Merchant power tariffs witness a short-term hike

Rise may be short-lived, but prices may stay high till June this year. Companies like JSW Energy, Jindal Steel & Power and Adani Power are likely to benefit

After six months of sluggish performance, merchant power tariffs are on a rise again. From a low of around Rs2 per unit in December 2009, merchant power rates have reached a decent level of around Rs7 to Rs8 per unit in April 2010. Analysts say that this short-term rise in merchant power tariffs would be beneficial for JSW Energy, Jindal Steel & Power Ltd (JSPL) and also Adani Power Ltd to some extent.

As per Indian Energy Exchange data, merchant power rates touched a high of Rs8.50 per unit on Tuesday. As on 1 April 2010, power tariffs had touched a high of Rs5 per unit, moving towards Rs8 per unit on Wednesday.

Moneylife had earlier reported in December 2009 on how merchant power tariffs had crashed to unbelievable levels of Rs2 to Rs5 in December 2009. Power tariffs had fallen from a high of Rs12 to Rs14 per unit in June 2009. However, tariffs have been on a downturn since September. They were quoted in the range of Rs6 to Rs8 by the end of September and the beginning of October 2009. In November, they fell to Rs2 to Rs4 per unit, with power traded during non-peak hours falling to below Rs2 in mid-December 2009.

Merchant power tariffs as on 1 January 2010 were at a high of Rs3 per unit, moving towards Rs5 per unit in February and March 2010. With the onset of summer, analysts expect the rise in merchant power prices to continue upto June 2010, and they are expected to again fall thereafter.

During the course of this short-term rise in merchant power tariffs, JSPL and JSW Energy are likely to benefit most from the rise. Analysts point out that Adani Power Ltd may also profit to a certain extent. JSW Power and JSPL have sufficient on-stream merchant power capacities to trade during this peak season.

“The companies that will benefit from the immediate increase in high power tariffs are JSPL and JSW Energy as they have capacities on the ground. If we look at a year-end average, the power tariffs would stabilise at around Rs4 to Rs5 per unit for the next couple of years. However, it can also surprise us on the upside. If this happens, it would be beneficial to all companies in the power sector,” said a research analyst who has requested anonymity.

“The power tariffs will remain high till June 2010. In the long term, they will be in the band of a low of Rs3 per unit to a high of Rs6 per unit,” added another analyst who also requested anonymity.

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