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CERC Directs Power Exchanges To Cap Spot Prices At Rs 12/kWh Amid Demand Surge

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The Central Energy Regulatory Commission (CERC) ordered power trading exchanges to cap spot prices at Rs 12/kWh in a suo-moto ruling. The order comes out as, due to strong demand and limited supply, the market-clearing price (MCP) has regularly reached the maximum of Rs 20 per kilowatt-hour (kWh).

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In its ruling issued on Friday, the regulator stated that in the “public interest,” it had requested power exchanges to modify their bidding software and set the maximum bid price at Rs 12/kWh.

CERC is concerned that as peak summer approaches, the scenario of increasing demand, combined with an inadequate supply, is causing price volatility, which would likely continue till May until wind and hydropower are anticipated to pick up steam.

The CERC has been analyzing the pricing of electricity exchanged in power exchanges’ Day-Ahead Market (DAM) and Real-Time Market (RTM). It was revealed that prices detected had stayed extremely high in recent days.

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In accordance with the Commission, the MCP of Rs 20/kWh was recorded in 31 blocks of the DAM at Indian Energy Exchange (IEX) for the month commencing February 24. A similar pattern was found in the RTM, where MCP reached an average of Rs 18.67/kWh for the day.

According to the regulator, power consumption increased significantly in March and reached 199 GW on March 17, 2022. It has been hovering around 195 GW since then. In response to this surge in demand, 58,719 MW of installed generating capacity was offline on March 25 for a variety of causes, including a 4,323 MW outage owing to a coal shortage.

The high cost of imported coal is resulting in high variable costs for imported coal-fired power plants. Similarly, the current gas-based facilities are unable to sell in the market due to an increase in the worldwide price of gas.

Rising temperatures with the early arrival of summer, as well as the resumption of economic activity with the relaxation of Covid restrictions, have all contributed considerably to the increase in power demand.

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However, the increase in supplies has been restricted. The situation has worsened as a result of geopolitical issues influencing fuel supply.

This has expanded the demand-supply imbalance, with the average buy-to-sell offer ratio above 2 and MCP sometimes exceeding Rs 20/kWh. Such unreasonably high prices, even for a short period of time, without any major increase in supply is not only counterproductive to consumer interests but also undermines buyer’s trust in the market’s legitimacy, CERC warned.

Therefore, the Commission asked trading platforms to modify the bidding software with immediate effect so that members can make bids in the price range of Rs 0/kWh to Rs 12/kWh for the DAM and RTM. Beginning Friday, exchanges must comply with the orders within two days.

In its ruling, the Commission stated that it believes that this price reduction will be consistent with current market realities, will have no substantial impact on volume transacted, and will protect consumer interests.

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