akhilesh awasthy - 3 - functioning of power exchanges

Functioning of PowerExchanges: Regulation,

Development and Products

Akhilesh AwasthyDirector (Market Operations)

Functioning of PowerExchanges: Regulation,

Development and Products

Akhilesh AwasthyDirector (Market Operations)

In this presentation…

Fundamentals of Electricity MarketFundamentals of Electricity Market

Evolution of Power ExchangesEvolution of Power Exchanges

Regulations for Power ExchangeRegulations for Power Exchange

Products at IEXProducts at IEX

Future ProductsFuture Products

Fundamentals ofElectricity MarketFundamentals ofElectricity Market

Electricity, a unique commodity

Flow(Non storable)

Flow(Non storable)

Laws of PhysicsLaws of Physics InterdependenciesInterdependencies Speed of LightSpeed of Light

ImbalancesImbalances CongestionManagement

CongestionManagement

AncillaryServicesAncillaryServices

Scheduling &Dispatch

Scheduling &DispatchImbalancesImbalances Congestion

ManagementCongestion

ManagementAncillaryServicesAncillaryServices



Because ofcomplications inProduction &Delivery systems,mismatches willalways exist in supply& consumption asagainst contractedPower. SystemOperator managesthese imbalances

This commodityTravels as per lawsof physics which areunique to itself. We cantTell electricity whereto go or not to overloada route/line. Onetransaction of electricitycan affect any or allother transactions fordelivery.

Production &Consumption ofelectricity isdependent onancillary serviceswhich make thetransmission systemWork, such asOperating Reserves,Reactive Power, etc.

SO Schedules Contractsin advance and minglesenergy in real-time byDispatching Generationto meet demend

Can Electricity Markets be designed to meetstandard economic theory?• Electricity is a flow, rather than a stock• Cannot be metered perfectly• Storing potential energy is expensive• Stochastic ‘retail demand’ is too costly to moderate via spot

prices and devices for continuous control and metering• Flows on transmission lines are constrained continuously

by operational limits and environmental factors. Imbalances caninjure or destabilize transmission links, electrical systems require continuousbalancing of demand and supply

• Ramping rates of generators are limited

Electricity Markets are inherently incomplete andimperfectly competitive

• Electricity is a flow, rather than a stock• Cannot be metered perfectly• Storing potential energy is expensive• Stochastic ‘retail demand’ is too costly to moderate via spot

prices and devices for continuous control and metering• Flows on transmission lines are constrained continuously

by operational limits and environmental factors. Imbalances caninjure or destabilize transmission links, electrical systems require continuousbalancing of demand and supply

• Ramping rates of generators are limited

Electricity Markets are inherently incomplete andimperfectly competitive

Electricity Market Design

Electricity markets are designed to match supply anddemand, taking into consideration the technical

limitations, elasticities and delivery requirements

• Design is influenced by not only Economic, Engineeringconsiderations but also by Historical, Political and SocialConsiderations. These factors make every country unique.

• If the spot electricity markets were complete and perfect then allforward markets could be organized around financial contractspegged against spot prices

• The efficiency of Spot Markets to facilitate intertemporal effects asstartup costs and ramping constraints, and spatial effects such asconstraints on transmission lines decides the level of dependenceon Forward Markets

Electricity markets are designed to match supply anddemand, taking into consideration the technical

limitations, elasticities and delivery requirements

• Design is influenced by not only Economic, Engineeringconsiderations but also by Historical, Political and SocialConsiderations. These factors make every country unique.

• If the spot electricity markets were complete and perfect then allforward markets could be organized around financial contractspegged against spot prices

• The efficiency of Spot Markets to facilitate intertemporal effects asstartup costs and ramping constraints, and spatial effects such asconstraints on transmission lines decides the level of dependenceon Forward Markets

Transformation of Vertically Integratedto Liberalised Markets• From early 80s to late 90s, the process of privatisation of state

enterprises and liberalisation of markets was underway ininfrastructure industries (Telecom, Water, Gas, Electricity, Transport,etc)

For Electricity, this shift was justifiedby

diminished economies of scale in Generationto

expose cross-subsidies and to improve efficiency via better pricing andincentives for greater variety of products and services

asprivatization and liberalization seen as necessary to overcome organizational

inertia, and to attract private investment to serve rapidly growing demand arisingfrom economic expansion

throughseparation of the public good embodied in the infrastructure network, such aselectricity or gas transmission and rail lines, from the associated commodity or

service

• From early 80s to late 90s, the process of privatisation of stateenterprises and liberalisation of markets was underway ininfrastructure industries (Telecom, Water, Gas, Electricity, Transport,etc)

For Electricity, this shift was justifiedby

diminished economies of scale in Generationto

expose cross-subsidies and to improve efficiency via better pricing andincentives for greater variety of products and services

asprivatization and liberalization seen as necessary to overcome organizational

inertia, and to attract private investment to serve rapidly growing demand arisingfrom economic expansion

throughseparation of the public good embodied in the infrastructure network, such aselectricity or gas transmission and rail lines, from the associated commodity or

service

Designs for Spot Electricity Market

“Power Markets are actually ‘sequences of markets’ fromthe pre-commitment of plants at Day(s) Ahead to real-timebalancing of actual injections and withdrawals; via theallocation of transmission capacity and the necessarymanagement of unforeseen congestions.”Evolution of Global Electricity Markets by Sioshansi, 2013.

