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Energy exchange causes concern in power firms

By Sudheer Pal Singh in New Delhi
July 01, 2008 10:36 IST
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The country's first power exchange -- the newly set up Indian Energy Exchange -- has posed serious business concerns for major power trading companies as they fear loss of businesses to the exchange, which offers a transparent pricing mechanism.

"Sooner or later, a greater part of our businesses will surely be taken up by the exchange,  a more transparent platform," said a senior official from PTC India Ltd, the country's largest power trading company that accounts for about a quarter of the total volume of electricity traded in the country. Interestingly, PTC is one of the co-promoters of the exchange.

Another major player in the power trading sector, NTPC Vidyut Vyapar Nigam Ltd, has confirmed similar apprehensions and is already working out plans to protect its business. "The energy exchange will affect our (trading) volumes.

At least our day-ahead businesses would be hit. We are working out mechanisms to avoid the impact," confirmed a senior official of the company. NVVN is a wholly-owned subsidiary of NTPC Ltd and accounts for about a quarter of the total volume of electricity traded currently.

The energy exchange -- jointly promoted by Financial Technologies and PTC India -- commenced operations on Friday and is scheduled to undertake only short-term trading contracts initially. There are more power exchanges in the pipeline too.

Industry experts agree that with the setting up of a formal marketplace for power trading in the short term, huge amounts of trading volumes will be pulled from the bigger players by the exchange.

"Of the total volume of electricity traded in the country, a greater chunk -- about 90 per cent -- is carried out as short-term trade only.

Short-term contracts are for less than three months period or a maximum of up to one year. Long-term agreements, on the other hand, are entered into for a period of 25 or more years. Currently, majority of the power agreements finalised by traders are on a short-term basis.

The expert also added that in the absence of an exchange, ensuring 'best prices' for the deal becomes difficult with most of the buyers of power having to agree to the price offered by the trader.

The exchange, however, is expected to bring in better 'price discovery' for the stakeholders and thus bring investment in the sector.

IEX is a spot exchange where actual demand and supply of power takes place and price discovery is determined on the basis of bids and offers during the transaction period.

Meanwhile, the impact of the power exchange has already started becoming visible on the declining stock values of some of the major power traders like PTC and Adani Enterprises Ltd.

PTC's share price for instance has gone down about 11 per cent in the past one week from Rs 82.90 to Rs 73.80. The share price went down about 19 per cent in past one month and about 50 per cent since the beginning of the current year.

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Sudheer Pal Singh in New Delhi
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