CERC Retains Price Caps On Energy Trading

Highlights :

  • The CERC decision was expected, considering the strong demand growth, and the expected slowdown in Hydro and renewable generation in winter.
  • Pressure is expected to remain on coal stocks, even as the overall availability has improved as compared to a few months back when a crisis unfolded that was managed with imports.
CERC Retains Price Caps On Energy Trading

The CERC (Central Electricity Regulatory Commission), which regulates the power exchanges across the country among its other responsibilities, in an order on September 29, has extended the price caps it had placed on power trading by a further 3 months. The cap of Rs 12 per unit, that was first imposed when shortages drove up prices to Rs 20 and beyond in  May this year, after which this is the third three month extension to the same.

In it’s directions to all exchanges in September 29, the CERC bench noted that the previous extension on caps that was due to end on September 30 requires a further extension, due to the continuing volatility  in power demand and supply. Accordingly, it enjoined members to quote prices in the range of Rs.0/kWh to Rs.12/kWh in DAM (including GDAM), RTM, Intra-day, Day Ahead Contingency and Term-Ahead (including GTAM) Contracts.

The news will not come as happy tidings to many generation firms who were selling power on the exchanges, and hoped to discover actual market prices as winter closes in.

The CERC order noted that the peak demand has been fluctuating and touched 199 GW on 07.09.2022. Based on the past trend, it is expected that the peak demand (morning & evening peaks) would remain significant due to lighting and heating load in the winter months.
It also observed that during the last 3 months, Market Clearing Price (MCP) of Rs.12/kWh in DAM has generally been discovered during the evening hours from 18:30 hrs onwards. From 15th September 2022 onwards, morning & evening peaks in MCP are being
observed in DAM at IEX. These peaks are anticipated to become steeper during the winter season.
It reckoned that high demand for electricity particularly from household and industrial consumers is likely to continue over the next few months mainly due to festive season, and pressure emanating from lighting and heating load. Moreover, agricultural load will persist over the next few months on account of harvesting of kharif crops and sowing of winter crops.

Thus, even as domestic coal stocks are well positioned as compared to last year’s period from Oct’21 to Dec’21, as per the past trend, it is expected that generation from hydro and wind would start decreasing from October onwards, which is likely to exert pressure on coal stocks.

Hence the decision to stick to the price caps.

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