Power Trading in India- Way Forward

India, with a population 3. Hydro (12.3%) 45.70 GW

of 1.3 billion and an 4. Nuclear (1.85%) 6.80 GW
area of 3.29 million
square km, is the third As on May 31, 2020, India had an installed renewable
largest economy in the energy capacity of 87.38 GW.
world in terms of Wind energy is estimated to contribute 60 GW, followed
Purchasing Power by 100GW from solar power and 15 GW from biomass
Parity. India is in a and hydropower by 2022. The target for renewable
period of unprecedent- energy has been increased to 175 GW by 2022.
ed opportunities, The Government plans to double the share of installed
challenges, and electricity generation capacity of renewable energy to
ambition in its 40 per cent till 2030.
developmental path. 100 per cent FDI is allowed under the automatic route
Power is one of the in the power segment and renewable energy.
C.S.Verma most critical India’s power sector is forecast to attract investment
Managing Director & CEO components in worth Rs 9-9.5 trillion (US$ 128.24-135.37 billion) between
First Advantage Consulting creating and FY19-FY23.
Group Ltd. maintaining infrastruct- Total FDI inflow in the power sector reached US$ 14.98
ure and is crucial for the economic growth and welfare of billion between April 2000 and March 2020.
the nation.
Multiple drivers (Industrial expansion, growing per Overview of Power Trading and New Developments
capita incomes) are leading to growth in power demand. Power Trading is in a transition phase and the energy
India is set to become a global manufacturing hub with mix is changing in a big way. The transmission
investment across the value chain. India’s power demand infrastructure has improved a lot in the last 3-4 years.
is expected to rise to 1905 TWh by FY 2022. Industrial There are also challenges attached to the power sector
sector has a share of more than 40% in the total like inefficiencies in the distribution value chain with
electricity consumption in India. Future investment will large outstanding discoms dues. With more renewable
benefit from strong demand fundamentals, policy support energy (RE) integration, there will be a robust RE market
and increasing government focus on infrastructure. available for better integration and to better absorb RE
Government is committed to fulfill its vision of ensuring power into the grid. The need of the hour is to introduce
24x7 affordable and quality power for all. Per capita new initiatives in the market like market based ancillary
electricity consumption in India is expected to grow from services and also working towards having bilateral
the current level of 1181 kwh at a CAGR of more than contracts in power exchange and also the initiatives for
5%. renewable power to be traded through an efficient market.
The renewables need to be allowed a free market.
Overview of the Power sector According to the Electricity Act 2003, anyone who is a
India has been the third largest producer and the third bulk consumer with more than 1 mega watt (MW)
largest consumer of electricity in the world with an consumption, should be given open access and should
installed power capacity reaching 370.49 GW as of May get his own supply on his own terms which means, the
2020. choice of the type of power and provider lies with the
Indian Power Sector is characterized by multiplicity of consumer. There are some states where this has not
players across all segments of the Value Chain. There picked up because of certain charges restraining true
are more than 600 generating stations, 30+ transmission open access. Their cross subsidy charges are on a
licensees, 70 odd distributions licensees, 3 Power higher side. States should ideally enable discoms to
Exchanges, 40 odd trading licensees ,the load source power as per their need and hence ensure a
dispatchers at the Centre, in each of the five regions and proliferation of open access. There is a need to recognize
in each of the 29 states. The total installed generation the benefits of a competitive market trade and deepen
capacity of 370 GW is segmented as under-: the market to let consumers having access to round the
1. Thermal (62.4%) clock power.
Coal 198.5 GW The real time market will definitely help to deal with the
Gas & Lignite 25.0 GW concerns of uncertainty that renewables face with regards
Diesel 0.5 GW to forecasting and profiling.
