According to the country’s largest power exchange, the boom in renewable energy in India is set to lead to a huge growth in spot power trading. Rohit Bajaj, head of business development at Indian Energy Exchange Ltd, said buyers will move away from traditional long-term contracts in favor of cheaper renewable energy.
More than a quarter of the country’s electricity can be bought through spot deals within a couple of years, which is four times the current level.
Coal dominates Indian electricity generation, but that is changing, with renewables accounting for more than 80% of new capacity last year, according to BloombergNEF. More variable generation from wind and solar means that short-term business will gain importance – facilitating buyers to switch to the most efficient sources and providing clean electricity access to states with low renewable capacity.
Bajaj said by telephone, “Utilities are realizing the value of finding flexibility and competitive price on exchanges. National investment in power cables means “there are no barriers to transmission now, so why go for longer term contracts ?”
About 90% of India’s electricity is traded through bilateral contracts that typically last more than two decades between producers and provincial utilities. These take-or-pay contracts can be tough for electricity retailers when cheap renewable electricity is available.
According to the country’s Central Electricity Regulatory Commission, the share of electricity under long-term contracts is expected to fall between 50% and 60% by the middle of the decade.
Reducing the amount of electricity under long-term contracts means that producers and buyers can turn away utilities, which are sometimes vulnerable to political moves by provincial governments that reduce their ability to pay generators. which makes the supply to consumers less reliable.
IEX The government is gearing up for the government’s plan to optimize electricity prices by pooling various sources of supply on a single exchange platform. Bajaj said the new system to be launched from April will allow more cost-effective power plants to produce more, thereby reducing costs for buyers.
IEX, one of the two electricity exchanges in India, controls more than 95% of the spot volume. Bajaj said it also plans to introduce contracts lasting up to one year to tap buyers willing to secure future supplies.
The stock’s rally has been fueled by growth prospects. Shares of IEX have gained 243% this year, beating the industry benchmark BSE India Power Index, which has gained 69% during the period.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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