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Utilities
As the world navigates the complex landscape of energy dynamics, the Indian power sector has witnessed a pivotal shift in FY25. Spot power prices have declined by 15% year-on-year, reaching ₹4.47 per unit, despite an increase in power demand. This significant drop can be attributed to a marked improvement in supply liquidity, thanks to proactive measures implemented by the power ministry. In this article, we will delve into the factors behind this price drop and explore how it reflects broader trends in the energy market.
Spot power prices refer to the cost of electricity sold on power exchanges in real-time, reflecting immediate supply and demand dynamics. These prices are crucial for understanding the efficiency and competitiveness of the electricity market. In FY25, India saw a notable decrease in spot power prices, which can be linked to several key developments in supply chain management.
The reduction in spot power prices can be attributed to several strategic measures implemented by the power ministry:
Increased Supply Liquidity: One of the primary factors behind the decrease in spot power prices is the increase in supply liquidity. The Indian Energy Exchange (IEX) reported a 36% rise in sell-side liquidity in the Day Ahead Market segment, which helped keep prices competitive and stable throughout FY25[2].
Coal-Based Power Plants: The directives for imported coal-based power plants to operate at full capacity played a crucial role in enhancing supply. This ensured that there was sufficient power available to meet the rising demand without causing significant price hikes[1][2].
Gas-Based Plants: Ensuring the availability of gas-based plants further bolstered the supply, providing additional capacity to meet peak demand periods. This diversification in power sources helped maintain a stable market environment[2].
Renewable Energy Certificates (RECs): FY25 also saw a significant increase in the trading of RECs, with a 136% year-on-year rise. This underscores the growing importance of renewable energy in the Indian power sector[2].
The improvements in supply have had several beneficial impacts on the Indian electricity market:
Peak Demand Management: Despite a 4.4% increase in power demand and a 7% rise in energy consumption, the peak demand in March 2025 was successfully managed. The peak demand reached 235 GW, surpassing the previous year's maximum of 222 GW[2].
Market Clearing Prices: The average market clearing price in the Day Ahead Market remained stable at ₹4.47 per unit in March 2025, reflecting the balance achieved between supply and demand[2].
Record Trading Volumes: IEX recorded its highest ever electricity traded volume in FY25, with a total of 121 billion units. This marked a 19% increase from the previous year, demonstrating the enhanced efficiency of power exchanges[2].
Looking ahead, several factors will influence the trajectory of spot power prices in India:
Expected Peak Demand Growth: The government projects peak power demand to grow at a compound annual growth rate of 7% and expects it to exceed 270 GW this year. Meeting this demand while maintaining price stability will be crucial[2].
Renewable and Thermal Capacity: The revival of generation capacity from currently underutilized plants and continued investments in renewable and thermal power will be essential for meeting future demand. This is expected to add significant supply to the market[2].
Coal Stock Management: Efficient coal stock management has been a key contributor to the improved supply situation. Maintaining high coal inventory levels will be vital to prevent any supply bottlenecks[2].
Globally, energy markets are witnessing significant changes driven by technological advancements, policy shifts, and environmental concerns. In Australia, for example, residential electricity prices are projected to decline by 15% in some regions due to improved wholesale prices and reduced network costs[4]. This trend reflects broader global efforts to optimize energy