VerticalVertical Wholesale or RetailWholesale or RetailorVerticalVertical Wholesale or RetailWholesale or Retailor

PoolPool ExchangeExchangeor

AuctionAuction ContinuousContinuousor

UniformUniform Pay-as-bidPay-as-bidor

ImplicitImplicit ExplicitExplicitor

SingleSingle MultipleMultipleor

Pool vs Exchange Model

Pool Model

GeneratorGenerator

BilateralContracts

Bilateral/Exchange Model

GeneratorGenerator

BilateralContracts

Discom/ConsumerDiscom/

Consumer

CentralMarketCentralMarket

BilateralContracts

Centralised Dispatch

Discom/ConsumerDiscom/

Consumer

PowerExchange

PowerExchange

Decentralised Dispatch

Pool vs Exchange ModelPool Exchange

Characteristics

• Largely emulates the originally verticallyintegrated and strictly regulated marketarchitectures

• Suited where decentralised markets exist, withderegulated environment

Pros • Permits an excellent co-ordination of thevarious sub-sections of the electricitymarket

• Considered the only way in which electricitysupply at minimum costs could be ensured

• Advantageous if competition is strong orregulation is effective, if the demand cannotplay a big role in pricing

• Easier to achieve an active participation of thedemand side in electricity trading

• market participants can usually avoid institutionswhich do not work well

• Errors in the design of the market cause less damageand can be identified and remedied faster

• Advantages if close co-ordination could be achieved bymeans of a suitable market architecture

• Permits an excellent co-ordination of thevarious sub-sections of the electricitymarket

• Considered the only way in which electricitysupply at minimum costs could be ensured

• Advantageous if competition is strong orregulation is effective, if the demand cannotplay a big role in pricing

• Easier to achieve an active participation of thedemand side in electricity trading

• market participants can usually avoid institutionswhich do not work well

• Errors in the design of the market cause less damageand can be identified and remedied faster

• Advantages if close co-ordination could be achieved bymeans of a suitable market architecture

Cons • Demand side has few incentives and possibilities to make acontribution in pool models or to respond to prices

• Mandatory trading at an electricity pool suppresses thecompetition among different market platforms

• Defective or deficient design of the procedures and rules at thepool results to grave imperfections as there wont be alternatives

• Focus of the optimisation algorithms on short-term costminimisation, which leads to a situation in which investmentincentives can be distorted

• Requirement of close monitoring of the market not only implieshigh costs but also that the regulator (with poorer information)has to take decisions which the market takes in an Exchangemodel

• Coordination problems

Consolidated Overview…

Nord Pool PJM AEMO IEXParticipation Voluntary for DAM Compulsory for Real Time Compulsory for DAM Voluntary

Market OfferingsDA spot, hour-ahead,

forward, futures, optionsDA spot, real-time balancing,

capacity credit marketsDA spot, Short term

forwards DAM, TAM

Bidding Type Double Sided Double Sided Double Sided

Double SidedClosed, Open

Auction &Continuous

AdjustmentMarket

Elbas: Intra-day auctionmarket

Bid quantity can be changedtill gate closure -- Not available

AdjustmentMarket

Elbas: Intra-day auctionmarket

Bid quantity can be changedtill gate closure -- Not available

Real-time /Balancing market

Counter trade Balancing MarketPurchase of ancillaryservices & reserve

capacity

UI charge fordeviations

Pricing Rule Zonal Pricing Nodal Pricing Zonal Pricing Zonal Pricing

Pricing Type Ex-ante Ex-post Ex-post Ex-ante

RiskManagement

Forwards, futures,options

FTRs, Bilateral OTC, Multi-settlement, virtual bidding

Bilateral OTC, Derivativeson Sydney Exchange Bilateral OTC

CongestionManagement

Area splitting Security constrainedeconomic dispatch

Locational signals fortransmission Area splitting

TransmissionLosses

Included in zonal price Included in LMP To be purchased bygenerators

To be purchasedby participants

Evolution of PowerExchanges

Evolution of PowerExchanges

Erstwhile Vertically Integrated Structure

Generation

Transmission

VerticallyIntegrated State

ElectricityBoards (SEB)

Consumer Consumer Consumer

Distribution

VerticallyIntegrated State

ElectricityBoards (SEB)

Electricity Market

Introducing Competition

ProductionFunction

ProductionFunction

TransportationFunction

TransportationFunction

MerchantFunctionMerchantFunction

• Generation • Transmission• Distribution

• Wholesaling (Supply)• Retailing (Demand)

Natural MonopoliesNatural Monopolies

Step-1: Introduce competition in Supply side so as to decrease electricity prices.(Demand side competition doesn’t result in reduction of prices unlessproduction is competitive)

