Why in the News
States that buy most of their electricity through long-term contracts are now chasing extra winter power in short-term tenders, and most cannot get the full quantity even at high prices. At least six states have sought additional supply for November and December on the Ministry of Power’s Discovery of Efficient Electricity Price (DEEP) portal. The gap is sharpest at the evening peak, when solar output falls.
How do states buy power beyond their long-term contracts?
- What it is: A short-term tender lets a state power utility contract a fixed quantity of electricity for a fixed period. It works like booking extra seats instead of queuing for leftovers.
- Power purchase agreements: Utilities secure most of their power through power purchase agreements (PPAs), contracts with generating companies that can run for 25 years. The tenders come on top of these PPAs.
- Two routes for extra power: Additional or short-term needs are met either on power exchanges, electricity trading platforms, or through competitive bidding for short-term contracts.
- Why tenders over exchanges: On an exchange, the quantity bought depends on available sell bids and market conditions. A tender fixes quantity and period, so supply is certain once a contract is awarded.
- The takeaway: States are paying for certainty, because their long-term contracts no longer cover peak demand.
What have the states sought, and how much did they get?
- Six states: Gujarat, Rajasthan, Maharashtra, Madhya Pradesh, Tamil Nadu and Keralam sought extra supply at prices from ₹8.99 to ₹41.50 per unit (kilowatt-hour).
- Round-the-clock demand: Most tenders seek round-the-clock (RTC) power, meaning supply at every hour of the day, or power for peak hours only.
- Large shortfalls: Most states could not procure the full quantity despite their willingness to pay more:
- Tamil Nadu secured only 377 MW of the 1,000 MW it sought for November, and pays the highest prices;
- Rajasthan secured 85 MW against 1,500 MW for November;
- Maharashtra secured nothing against its 500 MW November tender.
- Madhya Pradesh the exception: Madhya Pradesh secured its entire 800 MW tender, covering late November to mid-February.
- Buying beyond winter: Gujarat, Delhi, Tamil Nadu, Madhya Pradesh and Maharashtra have also tendered for January to May next year.
Why are winter evenings the pressure point?
- Evening peak gap: India struggles to meet demand in evening peak hours, when solar generation falls. The evening shortfall reached 5.8 gigawatts (GW) in October.
- Limited battery storage: Little battery storage capacity exists, so solar power generated during the day cannot be saved for the evening.
- Weather and demand drivers: Unusual weather tied to El Nino, higher irrigation demand and more industrial activity have pushed states into short-term buying.
- Uncertain forecasts: Utilities cannot easily predict erratic demand, so they keep backup supply for the festival season and Christmas.
Challenges
- Costly procurement: Power purchase already makes up roughly 80% of distribution utilities’ spending, so high-priced tenders deepen their losses.
- Solar intermittency: Solar output stops at sunset, so a grid adding more solar faces a sharper evening gap without storage.
- Weak utility finances: Loss-making utilities with stalled tariff revisions have little room to absorb expensive short-term power.
- Late buying: Unpredictable weather forces states to buy at short notice, when sellers are scarce.
Way Forward
- Grid-scale storage: The Centre and states should add grid-scale battery storage and pumped hydro, which stores energy by pumping water uphill, to shift daytime solar power to evenings.
- Viability-gap funding: The Ministry of Power should use viability-gap funding, a grant covering part of a project’s cost, to speed up battery projects that make renewable supply reliable.
- Earlier contracting: Utilities should improve demand forecasting and lock in peak power through medium-term contracts before the season begins.
- Demand management: States should expand smart grids and artificial intelligence (AI)-based demand management to flatten the evening peak.
Conclusion
States are now paying a premium for certainty because daytime solar power cannot yet be stored for the night. Whether storage capacity grows fast enough to replace emergency tenders will decide what winter power costs next year.
Key numbers
- Tamil Nadu: 401 MW allotted against 1,000 MW sought for December; October power bought at ₹37 per unit.
- Keralam: 270 MW of about 1,800 MW sought in November, and 655 MW of about 2,100 MW in December.
- Gujarat, December: 675 MW allotted against 1,000 MW sought.
- Rajasthan, December: 95 MW allotted against about 2,000 MW sought.
Matching Previous Year Question
“[2024] Recently, the term “pumped-storage hydropower” is actually and appropriately discussed in the context of which one of the following? (a) Irrigation of terraced crop fields (b) Lift irrigation of cereal crops (c) Long duration energy storage* (d) Rainwater harvesting system ANSWER: (c)”
