Maharashtra Speeches Turn to Energy Exchanges, Avoid Costly PPA

MUMBAI: With four-fifths of the economy closed for the third week, due to the sharp drop in energy demand, the state is turning to energy exchanges to buy cheaper energy to protect margins, avoiding the PPAs they impose much higher rates.

Since partial blockades began to prevent the spread of the deadly virus starting March 15, energy demand across the country has abruptly decreased, and energy consumption has decreased by 21-22 percent to 2,628 GWh, according to an estimate by the Emkay Global brokerage.

In Maharashtra, which is the most industrialized state, business activities have come to naught since March 22, even before the Prime Minister Narendra Modi announced a 21-day national shutdown that will end on April 14, significantly reducing energy demand.

As demand is falling, most of the Mahagenco thermal plants have been withdrawn and we are taking electricity from Hydel's projects. Furthermore, we are obtaining energy only from those private producers where the rates (PPA) are low.

We are buying more and more power from the exchanges, which is cheaper than PPA rates, an official with state-owned utility Mahavitaran told PTI.

Mahavitaran is the largest utility company in Maharashtra, but it has no presence in Mumbai as the city is being serviced by BEST, Tata Power and Adani Electricity, administered by the municipality.

The Mahavitaran official further said that during the same period last year, he was selling power to the exchanges due to over-generation.

However, since demand is low now, stopping thermal generation and buying cheaper power from the exchange is a financially viable model, the official added.

On March 26, peak demand in the state, excluding Mumbai, was 13,664 MW compared to 19,029 MW on the same day in 2019.

While we bought about 1,100 MW from the exchanges to meet peak demand on March 26, the third day of the full shutdown, last year we sold excess power on the exchanges, the official added.

A spokesperson for such power consumption has declined about 30 percent since the shutdown.

Of its nearly 30 lakh clients, 80 percent are residential, with the remainder being commercial and others.

We are committed to providing uninterrupted power to customers, so we maintain a good balance in supply between existing commitments and exchanges, the spokesperson added.

According to IEX (Indian Energy Exchange), in March, the electricity market on the stock market registered a trade of 4.291 million units (MU).

While the daily market (DAM) traded 3,971 MU in the month, which represented a growth of 18% year-on-year, the early-term market (TAM) traded 320 MU, 30% more than in the same period last year.

DAM is the electricity trading market for next-day delivery, while TAM includes products that allow participants to transact for electricity delivery for up to a week.

The average price in March was 2.49 rupees per unit, which fell to 2.15 rupees per unit since March 22, which is cheaper than some of the PPA rates for thermal energy, according to IEX data.

We estimate that rates may continue to drop as the COVID situation develops, said Rajiv Srivastava, IEX chief executive officer and general manager.

In addition, he said that many distribution companies across the country, as well as critical sectors such as healthcare, utilities are actively leveraging the exchange platform to optimize their energy acquisition costs in the wake of the pandemic.

Southern distribution companies continue to prefer TAM contracts, he added.

According to Crisil, the weak demand scenario has depressed prices on exchanges, especially with a situation of excess supply on the conventional side.

That said, utilities have increasingly turned to short-term energy instead of signing short/medium term PPPs to carry them through periods of peak energy demand. It also helps reduce the cost of purchasing energy. Availability of cheap energy in the exchange only supports this trend, said Miren Lodha, one of the directors of the rating agency.

However, he noted that doing this sustainably is difficult and risky, as the availability and price of energy fluctuate on exchanges compared to a stronger power purchase agreement.