JSW Energy, Lanco Power and Jindal Steel & Power Ltd (JSPL) are among companies set to benefit from the increase in merchant power tariffs this summer.
Going by UBS Investment Research data from the Indian Energy Exchange, short-term tariffs have increased 61% month on month to Rs 5.21 per unit in March.
That’s the highest level since August, 2009, when the going rate was around Rs 7.20 a unit.
Unlike conventional plants, which are planned based on assured offtake of power by buyers, in a merchant plant there is no assured offtake and the promoter has to bear the entire risk of selling to consumers on his balance sheet. This power is sold and bought on merchant exchanges, much like other commodities. The price is subject to fluctuations, which can be significant during the peak demand months, as in summer.
In view of the uptrend in prices of late, state electricity boards (SEBs) have sprung into action and have started tying up for short term power contracts. In a recent transaction, the Karnataka SEB agreed to procure 1 gw this month at Rs 4.96/ kw. The requirement would be met by supply of 200 mw from JSPL, 450 mw from PTC and 350 mw from NTPC. The SEB also plans to buy 0.75-1 gw during April, for which the tenders would be floated soon.
Predictably, the power producers’ realisations have started improving. Seshagiri Rao, group CFO, JSW, says his company’s realisation from power contracts has gone up in the past month. Prices are likely to rise further, he says, while refusing to divulge the average price for power contracts.
“The current demand-supply scenario is pushing the prices up in the merchant market,” says J Suresh Kumar, CFO, Lanco, which has 500 mw of merchant power capacity. “The situation is expected to remain the same in the coming months and it will help us get better rate of return,” he says.
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