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The historic slump in spot market electricity prices triggered by an unprecedented slump in demand, coupled with inadequate availability of domestic coal, has forced captive power producers to turn to exchanges for firing their end-use plants -- a trend unforeseen in the Indian energy sector. Over a dozen companies, mostly in the cement, fertilizer, textile and paper sectors, are leading the new trend, manipulating the low-cost of spot power prices to their advantage by shifting the energy mix of their manufacturing units. Experts say the rise in the number of captive power companies buying power from the exchanges is triggered by stalled gas-based captive plants and lack of linkage coal.

“Owing to the price drop, companies are finding it economically viable to buy from the exchange. The rising participation from captive power companies has further boosted volumes leading to higher competition and robust price discovery,” Rajesh Mediratta, Director-Business Development at India Energy Exchange (IEX) said. IEX is the country’s largest power exchange trading more than 80 Million Units of power daily.

According to IEX, captive power companies buying and selling power at the exchange include Hindustan Zinc, RSWM, JK Cement, Hindalco Industries and Shree Cement Ltd. “We are aware of the new trend. The reason is that coal is not available under the linkage route. Coal India is supplying only 50 per cent of the needs of captive producers. The coal supply getting blocked for new projects is a cause of concern,” Rajiv Agrawal, Secretary at Indian Captive Power Producers Association (ICPPA) said. The association represents companies with over 45,000 Mw of captive capacity.

Consider RSWM, the flagship textile company of the Rajasthan-based INR 6,000 crore LNJ Bhilwara Group. The INR 3,000 crore textile giant operates over 100 Mw of captive power production capacity in Rajasthan including a 46 Mw coal-based power plant in Banswara district. RSWM generates power in its captive plant at an average coal cost of INR 4.20 per unit. This includes coal cost (linkage plus imported) of upto INR 3.60 per unit and the cost of transmission losses and auxiliary consumption at INR 0.6 per unit.

The company has, therefore, started bidding at the exchanges to secure supply available at rates lower than INR 4.2 per unit. This has become increasingly possible with spot power prices tumbling below INR 3 per unit at regional periphery (23 per cent fall as compared to rates of 2012-13). “There are times when power sourced from exchanges comes at a lower cost than power generated at captive plants, even after paying transmission costs and levies upto INR 1.30 to 1.5 per unit,” N K Bahedia, Deputy Chief Operating Officer (Commercial), RSWM said .  “We are adopting the strategy to minimize energy cost to stretch viability of final product enabling us to compete,” he added. RSWM has been buying around 13.4 million units (MUs) of power every month from the exchange in current financial year as compared to 8.6 MUs per month in 2012-13 to achieve cost effectiveness. A senior executive from Hindustan Zinc confirmed the Vedanta subsidiary has been actively buying power from the spot market to meet the energy shortfall at captive plants which fire its smelters.

India generates 911 Billion Units of power annually. Around 90 per cent of this is sold through long-term Power Purchase Agreements (PPAs) while the rest is traded in the short-term spot market largely through two exchanges – IEX and Power Exchange India Ltd (PXIL) – and through licensed traders like PTC. Average spot power prices have declined from a peak of INR 5.5 per unit in 2008 to less than INR 2.5 per unit at present.

Source-On Request