Discoms and open-access consumers are likely to save around Rs 550 crore even if there is a 50% shift in power procurement to the new real-time market (RTM) trading from the diversion settlement mechanism in the near to medium term, Icra said. According to the rating agency, the real-time market for trading power, which was launched on 1 June, is expected to lead to an efficient price discovery in the market for power trading.
"The introduction of RTM trading would enable efficient price discovery for electricity and support grid balancing activities. This is especially significant in the context of the rising share of renewable energy in electricity generation in India," Icra Group Head & Senior Vice President - Corporate ratings,Sabyasachi Majumdar said.
He further argued that considering a 50-pay per unit savings under the RTM Deviation Settlement Mechanism (DSM) and assuming a 50 per cent transition from DSM to RTM in the near to medium term, annual savings for discomfort and open-access consumers are estimated to be Rs 550 crore.
"Further, a robust communication and software systems remain crucial for implementation of the real time market," he added.
With strong policy support and improved tariff competitiveness for wind and solar power, the share of renewable energy in all of India's electricity generation increased from 5.6 per cent in FY2016 to 10 per cent in FY2020.
This, coupled with the variable nature of the renewable generation, adversely affects the grid balancing mechanism, the Agency said.
"While the gradual implementation of forecasting and scheduling mechanisms for wind and solar power projects is expected to ease the grid balancing process, the availability of RTM power trading would provide an enabling mechanism for efficient grid management," it noted.
According to Icra, prices on the power exchange sector, both RTM and DAM, are expected to remain below Rs 3 per unit in the near term , given the surplus capacity scenario and the subdued demand growth expectations for the current year, with the negative impact of the ongoing lockdown and restrictions placed to contain the COVID-19 pandemic.
"Subdued power tariffs on power exchange thus remain positive for the discoms and open access consumers and in turn, would also augment the open access transactions. However, such spot tariffs remain unviable for thermal independent power producers which do not have long term power purchase agreements," Icra Sector Head & Vice President - Corporate ratings, Girishkumar Kadam said.
Icra further argued that, provided the attractive spot tariffs, industrial and commercial consumers could increase their power procurement through open access using RTM and DAM on power exchanges.
"This in turn may negatively impact the revenues and profitability for discoms, given that such consumer segments cross subsidise the supply to domestic and agriculture consumers of the discoms," it said.
Considering the open access charges at the higher end of Rs 4 per unit and the spot power tariff of Rs 2.5 per unit, procurement from open access is likely to be more cost-effective for industrial and commercial users at the prevailing grid tariff rates.
"This in turn may also lead to an upward pressure on cross subsidy surcharge and additional surcharge imposed by the discoms so as to discourage such open access," Icra noted.