2. Renewable (23.4%) Let a separate green market platform be launched by
Wind 37.75 GW the power exchanges. With this, there will be a trade in
Solar 34.90 GW green energy on an exclusive basis along with competitive
Others 14.70 GW price discovery of renewable energy in the market, and
buyers will also be able to meet renewable purchase The Product segments in the short term market are of
obligation (RPO). the following types-
People have started complying with RPOs in the last z Day-Ahead Market
few years. It is the expectation that REC prices will z Intraday Market & Day-Ahead Contingency
come down over time as more generators are issued z Term-Ahead Contracts
RECs for selling power. z Renewable Energy Certificates
In the recent past, the Power Exchanges have z Energy Saving Certificates
introduced several new products (new order types). This z Real Time Market
is a positive move, as introduction of new products will
allow participation by new and emerging players. Besides Real Time Market
the concerns of the small players should also be A major milestone was achieved in the history of Indian
addressed by providing a level playing field to all Power sector on 1st June, 2020 with the introduction of
participants. the real-time market (RTM) for electricity trading. This
With only 4 per cent of India’s generated power RTM platform will provide buyers and sellers an organized
transacted through the exchanges, there is enough platform for Power trading just an hour before delivery,
headroom for the exchanges to expand their operations. enabling Discoms and Industrial open access users to
At the policy and regulatory levels, a significant impact manage their demand while allowing Gencos to sell
can be made to increase the volumes traded on the unexpected surplus power. Hitherto, electricity could be
exchange if the state generators are encouraged and delivered through spot contracts on the same day, next
enabled to participate in the market. Further, with the day or on a weekly basis. This development has put
increase in the liquidity in the Power Trading market, Indian electricity market amongst the league of the few
financial contracts/ derivatives may also be introduced electricity markets in the world that have a real-time
after a due consultation process to make the market market.
more vibrant. In this arrangement, power delivery under
all the contracts including the long term PPAs will take Short-term Power Trading Trends :-
place through the Power Exchanges at the MCP. The During 2019-20, short term trading volumes were
difference between the MCP and the bilateral contract recorded at 137.16 billion units (BUs), which accounted
price will be separately settled. Thus the short –term for 11% of the total generation (excluding renewables
Power Trading market is slated to witness the next and captive generation) during the year. The remaining
milestone in its evolution with the above initiatives. 89% power was procured by discoms through long term
The Indian Power sector is gradually moving away contracts and short term intra –state transactions.
from multi –decade generation contracts with limited Since 2014-15, the volume of short term transactions
dispatch flexibility to short term and spot electricity has grown at a compound annual growth rate(CAGR) of
markets. This transition is mainly owing to a rapid around 6.7%. Power generation, meanwhile, grew at a
decline in the cost of power from solar photovoltaic and much slower pace, with a CAGR of only 3.54 per cent
wind projects, aggressive national renewable energy during this period.
targets, renewable purchase obligations, greater flexibility Of the total volume transacted in the short term market
in the allocation of coal to thermal power plants ( recently during 2019-20, the volumes traded through trading
commercial mining of thermal coal has also been licensees and power exchanges together accounted for
allowed), and ongoing efforts to improve the financial around 63% (86.4BUs). The remaining share came from
health of discoms. However, in order to facilitate the volumes transacted through the deviation settlement
transition towards spot and short term markets from the mechanism (DSM) transactions and bilateral
policy and regulatory stand point, there is a need for transactions between discoms that accounted for share
proper contract regulations and spot market design, of 16.5% (22.59BUs) and 20.5%(28.17BUs), respectively.
incentives for spot market participants, tools to hedge During 2019-20, an aggregate volume of 56.45 BUs
risks and maintaining competition in the markets. was transacted on the two power exchanges in the day
The market segments of the Power reveal that the –ahead market (DAM) and the term –ahead market
market share of the short term Power trading is increasing (TAM).This was an increase of 5.5% from53.52 BUs
with the passage of time as shown hereunder:- recorded in the previous year.
FYI 2009 FY 2019 Of the total volume traded, 49.16BUs were traded in
Long Term DAM, while the remaining 7.29BUs were traded in
PPA for over 25 years TAM.DAM is the electricity trading market for delivery
through long term 93.86% 88.3% on the following day, while TAM allows delivery of
Short-Term 6.1% 11.7% electricity up to a duration of one week
Exchanges 0.4% 4.0% The majority of the Day ahead volume was traded on
the country’s first and largest exchange, the Indian
Through traders 3.2% 4.1%
Direct Bilateral 0.5% 1.5% Energy Exchange (IEX) at 49.11BUs. In TAM, a volume
Unscheduled interchange 2.1% 2.0% of 4.77 BUs was transacted on the IEX platform, while
the remaining 2.52BUs were transacted on PXIL platform. market clearing price. When this happens, it will not
The monthly weighted average price of electricity traded matter through which exchange you trade. The
through the exchanges during 2019-20 ranged from Government wants to bring it in for electricity trading
Rs2.56 per unit to Rs3.58 per unit at IEX, and fromRs2.58 with a view to bring down the market price of power.
