From around 2 per cent of the country’s total power generation in the early 2000s, the share of the trading segment is now in double digits at 10 per cent. In an interview with Power Line, PTC India’s chairman and managing director, Deepak Amitabh, talks about the growth of the power trading segment over the years as well as the key issues and challenges…
What is your perspective on the growth of the power trading market over the past decade?
The power trading market is on a continuous evolution path in terms of increasing liquidity, attracting more market participants, introducing new products and services, and integrating the physical delivery market with the financial markets. During 2005-06, the traded volume was 14.19 BUs, constituting 2.45 per cent of total generation, which is now at 10 per cent (2015-16) of the total generation at 115.23 BUs. The products and services have evolved from plain vanilla bilateral contracts on a round-the-clock (RTC) basis to more complex and flexible options over days and months and also within a day. The price discovery mechanism has evolved to more efficient and transparent mechanisms in the form of power exchanges and the e-bidding platform – Discovery of Efficient Electricity Price (DEEP). There has been a shift in the consumer base as well, from integrated state electricity boards to unbundled discoms.
Now, in addition to the conventional state utilities, there are industrial and commercial consumers, which are buying power through open access. The source of power trading is also changing from only conventional sources to renewable energy. The trading of renewable energy will be a game changer as it will bring significant capacity addition in renewable-rich states for the benefit of renewable-deficit states on sound economic principles. Similarly, intra-nation power trade shall be replicated across all the neighbouring countries as part of a large, secure and robust energy grid.
What are the key challenges constraining growth in the power trading market?
The issues that create impediments for the power sector eventually affect the power trading market as well. The lack of demand, primarily due to the stressed financial health of the discoms, transmission constraints, and the reluctance of discoms in giving open access to industrial consumers are major concerns for the growth of power trading. Another concern is meeting the latent demand, which constitutes a substantial portion of the demand. The initiatives taken by the government to improve the sector, like the Ujwal Discom Assurance Yojana, the new Tariff Policy, and the coal rationalisation and allocation policy are aimed at improving the off-take and availability of power at affordable prices. These measures will take some time to revive the sector fully.
Will the proposed amendments to the Electricity Act, 2003 be able to adequately bridge the gaps in the open access framework?
The proposed amendments to the Electricity Act, 2003 have a provision for the separation of content and carriage to initiate competition in the retail supply segment. Open access also has the objective of creating competition for quality power supply at affordable rates. However, due to resistance from the state utilities, fearing loss of revenue from high tariff-paying industrial and commercial customers, the benefits of open access in terms of industrial off-take has been limited. Both open access and supply licence aim to offer quality power at competitive rates. The basic issue in the implementation and success of these measures will remain with the discoms considering them as remunerative components in their revenue streams.
What have been some of the major achievements of PTC India in the past year?
During the last financial year, PTC India maintained its leadership position with a market share of 35 per cent in the power trading business, with an increase in trading volumes by 14 per cent to 42,372 MUs over last year. On financials, our profit after tax grew by 15 per cent to Rs 2.3 billion and the operating margin was up by 14 per cent to Rs 3.49 billion. The net trading margin realisation increased by 8 per cent to 5 paise per unit this year.
An important policy shift has been initiated by the Ministry of Power in the short-term power trading business – the launch of the DEEP online bidding portal. As a knowledge-driven company with transparent business practices, PTC is benefiting from the adoption of this platform. PTC has been successful in more than 35 per cent of the total business transacted on the DEEP platform.
Cross-border trades have always been of a significant part of PTC’s business. PTC is engaged with Nepal, Bhutan and Bangladesh for cross-border transactions and together they have contributed around 7,150 MUs (16.88 per cent) of the total traded volumes. Further, PTC has a signed power purchase agreement for 40 MW for medium-term supply to Bangladesh for two years.
PTC has been focusing on new businesses to cater to the dynamic needs of the industry and customers. PTC Retail, which was set up for facilitating power supply to industrial and commercial consumers, has been growing at a fast pace. The retail business traded 7,189.62 MUs in 2015-16. We have added reputed organisations such as the Delhi Metro Rail Corporation, Indian Railways, Steel Authority of India, Reliance Industries and ACC Cements, to our client list.
PTC has increased its presence in the portfolio management business for utilities, as it executed/extended agreements with Jharkhand Bijli Vitran Nigam Limited, Indian Railways and the New Delhi Municipal Corporation for managing their power portfolios.
PTC has also diversified by having a footprint in the energy efficiency space, and is supporting the Domestic Efficient Lighting Programme scheme (the Government of India’s flagship project) in four states – Maharashtra, Uttar Pradesh, Himachal Pradesh and Rajasthan – as a project management consultant. Similar services are being provided in street lighting projects in two circles in Andhra Pradesh.
As part of its advisory services, PTC offered services to petroleum refineries in assessing feasible transmission connectivity for optimised power procurement, contract structuring and transaction advisory in the procurement of power through open access. PTC has formed a strategic consortium with REC Transmission Projects Company Limited for undertaking engineering and contracting activities for large-sized transmission projects.
PTC was selected by the British High Commission under its Prosperity Fund Programme for preparing the Indian power market for carriage and content separation through collaboration with the UK. PTC worked in close association with key stakeholders in implementing the supply licensee business and undertook a pilot study for Tata Power Delhi Distribution Limited and Punjab State Power Corporation Limited.
The industry is shifting towards environment-friendly sources of energy and PTC has also made substantial progress in this area. The company entered into an MoU with the Solar Energy Corporation of India (SECI) for the sale and purchase of power generated from 3,000 MW of solar projects for onward sale on a long-term basis for 25 years. PTC is also supporting SECI in managing the operational and commercial aspects of solar energy being traded through SECI under the Jawaharlal Nehru National Solar Mission Phase I. The total volume facilitated for SECI was 973 MUs in 2015-16.
How is procurement through DEEP e-bidding expected to impact the power trading market?
The DEEP portal has brought efficient price discovery in the power procurement process. PTC keenly looks forward to its implementation in energy banking as well. The energy banking product has a significant share in the short-term power market and almost every utility resorts to energy banking as its power management solution. With the introduction of DEEP in energy banking, the process of finalising energy banking will be streamlined and be made transparent.
What is your outlook for traded volumes and prices in the short to medium term?
We feel that with the launch of new products and ancillary services, the share of UI may come down and volumes may shift towards bilateral trades and exchange transactions. At present, tariffs are around Rs 3.25 per unit in bilateral trades, which may gradually rise to Rs 4 per unit over the next three to four years and stabilise.
What will be the company’s key focus areas over the next few years?
Going forward, we are focused on a balanced development of its trading business portfolio to ensure sustained growth. With an aim to contribute to efficiency in the power market, PTC is focusing on technology-intensive businesses for bringing down the delivery cost. As a knowledge-based organisation, we intend to contribute to various stakeholders in the sector through our advisory services. On volume growth, we would endeavour to capture 50 per cent of the total trading volumes in two to three years. PTC continues to work in the renewable energy segment, be it development or financing of renewable energy projects and energy efficiency areas on its own, and through its subsidiaries.
What is the company’s outlook for the power sector over the next few years?
The focus of near-term power reforms will revolve around distribution systems. We feel efficiency measures such as IT enablement, automation, demand-side management and capacity building along with financial restructuring will be the key implementation areas. Power market forces will be instrumental in creating liquidity and competition to provide higher service levels. The power sector is witnessing a shift from conventional sources of energy to renewable sources of energy. The associated infrastructure, mainly the transmission system and balancing mechanisms such as storage and ancillary services, will play a critical role in this development.