Study: Russia-Ukraine War and Coal Market Volatility Raising India’s Electricity Costs

Quick Summary

• Study Findings: Researchers from Goa Institute of Management and Kingston University found day-ahead electricity prices in India consistently higher than real-time prices,reflecting a positive ‘risk premium’.
• Global Influences: factors such as the Russia-Ukraine war, volatile coal markets, and global geopolitical risks have increased power supply uncertainties and risk premiums in India.
• Domestic Trends: Peak hour premiums (6-11 p.m.) are considerably high, with increases by up to 13% on weekends due to severe supply shortages.
• Recommendations:

– Diversify India’s energy mix away from coal.
– Invest in renewable energy with storage solutions.
– Redesign electricity markets for better efficiency and resilience against volatility.- create strategic reserves and flexible generation capacity to manage external shocks better.

• Data Source & Range: The study uses high-frequency data from Indian Energy Exchange covering june 2020 to April 2024.

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Indian Opinion Analysis

The findings underscore the vulnerability of India’s electricity market to external shocks like geopolitical tensions or commodity price fluctuations. The existence of high risk premiums demonstrates consumers’ willingness to pay more for reliability amidst growing uncertainty. This signals a need for greater policy intervention aimed at reducing dependence on coal while strengthening renewable infrastructure.

Additionally, peak-hour price hikes reflect domestic inefficiencies that exacerbate supply shortages.Addressing issues such as smarter market design could reduce volatility while ensuring affordability. For policymakers, this is a vital reminder that diversification away from fossil fuels is not just environmental but also economic strategy crucial for long-term stability amidst global turbulence.Efforts toward building strategic reserves along with more flexible generation capacities will aid in insulating India’s power sector against future shocks. Both economic stability and consumer welfare hinge on implementing lessons drawn from this research swiftly.

For further details, visit The Hindu.