Power up trading
Five years after the passage of the Electricity Act, the transfer of power from surplus to deficit regions is far from satisfactory. Monsoon-deficit States are starved for power, while those that receive normal or excess rainfall can generate more hydel power than they need during the season. Power generation in the North-East, besides Bihar and Sikkim, has exceeded targets. Hydel power is uniquely suited to meeting peak demand, now about 15 per cent higher than supply, as electricity is fed into the grid almost as soon as the reservoir gates are opened. Power output in general, and hydel generation, in particular, will improve if there are greater possibilities to sell surplus power. However, the trading systems to meet peak demand in cities and seasonally-deficient regions are woefully inadequate. Power trading, at about 15,000 GWh, accounts for 3 per cent of the total volume of electricity handled by the grid. It is growing at just 6 per cent per annum. The gains to be had from more trade can hardly be overstated: It improves capacity utilisation and, thereby, reduces unit costs, raises farm and industrial output and cuts down on the need for new projects. Given the staggering levels of waste in the irrigation sector and the need to use coal and oil sensibly, power trading should be seen as one of the cornerstones of long-term energy management. Trading in power is hampered by three major factors: Lack of adequate transmission capacity, absence of ‘open access’ or choice for buyers and sellers along the supply chain and a rigid approach to tariffs. While the Indian Energy Exchange and Power Exchange of India facilitate spot deals, trade will not develop unless greater quantities of power can be transferred synchronously (at the same frequency) across all regions. The present inter-regional transmission capacity is about 17,000 MW, which connects the northern, western, eastern and north-eastern regions synchronously and the southern region asynchronously. This is only about 12 per cent of total installed generation capacity. By the end of the Eleventh Plan period, transmission capacity is expected to increase to 37,700 MW, with the southern region being integrated at the same frequency as the rest. The Electricity Act is based on the principle of allowing generators, transmitters, distributors and the final consumer the freedom to choose their clients. However, the institutional platforms to get this working, such as trading firms and power exchanges, are at a nascent stage. The Central Electricity Regulatory Commission rightly monitors trading margins and mandates a high plant load factor to keep unit costs in check. However, plants with high variable costs are effectively disqualified from supplying their full quota to the grid. They should be allowed to produce and sell electricity to those willing to pay more. These measures, besides stemming the inefficient use of power, can reduce the demand-supply gap in electricity.
