Business Standard reported that, Power generating companies are forced to sell power in the spot market at half the tariff they quote in bidding for power purchase agreements. The reason for sudden fall in the price of power is the increasing risk in long term power scale. The significant decrease in demand from states has leaded the power developers to sell in open market, where they try to recover at least the variable cost, which is better compared to complete shutdown.
While the tariff quoted in PPA has touched Rs 3.9-5.5 a unit, the spot price has gone down to Rs 2.16 a unit during the same period. Day-ahead spot market is three per cent of the total power market, but it sets the benchmark for medium-term and long-term power rates. The range of variable cost was Rs 0.89 a unit to Rs 1.41 a unit, while the fixed cost component ranged between Rs 2.86 and Rs 4.09 a unit. According to market calculations, a complete shutdown by any plant leads to around Rs 2 a unit of continuous loss for it.
Our View: Though the huge decrease in the power spot price is not a good sign for those who invest in the power sector, it is highly positive for all other industries as it will reduce their cost of production and hence improve their bottom lines.