By Dinakar Sethuraman

April 3 (Bloomberg) -- India Energy Exchange Ltd., the country's first, will start ``very soon'' to facilitate power supply in the world's second-fastest growing major economy, said shareholder PTC India Ltd.

``The exchange will start in a few weeks,'' Tantra Narayan Thakur, chairman of PTC, which has a 26 percent interest in India Energy Exchange, said in an interview today at Asia Power & Energy Conference. ``We don't expect much volume initially because of lack of surpluses for trading.''

The exchange will increase pricing transparency and allow greater participation in power trading in India. The government doesn't allow speculative instruments such as futures and derivatives in electricity trading and restricts transactions to day-ahead trades, Thakur said.

``The exchange will give us a platform to trade power,'' said Erik Knive, chief executive officer of SN Power Holding Singapore Ltd., which is a partner in two hydro-electric power plants in India and sells electricity through six-month contracts. ``There's a shortage of peaking power in India.''

During peak hours, India's electricity supply falls 14.8 percent short of demand, according to a report prepared by Finance Minister Palaniappan Chidambaram's advisers. Higher output is needed to help India sustain economic growth of more than 9 percent annually in the next five years.

Last year, 17 billion to 18 billion kilowatt-hours of electricity were traded, or about 2.5 percent of the total, Thakur said. Based on government rules, only 20 percent of the power can be bought or sold on the proposed exchange, he said.

Adding Surplus

The power industry is expected to grow 9.5 percent annually in the five years ending March 31, 2012, according to the report. The government plans to add 78,755 megawatts in this period, Power Minister Sushilkumar Shinde said in August.

``If 70,000 megawatts is added in the next four years, then there will be tradable surplus in the market,'' Thakur, whose company traded 10 billion kilowatt-hours in the year that ended March 31. ``Prices of power traded in India have gone up threefold since 2003.''

A surplus may be available after 2010, once India's power projects of 4,000-megawatt capacity each start operations, Pawan Singh, director of finance at Delhi Power Ltd., said in an interview.

Peak power prices may rise to 25 cents a kilowatt-hour compared with India's average price of 6 cents, Singh said.

PTC shares fell 2.2 percent to 92.4 rupees on the Bombay Stock Exchange at 11.42 a.m. local time, while India's benchmark Sensitive Index gained 0.1 percent to 15,769.54.

Financial Technologies (India) Ltd., founder and majority owner of the world's third-biggest gold exchange, holds 51 percent in India Energy Exchange.

One kilowatt consumed in one hour is equivalent to a 100- watt light bulb burning for 10 hours.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.