How India's electricity prices are insulated from the global crisis - Resilience Lessons

The past year was marked by intense geopolitical and geoeconomic turmoil, repeatedly causing devastation across the globe.electricity marketThe ongoing conflict between Russia and Ukraine has disrupted coal and gas supplies just as the world is reeling from the pandemic and economic activity is beginning to pick up steam. This led to an increase in the prices of imported coal and natural gas, leading to high unit costs for electricity. These higher costs have created inflationary pressures in global markets like Europe and China and have created a perfect storm for the global energy industry.

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In Europe, post-war European Union sanctions, reduced imports of fossil fuels from Russia and reduced flow of natural gas rapidly pushed prices up. Gasoline prices in Europe have risen 128% in the six months since the outbreak of the Russo-Ukrainian war. Coal prices for the March contract traded on the API2 coal futures market in Rotterdam increased by 96% from February 2022 to August 2022. According to the IEA, high natural gas prices in 2022 will lead to significant change towards coal in European electricity generation. In the US, Henry Hub prices rose more than 9 percent to a high of nearly $8.20 per MMBtu, the highest since September 2008. As natural gas often sets the asking price of electricity in Europe,electricity pricealso jumped in the region.

overall volatilityelectricity price

The crisis hits Europe especiallyelectricity marketCaught in a vicious cycle of supply shortages and high energy prices. Gas shortages caused by the Russia-Ukraine conflict, combined with low hydropower reserves due to drought in European countries, low availability of nuclear power in France, and aging coal plants across the continent , are exacerbating Europe's electricity crisis in 2022 and pushing the European Commission to consider possible reforms to electricity market rules in the European Union (EU), including proposals to make contracts for difference (CfD) mandatory to encourage the construction of more renewable energy capacity for long-term, fixed-price contracts. The price paid for the inflationary effects of fluctuating electricity prices is close to 800,000 million euros. EU member states have agreed voluntary targets to reduce demand for gas and electricity through measures ranging from efficiency improvements to increased renewable energy capacity.

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According to the IEA, Europe will have the biggest impact on wholesale electricity prices, more than doubling on average in 2021. In many European countries, wholesale electricity prices in the second half of 2022 exceed average prices in the second half of 2019 and 2021. In the second half of 2022, prices in France quadrupled to exceed €320/MWh, while in Germany they reached almost €330/MWh. existnorth poolIn the electricity market, the average wholesale price of electricity remains at an unprecedented level of more than €150/MWh in the second half of 2022.

In the UK, gas prices quintupled in 2021 as gas prices soared, with peak energy prices rising 80% from £1,971 in April 2022 to £3,549 in April 2022. October 2022. Household electricity bills were then capped at £2,500 a year, and the UK government has been in crisis for two years.

In the US, the average wholesale price of electricity in the second half of 2022 is around $91/MWh, 65% higher than the price of the second half of 2021. In 2022, the average wholesale price of electricity wholesale in Australia is AUD 170/MWh, more than double the level of the second half of 2021.

Indian Power Sector - Permanent Position

However, the story is different for the Indian energy sector, despite some inherent drawbacks such as financial difficulties and partial reliance on imported fuel. Despite all these obstacles and the constant volatility in the global energy markets, the Indian energy sector has managed to maintain affordability, affordability and reliability of supply across the country. According to the IEA report, the average wholesale price in India will reach INR5,000/MWh (€55/MWh) in the second half of 2022, a bearable 10% increase from the second half of 2021 level.

This resilience is possible because more than 70% of the country's production capacity currently uses coal, mainly domestic coal, while gas-fired power plants account for around 6%. Thus, a much lower reliance on natural gas, coupled with increased coal production that has led to a greater domestic supply of coal to keep its power plants running, has allowed India to carve out a niche in this global energy crisis. Furthermore, a determined shift towards renewable energy with an overall goal of net zero emissions by 2070 has also helped India's power sector to diversify its fuel sources and reduce its reliance on domestic and imported fuels. Add 15 GW of new renewable energy capacity in 2022-23, significantly more than the previous fiscal year. Production of electrical energy from renewable sources in the period 2022-23. it is higher by 19% compared to the previous year. This largely shields India from the adverse effects of the global energy crisis.

favorable state policy

The remarkable resilience of the Indian energy industry can also be attributed to a series of energy policies announced by the Indian government. A decisive shift towards renewable energy, such as the goal of increasing renewable energy capacity to 500 GW by 2030, has helped India's power sector to diversify its fuel sources and reduce its reliance on conventional and imported fuels. This largely shields India from the adverse effects of the global energy crisis. The country is currently experiencing a gradual improvement in the coal situation after various measures were taken to increase the availability of coal in the power sector.

