With industries cutting production in the wake of the overall slowdown in the economy, the average price of traded power has dropped by nearly 20 per cent in the last six weeks.

The latest data compiled by the Indian Energy Exchange, India's first power exchange, show that the average price of electricity traded on it slumped to Rs6.83 per kilowatt-hour (one kilowatt hour is one unit) on 11 December 2008 from Rs8.52 per kilowatt-hour on 23 October 2008.

Last week when the government released the October Index of Industrial Production, or IIP, number stood at a negative 0.4% as compared to 4.8 per cent month-on-month and 12.22 per cent year-on-year.

A negative IIP number was last seen 10 years back and this has happened for the second time in India's history. Industrial consumption accounts for around 30 per cent of the total power consumed in the country.

Shubda Rao of Yes Bank said the economy will see more pain for the next one-two months. ''The full play-out of the credit market crunch, which started in October, is going to definitely have some kind of a lag effect on the industrial production numbers. Remember there was a credit crunch in terms of working capital requirements as well. That definitely is going to continue to play out in November and December.'' She expects the IIP number in the third quarter to be washed out. ''It is likely to be in contraction mode very clearly.''

International scenario
In the WEO-2008 Reference Scenario, launched by International Energy Agency, which assumes no new government policies, world primary energy demand grows by 1.6 per cent per year on average between 2006 and 2030 - an increase of 45per cent. This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices and some new policy initiatives.

Demand for oil rises from 85 million barrels per day now to 106 mb/d in 2030 - 10 mb/d less than projected last year. Demand for coal rises more than any other fuel in absolute terms, accounting for over a third of the increase in energy use.

Modern renewables grow most rapidly, overtaking gas to become the second-largest source of electricity soon after 2010. China and India account for over half of incremental energy demand to 2030 while the Middle East emerges as a major new demand centre. The share of the world's energy consumed in cities grows from two-thirds to almost three-quarters in 2030. Almost all of the increase in fossil-energy production occurs in non-OECD countries. These trends call for energy-supply investment of $26.3 trillion to 2030, or over $1 trillion/year. Yet the credit squeeze could delay spending, potentially setting up a supply-crunch that could choke economic recovery.

Energy saving plans underway
With industries cutting production in the wake of the overall slowdown in the economy, the average price of traded power has dropped by nearly 20 per cent in the last six weeks.

India will have the world's first market for trading in energy savings. Under the National Action Plan on Climate Change, the power ministry has prepared the blueprint for trading in energy by industrial plants that save energy beyond the target set for them.

Under the plan, the government will set mandatory targets to be achieved by large industrial unit and plant in energy intensive sectors, which include cement, aluminium, steel, power, textiles, fertilizers, railway, paper and pulp. The plan, which is to be brought soon before the PM's climate council for the final approval, will set in place the first such open market in the world for energy savings.

Impact on power generation companies
The falling trend in the electricity price could impact profit margins of power generators, especially merchant power plants. Companies like Tata Power, NTPC and Reliance Energy that are already beleaguered under higher cost of production will suffer with fall in energy prices.