per unit to Rs 3.71 per unit at PXIL. Market Coupling comes along side another power market
During2019-20, about 29.95BUs of electricity were reform called Market-Based Economic Dispatch (MBED)
transacted bilaterally through traders. In 2019-20, the of electricity. Under MBED, all buyers and producers of
weighted average price of electricity transacted through electricity must buy and sell power only through
traders ranged from Rs3.61 per unit to Rs 5.15/unit. exchanges even if they have bilateral PPAs. The
A growing number of industrial consumers have turned generators will be paid the fixed charges as per the
to power exchanges owing to competitive prices. In agreement, but they will have to compete in the market
2018-19, over 4950 open access (OA) consumers on their variable cost, the cheapest generators get to
procured power through the two exchanges, as compared sell first, a big boom for the renewable energy producers.
to around 4807 consumers in 2017-18. These regulations have come in the backdrop of the
Government allowing electricity to be traded as any
REC Trading other commodity with Forward contracts and derivatives
During 2019-20, 8.8 million renewable energy certificates on exchanges.
(RECs) were transacted on the two power exchanges, It is now being envisaged that in the times to come,
compared to 12.6 million RECs during 2018-19. The India will be heading towards 100 per cent trading of
market clearing volume of solar and non-solar RECs power through Power Exchanges.
was 2.31 million and 6.49 million, respectively, during
2019-20. Way Forward
The monthly weighted average market clearing price The urgency for change in Indian power markets is very
for solar RECs ranged between Rs 1800 per MWh and real, given the pains the sector is feeling at the moment.
Rs 2400 per MWh on the two exchanges, while for non- The power markets in India are maturing with power
solar RECs, it ranged between Rs1000 per MWh and Rs becoming more a tradable commodity. The portfolio of
2,200 per MWh. different types of power – Thermal (Coal / Gas), Hydro,
As mentioned earlier, in June2020, real –time market Solar, Wind, Nuclear and Storage – is becoming complex
due to price variations, uncertainties involved and
(RTM) trading was launched by IEX and PXIL. Currently,
consumers, including discoms or captive users, can geographical distribution. The market is becoming more
buy power one day in advance in DAM at Power price sensitive with private players gradually becoming
Exchanges where trading is done for two hours daily more dominant on the generation side and also increasing
from 10 am to 12 noon. Under the RTM framework, there their presence in the distribution side. Under such
would be 48 sessions of half an hour each in a day, which circumstances, the role of bilateral PPAs is likely to get
means the trading of electricity would be done round the reduced in the coming times and more & more power is
clock and power delivery can be scheduled at an interval expected to be traded on the power exchanges. Reducing
of one hour. prices for the end consumers is a key goal for any
The development is expected to help utilities and OA market design.
New energy procurement and sale contracts like the
consumers manage power demand supply variation and
meet 24x7 power supply aspirations in a flexible, efficient day-ahead contracts through Power Exchanges and
and dynamic way. short-term contracts are expected to constitute a
significant portion of the trading volumes. Cross border
Power Market Regulations, Market Coupling and trade of electricity is also expected to increase in the
MBED coming years
CERC have notified the draft Power Market Regulations CERC has been working on this model for more than
in July ‘2020. These Regulations will apply to the Power a year and has now floated a draft notification of the
Exchanges, the OTC market and also the other Market Power Market Regulations for public comments. These
participants. These Regulations in their scope will cover regulations cover a wide range of subjects and would
all the contracts transacted on the Power Exchanges, establish a base for real time trading in the power
Renewable Energy certificates, Energy saving markets. The optimism has already set in the market
certificates as well as contracts in the OTC Market. with a new Power Exchange getting registered only
Among other things, the draft regulations provide for a recently ( by Pranurja Solutions Ltd , promoted by
new concept called Market Coupling. BSE,ICICI Bank and PTC) and a number of others in the
Market Coupling means that all the buys and sell bids offing.
would be matched by a ‘market coupling operator’ so as In the end, it is reiterated as a matter of caution, that
to arrive at a uniform market clearing price. The CERC since monitoring and surveillance of power market
defines ‘market coupling’ as a process whereby collected development is an integral part of this process, it needs
bids from all the power exchanges are matched, after to be ensured that this capability first gets properly
taking into account all bid types, to discover the uniform developed before such a market is rolled out.