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● Merchant power prices have recently spiked to more than
Rs5/kWh over the past two weeks and to more than Rs7/kWh
over the past four days, led by pent up demand for merchant
power from states facing lower generation due to the recent
extraordinary coal shortage.
● Coal production has been impacted from SCCL mines due to
ongoing Telangana protests and from Coal India’s mines due to
strike by workers demanding higher bonus payments. The eastern
region is facing coal supply issues due to excessive rains. As a
result, substantial power cuts have been witnessed across states.
● We believe merchant tariffs are unlikely to sustain at Rs7–8/kWh
levels beyond 2–3 weeks as the government is taking immediate
steps to restore coal supply. Further, the ability of states such as
AP and Tamil Nadu to continue purchasing such expensive power
is limited given their already weak financial health.
● However, we believe merchant prices could remain high at
Rs5/kWh levels till Apr-May 2012 due to continued buying from
UP, which has significantly increased power purchase recently
ahead of its Apr 2012 elections. Further, Delhi and Mumbai too
could continue to purchase power at high rates.
Coal shortage leads to spurt in merchant power prices…
After averaging below Rs4/kWh over the past 16 months, merchant
power prices have recently spiked to more than Rs5/kWh over the past
two weeks and to over Rs7/kWh over the past four days. The price rise
is primarily due to pent up demand for merchant power from states such
as Maharashtra, Delhi, Andhra Pradesh and Tamil Nadu, which are
facing lower generation due to the recent extraordinary coal shortages
The ongoing Telangana protests have impacted coal production from
SCCL mines, whereas coal supplies from eastern India have been
impacted due to excessive rains. Apart from the coal shortages
leading to load shedding in states such as Maharashtra and Andhra
Pradesh, power supplies in the northern region (especially Delhi) has
also been impacted on account of transmission grid instability with
states such as UP (ahead of elections) withdrawing too much power.
Besides, the strike by Coal India workers for higher bonus payments
has further deteriorated coal production.
Overall, substantial power cuts have been witnessed in several states
over the past few weeks (Figure 2).
Figure : Recent power crisis being faced in Maharashtra and Delhi
State Issues
10–13 Oct: Coal shortages resulting in generation of 11 GW
compared to demand of 16.5 GW, thereby necessitating loadshedding
of 3–7 hours in urban areas and 11–13 hours in rural areas
11 Oct: MSEDCL declares power cuts for 16 hrs (6 am to 10 pm) for
industrial users once a week. Schedule to come into effect from 12 Oct
11-12 Oct: Heavy rains aggravate the situation leading to severe
power cuts. Consumer agitation witnessed in cities such as Pune
Maharashtra
13 Oct: MSEDCL indicates that it has made arrangements to procure
300 MW and there would no unscheduled power cuts across the state.
However, planned power cuts for industrial users continue
5-13 Oct: Shortage of coal and water (for NTPC's Badarpur plant) at
power stations resulting in 7–8-hour-long daily power cuts
Delhi
14 Oct: Delhi government indicates that power situation has improved
but power cuts could continue until coal shortage is fully resolved
Source: Media reports, Credit Suisse research.
…but, merchant tariffs at Rs7–8/kWh are unlikely to sustain
We believe merchant tariffs are unlikely to sustain at the recent high
levels of Rs7–8/kWh beyond 2–3 weeks as all the concerned
ministries are currently involved in taking steps to restore coal supply
to projects facing extraordinary coal shortages. The Ministry of Coal
has decided to divert 4 MT of Coal India’s e-auction coal to power the
sector during Oct 2011. State generation utilities have been asked to
ramp up power production. The government is also trying to improve
gas availability to gas-based power projects in the near term by
diverting a portion of gas allocated to other sectors.
Further, we believe the ability of SEBs of Andhra Pradesh and Tamil
Nadu to continue buying expensive power is limited (among top 5
cash-loss-making SEBs). We also note that merchant volumes at
higher merchant tariffs have been falling. Lastly, a commensurate
increase in merchant tariffs has so far not been witnessed in relatively
long-tenure bilateral merchant contracts.
Merchant prices could sustain at Rs5/kWh till Apr-May 2012
However, we believe that merchant prices could remain high at about
Rs5/kWh levels till Apr-May 2012 on continued buying from UP, which
has significantly increased power purchases over the past few weeks
ahead of its elections scheduled in April 2012. Further, SEBs of cities
such as Mumbai and Delhi (financial and political centres respectively)
could continue to purchase power at high rates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Merchant power prices have recently spiked to more than
Rs5/kWh over the past two weeks and to more than Rs7/kWh
over the past four days, led by pent up demand for merchant
power from states facing lower generation due to the recent
extraordinary coal shortage.
