A recent study by the Goa Institute of Management and Kingston University, UK, reveals that global crises, including the Russia-Ukraine war and fluctuating coal markets, are significantly driving up electricity costs in India. Published in Energy Economics, the research highlights why Indian households and businesses are paying steep premiums to ensure a stable power supply.

The study pinpointed key factors behind elevated electricity prices in India’s day-ahead market compared to real-time spot prices: volatile coal prices, geopolitical instability, domestic demand surges, and policy uncertainties. These factors have led to substantial risk premiums, with consumers paying extra to avoid power supply disruptions.

Prakash Singh, Associate Professor at Goa Institute of Management, explained, “The Russia-Ukraine conflict amplified market volatility and risk premiums. Rising coal prices fueled supply-side uncertainty, pushing premiums higher, while price corrections later eased them. Day-ahead prices consistently exceed real-time prices, showing consumers’ willingness to pay more for reliability.” He noted that premiums spike by up to 13% on weekends and during peak hours (6–11 PM) due to severe supply constraints.

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Singh emphasized the need for energy diversification and smarter market designs to shield Indian consumers from global shocks. “Without addressing these vulnerabilities, India’s power sector will remain exposed to distant geopolitical and commodity fluctuations,” he added.

Co-author Jalal Siddiki, senior lecturer at Kingston University, stressed the urgency of diversifying India’s energy mix beyond coal and investing in renewable energy with storage solutions. “Our findings urge regulators to redesign electricity markets to reduce inefficiencies and manage volatility better.

The study equips utilities and traders with data to develop hedging strategies against global uncertainties,” Siddiki said. He also highlighted the need for strategic reserves and flexible generation capacity to bolster India’s energy resilience.

Using high-frequency data from the Indian Energy Exchange, spanning June 2020 to April 2024, the study provides groundbreaking evidence linking the Russia-Ukraine war to risk premiums in India’s electricity market. By analyzing hourly and 15-minute intervals, it offers actionable insights for policymakers, regulators, and market participants to strengthen India’s energy security amid global disruptions.

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