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Spot price spike unlikely to have any impact on solar power


01 October 2018 | BRIDGE TO INDIA

Spot price spike unlikely to have any impact on solar power

Spot prices for power on the energy exchange in India touched an all-time high of INR 17.61/ kWh (USD cents 24) last week. Average daily price on October 1, 2018 shot up to INR 7.64 (USD cents 11), about 150% higher than average for last year. Trading volumes have also simultaneously shot up by about 18% over last year.

  • The price spike owes largely to short-term supply and demand side issues;
  • States are reluctant to buy solar power despite it being amongst the cheapest sources of greenfield power;
  • Sustained solar demand beyond 10 GW per annum is dependent on finding a cheap solution to the intermittency problem;

Spot prices are ultimately a barometer of power demand-supply balance. Post monsoons, around September-October, wind and hydro power supply typically starts waning whereas demand sees a cyclical upturn. Prices therefore usually spike up in these months due to short-term aberrations rather than any fundamental long-term trends. This is an annual saga and thermal power should ideally be able to pick up the slack easily because of excess capacity. But the coal supply chain is highly constrained and rather unhelpfully, supplies run low at around this time of the year. Surge this year has been larger than expected as there is some discernible hardening in power demand in the recent months – 2018 YTD demand has increased y-o-y by 6%. Fall in wind power output also appears to be larger in comparison to last year.

As the factors driving increase in traded prices are primarily short-term, they do not, unfortunately, herald any likely increase in demand for solar power. In fact, the states are reluctant to buy solar power despite prices falling to all-time lows. We have maintained for some time now that one of the biggest challenges for solar power in India is relatively weak growth in power demand (and competition from abundant thermal power). DISCOMs have enough contracted supply and thermal power plants are still operating at low PLFs of about 62% only. With up to 60 GW of financially stressed thermal plants likely to see a debt resolution in the coming months, thermal power output may actually see a boost keeping solar demand subdued for another 2-3 years.

Variable RE penetration in some of the largest power consuming states (Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh) is beginning to touch or even cross the critical 20% mark. DISCOMs need more firm power to meet incremental demand particularly for their evening peak loads. The key to creating sustainable and robust demand for solar is to solve the intermittency challenge.


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