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BW Businessworld

A Bright Idea

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Three state-owned power producers have found a way out to keep their plant output high even as they penalise defaulting utilities by cutting off power to them. National Hydro Power Corporation (NHPC), Satluj Jal Vidyut Nigam (SJVN) and North Eastern Electric Power Corporation (NEEPCO) debuted on India's first ever power exchange, New Delhi-based Indian Energy Exchange (IEX), between November 2011 and February 2012, offering 400 MW, 100 MW and 19 MW of power, respectively, for sale at the exchange. This was the power they had saved by cutting off supplies to utilities.

Interestingly, although IEX has been in operation since June 2008, this is the first time that any of the state-owned power producers have used the energy bourse's platform for selling electricity. Where IEX was trading close to 33,000 MW before any of these PSUs (public sector units) started trading on it, the participation of these power producers has increased the trade volume to 40,000 MW, of which PSUs contribute a substantial 9,000 MW (22.5 per cent).

It is turning out to be a bonanza for PSU power producers. While a PPA (power purchase agreement) fetches them a rate of anywhere between Rs 2 and 2.50 a unit, trading on IEX has helped them recover between Rs 3.30 and Rs 4.30 for every unit of power. SJVN has so far recovered roughly Rs 13 crore (in a period of four months) and NEEPCO close to Rs 3 crore (in three months). NHPC did not comment on the amount recovered.

These companies have been reeling under substantial defaults by utilities. BSES and Uttar Pradesh Power Distribution Company defaulted on their payment to NHPC with outstanding dues of Rs 460 crore and Rs 500 crore, respectively. While BSES repeated its default story with SJVN with outstanding dues of Rs 100 crore, NEEPCO's culprit is Meghalaya Energy Corporation (MeECL) with about Rs 100 crore outstanding.

"Our day-ahead market provides these producers with a perfect fit. Hydro plants like those of NHPC can calculate on a daily basis the exact quantum of electricity that can be generated and this coincides very well with our day-ahead market," says Rajesh Kumar Mediratta, senior vice-president (business development) at IEX.

"This will not help much in the liquidation of our outstanding dues. We might be compelled to trade this power for a longer period of time in order to bring in some much-needed working capital," confirms P.C. Barman, deputy general manager (commercial), NEEPCO. 

While the defaulting utilities have requested their respective producers to resume supply of their allocated power, sources say that SJVN and NEEPCO do not want to let go of the advantage (greater power generation and better collection potential) of trading in the upcoming peak season.

Considering that they got much more than they bargained for it might be safely said that any future default by discoms will bring these producers back to the efficient platform of power exchanges.

Given that rising demand increases the price of power in summer months, these power producers have the potential of recovering about three times more than they have recovered till now. Alas, that may not happen as supply will have to be restored as soon as the utilities pay up the dues.

(This story was published in Businessworld Issue Dated 16-04-2012)