The Indian government secured increased coal production and prioritized coal supplies to Gencos through a long-term PPA. The Minerals and Minerals (Development and Regulation) Act 1957, as amended in March 2021, allows closed mines to sell up to 50% of their annual production once they qualify for end-use facilities. The government allows 100% FDI in commercial mining and allows cleanup in one place to increase domestic coal production. Increase the allocation of coal for electricity and give priority to rail traffic. also,Ministry of ElectricityA notice was issued to states and producers directing them to import at least 10% (later revised to 6%) of their coal requirements for blending with domestic coal. Similarly, invoke Section 11 to keep imported coal-fired power plants operating at full capacity and give them the ability to sell unsold electricity to customers on electricity exchanges; strictly control plant maintenance and downtime; Some important steps have been taken in response to the restrictions.

To ensure power supply during the upcoming months of peak demand, NVVN (NTPC Vidyut Vyapar Nigam) recently issued a procurement request for 1,500 MW of power from imported coal-fired power plants, to be sold through power swaps. NVVN has also announced a tender for the acquisition of 4 GW of electricity from gas-fired power plants on a competitive basis, to be sold on the electricity exchange.

The recently approved National Green Hydrogen Mission and the identification of 'green growth' as one of the development pillars of the FY24 Union Budget will help India realize its vision of energy self-sufficiency.

The current global energy crisis has drawn attention to the Indian energy market. Markets with special categories of renewable energy products, such as the Green Day Ahead market,the green future market, could act as a catalyst to accelerate the increase of renewable energy generation capacity in the country, reducing the dependence on coal imports. International experience shows that in developed electricity markets such as the European Union, the United Kingdom and the United States, electricity exchanges have played a key role in reducing the cost of grid-connected renewables by establishing a balanced market and a contract for difference (CFD) market.

Efficiency of the electricity trading platform

In India, the electricity market has increased the competitiveness and efficiency of the electricity sector. The markets have also played an important role in mitigating the impact of the global crisis by providing alternative avenues for electricity trading where participants can trade with each other and meet their own needs, depending on their different requirements. A wide range of markets, including daily markets, spot time markets, and real-time markets, allow electricity to be traded in any time period between 15 minutes and 3 months. This high level of flexibility makes it possible to balance the portfolios of buyers and sellers in real time. In addition, market-driven electricity and renewable energy markets offer various products and market contracts: Real Time Market (RTM), Green Time Delivery Market (GTAM), and Green Day Ahead Market (GDAM). Through these markets, Discoms can access the prices discovered in the stock market in real time to make the best buying and selling decisions. Also, discrepancies in renewable surpluses, renewable generators with no PPA/PPA expiration, generators that came online before scheduled dates, etc. they can monetize their surplus energy and help their colleagues meet their RPOs.

Notably, while supply-side restrictions pushed average daily market prices on energy exchanges to Rs 5.90 per unit in FY23, an increase of around 35% year-on-year, trading volume it remained resilient. Despite global headwinds, FY23 transaction volumes were down marginally 5% year-over-year forindian power exchange, the largest electricity trading platform in the country. It then reported a 7% QoQ volume increase in the last quarter of FY23. This is a testament to the effectiveness of India's strong and efficient electricity market.

Compared to the current turmoil in other energy markets around the world, the resilience and market confidence displayed in the Indian electricity market is a testament to the Indian government's reforms and the fact that they are pushing the industry in the right direction. As India moves towards its goal of reducing the emissions intensity of GDP by 45% and reaching net zero by 2030, the role of market mechanisms will expand significantly. Electricity markets will play an increasingly important role in achieving these goals by helping to manage the intermittency of renewable energy through various market products, especially real-time markets, enabling efficient integration with electricity. grid. It is time for India to unlock the potential of the electricity market to optimize the use of resources in the regions, accelerate the transition to green energy and bring the country closer to energy security.

[This article was sponsored bypunk batra, former president of the Central Electricity Authority (CEA)]