Power Companies To Benefit As Spot Tariff Rises Over 5% In May
The rise in spot power tariff benefits power generation and distribution companies as it translates to more revenue per unit of electricity sold.
As peak power demand is expected to rise in India, the Power Ministry in February asked power generation companies to sell their surplus capacity to exchanges.
Latest data shows that spot power tariffs stood higher in May sequentially, and thus, power generation companies like NTPC Ltd., Adani Power Ltd., Power Grid Corp., Tata Power Co., and others stand to benefit.
What Was The Power Ministry's Order?
The Ministry of Power had ordered distribution companies to sell their excess capacity on exchanges if the companies failed to meet their daily requirement of electricity by 9 a.m.
According to the order, surplus power should be offered for sale in the day-ahead market and if it doesn’t get cleared even then, it will be offered in other segments, including the real-time market, according to the ministry's notification on Electricity (Late Payment Surcharge and Related Matters) (Amendment) Rules, 2024, issued on Feb. 28.
Higher Spot Power Tariff
According to Indian Energy Exchange data, the spot power tariff in the day-ahead market in May stood at Rs 5.3 per unit. This is 5.9% higher than the Rs 5.1 per unit price in April. According to ICRA Ltd., this rise in tariff can be attributed to higher electricity demand.
Spot power tariffs refer to the fluctuating prices of electricity bought and sold in a wholesale market, typically on a day-ahead basis.
The day-ahead market of the IEX is a marketplace for physical electricity trading. Here, the deals are made for electricity delivery the following day, allowing for adjustments based on daily fluctuations in demand. Contracts traded in the DAM result in the physical delivery of electricity through the power grid.
Potential Impact
The rise in spot power tariffs benefits power generation and distribution companies.
Higher spot tariffs translate to more revenue per unit of electricity sold by companies in the day-ahead market. Further, if the increase in tariffs outweighs any rise in production costs, companies could also see improved profit margins.
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