OPINION: Tariffs may not hold up.

from BUSINESS LINE, April 25, 2010 As the mercury rises every summer, so do tariffs on merchant power supplies to Indian companies. This year, with the energy deficit (difference between demand for power and that actually generated at any given point in time) shooting up to 11.7 per cent for April 2010, short-term power tariffs have hit Rs 9 a unit in power exchanges.

According to the latest data from power exchanges, the weighted average tariffs for the day-ahead contract as of March was Rs 6.2 a unit. This is the opportunity that has seen many companies from the power sector and other core industries queuing up to set up generation capacities.

The demand-supply mismatch will continue to provide opportunities for merchant power. But are the tariffs sustainable, even as the payback period for such projects continues to remain small? We took a look at the likely demand-supply equation for power over the next few years and concluded that merchant power tariffs may not go back to their record highs of 2009.

Genesis Merchant power projects (MPP) - a relatively recent phenomenon - sell …