.53% through Power Exchanges.

3. Top 5 states selling electricity are Chattisgarh, Delhi, Gujarat, West Bengal and Punjab and top 5 states purchasing electricity are Rajasthan, Andhra Pradesh, Maharashtra, Karnataka and Tamil Nadu.

Short term power transaction during the election months (April and May 2009)

Elections were held in India in 5 phases from April 16, 2009 to May 13, 2009 with 124 loksabha constituencies in phase I, 141 in phase II, 107 in phase III, 85 in phase IV and 86 in last phase. Details of election schedule in Annexure-I. Analyzing the election dates and phases and the states going to be polled, it can be seen that:

Just before the election commenced, starting from April 1, 2009 the short term price in power exchange touched Rs 10 per unit and the trend picked up from there touching an all time high of Rs 15 per unit and an average Rs 10 per unit.

States where polling was conducted saw a high level of volume of power traded through power exchange with rates picking up and after the elections were over in that particular area, the utilities resorted to load shedding and other areas picked up from there. The trend for UI was also similar in nature with the discoms hugely overdrawing power sidelining the CERC guidelines and jeopardizing the grid. Bilateral trading also saw a huge growth in volume in these months at a rate similar to the power exchanges.

A comparative study of different states with respect to overdrawl of power and power purchased through exchanges and bilateral trading confirmed such trends. A study of major defaulters states like Andhra Pradesh, Tamil Nadu, Karnataka, Uttar Pradesh in April and May 2009 highlighted the gross indiscipline by the state discoms overlooking all the rules, guidelines and warnings of CERC.

Warning by power ministry on over drawl issues:

Ministry of Power issued a stern advisory to Northern States overdrawing power asking them not to overdraw from the Grid when the grid frequency drops below 49.5 Hz.. In its warning note, the ministry said that in case States failed to discipline their utilities, they will have to face the consequences. States / Utilities had been warned that overdrawal of power beyond its availability may have serious and adverse ramifications for the Grid. MoP also advised all State generating utilities including NTPC and NHPC to function at optimum level so as to avoid any adverse situation.

In view of the rising demand due to the summer season coupled with elections, the over-drawal of power by the constituent States threatened the security of the integrated Northern-Eastern-Western grid.


To Be Continued...........