Fall in industrial production leads to lower energy prices

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.