● Coal production has been impacted from SCCL mines due to
ongoing Telangana protests and from Coal India’s mines due to
strike by workers demanding higher bonus payments. The eastern
region is facing coal supply issues due to excessive rains. As a
result, substantial power cuts have been witnessed across states.
● We believe merchant tariffs are unlikely to sustain at Rs7–8/kWh
levels beyond 2–3 weeks as the government is taking immediate
steps to restore coal supply. Further, the ability of states such as
AP and Tamil Nadu to continue purchasing such expensive power
is limited given their already weak financial health.
● However, we believe merchant prices could remain high at
Rs5/kWh levels till Apr-May 2012 due to continued buying from
UP, which has significantly increased power purchase recently
ahead of its Apr 2012 elections. Further, Delhi and Mumbai too
could continue to purchase power at high rates.
Coal shortage leads to spurt in merchant power prices…
After averaging below Rs4/kWh over the past 16 months, merchant
power prices have recently spiked to more than Rs5/kWh over the past
two weeks and to over Rs7/kWh over the past four days. The price rise
is primarily due to pent up demand for merchant power from states such
as Maharashtra, Delhi, Andhra Pradesh and Tamil Nadu, which are
facing lower generation due to the recent extraordinary coal shortages
The ongoing Telangana protests have impacted coal production from
SCCL mines, whereas coal supplies from eastern India have been
impacted due to excessive rains. Apart from the coal shortages
leading to load shedding in states such as Maharashtra and Andhra
Pradesh, power supplies in the northern region (especially Delhi) has
also been impacted on account of transmission grid instability with
states such as UP (ahead of elections) withdrawing too much power.
Besides, the strike by Coal India workers for higher bonus payments
has further deteriorated coal production.
Overall, substantial power cuts have been witnessed in several states
over the past few weeks (Figure 2).
Figure : Recent power crisis being faced in Maharashtra and Delhi
State Issues
10–13 Oct: Coal shortages resulting in generation of 11 GW
compared to demand of 16.5 GW, thereby necessitating loadshedding
of 3–7 hours in urban areas and 11–13 hours in rural areas
11 Oct: MSEDCL declares power cuts for 16 hrs (6 am to 10 pm) for
industrial users once a week. Schedule to come into effect from 12 Oct
11-12 Oct: Heavy rains aggravate the situation leading to severe
power cuts. Consumer agitation witnessed in cities such as Pune
Maharashtra
13 Oct: MSEDCL indicates that it has made arrangements to procure
300 MW and there would no unscheduled power cuts across the state.
However, planned power cuts for industrial users continue
5-13 Oct: Shortage of coal and water (for NTPC's Badarpur plant) at
power stations resulting in 7–8-hour-long daily power cuts
Delhi
14 Oct: Delhi government indicates that power situation has improved
but power cuts could continue until coal shortage is fully resolved
Source: Media reports, Credit Suisse research.
…but, merchant tariffs at Rs7–8/kWh are unlikely to sustain
We believe merchant tariffs are unlikely to sustain at the recent high
levels of Rs7–8/kWh beyond 2–3 weeks as all the concerned
ministries are currently involved in taking steps to restore coal supply
to projects facing extraordinary coal shortages. The Ministry of Coal
has decided to divert 4 MT of Coal India’s e-auction coal to power the
sector during Oct 2011. State generation utilities have been asked to
ramp up power production. The government is also trying to improve
gas availability to gas-based power projects in the near term by
diverting a portion of gas allocated to other sectors.
Further, we believe the ability of SEBs of Andhra Pradesh and Tamil
Nadu to continue buying expensive power is limited (among top 5
cash-loss-making SEBs). We also note that merchant volumes at
higher merchant tariffs have been falling. Lastly, a commensurate
increase in merchant tariffs has so far not been witnessed in relatively
long-tenure bilateral merchant contracts.
Merchant prices could sustain at Rs5/kWh till Apr-May 2012
However, we believe that merchant prices could remain high at about
Rs5/kWh levels till Apr-May 2012 on continued buying from UP, which
has significantly increased power purchases over the past few weeks
ahead of its elections scheduled in April 2012. Further, SEBs of cities
such as Mumbai and Delhi (financial and political centres respectively)
could continue to purchase power at high rates.
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