Short-term power prices in India way above global benchmarks

Power utilities in India are on an average forking out much higher than their counterparts across the globe in shopping for electricity in the short-term market.While in absolute terms, the average short-term power prices in India were found to be over 50 per cent higher than the peak tariffs quoted on key wholesale electricity bourses across developed markets, in purchasing power parity (PPP) terms the price differential is bound to be even higher.Shorting the exchange.The comparison for May 2010, which includes data from four global wholesale power exchanges, is based on data complied by the Central Electricity Regulatory Commission (CERC).

A key reason is that the major volume of trade in the short-term market in India takes place outside the two operational Power Exchanges through the over-the-counter trades (OTC) at an average of over 40-60 per cent higher prices as compared to the bourses.Besides transmission problems and other systemic constraints in the nascent short-term market add to the overall transaction costs in India.

In May, the weighted average price in the OTC market (done either through bilateral deals between utilities or through traders) was Rs 6.17 a unit, as against Rs 4.50 on the exchanges, according to CERC data. In absolute terms, this was much higher than the numbers quoted in May across global exchanges, including the PJM Exchange in the US East Coast, the UK's APX, Nordpool and EEX of Germany.

The short-term power market in India, involving trades done within a time-frame of one year, comprises around eight per cent of the total energy generated in the country. Of this, over 40 per cent is done through power traders and another 10 per cent on a bilateral basis between utilities.

Despite the price discovery on the exchanges being more efficient and transparent, it forms just around 10 per cent of the total short-term traded power or a minuscule 0.8 per cent of the total energy consumed.