Step-2: Introduce competition in Demand Side so as to pass the gains in supply sidedirectly to consumers

Pre requisites for a competitive market

•Separation of Vertically integrated utilities, transmission should be separatedfrom generation & supply

Unbundling ofUtilities

•Choice to consumers to buy from any generator or third party•Choice to generator to sell to any buyerMulti Buyer Model

•Independent System Operator:To maintain grid security and reliability, transmission allocationSystem operator

•Open Access in Transmission & Distribution NetworkOpen Access

•Deviation or Imbalance settlement mechanism to ensure discipline• Balance Responsible Party ( Control Areas)

ImbalanceSettlementMechanism

•Recognizing trading as a distinct activityTrading

•To overlook the working of the MarketAutonomousRegulator

Development of Power Market

• Market Participants can efficiently manage their portfolios bychoosing different products available under long term , medium termand short term duration.

• Provides an exit route for PPAs.• Efficient Market provides transparency and which may lead to easy

financing .• Markets are driven by the force of economies i.e. demand and

supply and hence the prices are derived.• Market Participants e.g. DISCOMS may reap benefits of real time

balancing.• Typically lower unit pricing compared to standard electricity supply

contracts.• Derivative products may provide an avenue to hedge against spot-

price volatility

Advantages of an Organized Power Market

16

• Market Participants can efficiently manage their portfolios bychoosing different products available under long term , medium termand short term duration.

• Provides an exit route for PPAs.• Efficient Market provides transparency and which may lead to easy

financing .• Markets are driven by the force of economies i.e. demand and

supply and hence the prices are derived.• Market Participants e.g. DISCOMS may reap benefits of real time

balancing.• Typically lower unit pricing compared to standard electricity supply

contracts.• Derivative products may provide an avenue to hedge against spot-

price volatility

On-lineOn-line

NationalNational

Automated

StandardizedContracts


Delivery…Delivery…

•Spot•Intra-Day•Day-ahead

•Forward•Weeks

VoluntaryVoluntary

Power Exchange?Organised Marketplace

Handles…Handles…

Bidding Delivery Money Risks

AutomatedAutomated



CentralCounterparty

CentralCounterparty

•Spot•Intra-Day•Day-ahead

•Forward•Weeks

Bidding Delivery Money Risks

• Price Transparency– Ability to know the price of electricity now and in

the future (up to 15-18 months)• Risk Management

– Manage price/ delivery risk– Secure and Regulated market

• Guaranteed performance of trades– Credit tracking mechanism– Default Mitigation mechanism

• Lower Transaction Cost• Flexibility

– Term of delivery– Time of Closure

• Access to a wider/ larger market spectrum

Power Exchangefacilitates

• Price Transparency– Ability to know the price of electricity now and in

the future (up to 15-18 months)• Risk Management

– Manage price/ delivery risk– Secure and Regulated market

• Guaranteed performance of trades– Credit tracking mechanism– Default Mitigation mechanism

• Lower Transaction Cost• Flexibility

– Term of delivery– Time of Closure

• Access to a wider/ larger market spectrum

Role of Power Exchange

► A neutral and easy access to the marketplace

► Standardized Contract

► Offers “law of One Price”

► An automatic interface.

► Clearing & settlement of deals

► Security by being a safe counterpart

►Information disemination among the participants

► A neutral and easy access to the marketplace

► Standardized Contract

► Offers “law of One Price”

► An automatic interface.

► Clearing & settlement of deals

► Security by being a safe counterpart

►Information disemination among the participants

TRADINGTRADING BROADCAST

BROADCAST

CLEARINGCLEARING

Power Exchange Functions

Easy AccessAnonymousTransparent

ReliableSecure


ReliableSecure

LIQUIDITY

POWER EXCHANGEPOWER EXCHANGE

CLEARING

DELIVERYDELIVERY SETTLEMENTSETTLEMENT


ReliableSecure


ReliableSecure

PriceReferences

Regulations for PowerExchange

Regulations for PowerExchange

Regulatory Boost for Power MarketDevelopment (1/2)

• EA 2003 and enabling provisions on Power MarketThe intent and object of the EA 2003 is to develop power marketthrough increased competition, more players and protectconsumer interests

• Development of Power Market – EA 2003, Section 66, “TheAppropriate Commission shall endeavor to promote thedevelopment of power market…”, guided by the NationalElectricity Policy

• Suitable safeguards to prevent adverse effect on competition• Recognized Trading as a distinct activity. Defined under section(2)

(47): “Purchase of electricity for resale thereof”• Adequate and progressive provisions governing open access both:

» to transmission networks (inter-state and intra-state) and» to distribution networks

23

• EA 2003 and enabling provisions on Power MarketThe intent and object of the EA 2003 is to develop power marketthrough increased competition, more players and protectconsumer interests

• Development of Power Market – EA 2003, Section 66, “TheAppropriate Commission shall endeavor to promote thedevelopment of power market…”, guided by the NationalElectricity Policy

• Suitable safeguards to prevent adverse effect on competition• Recognized Trading as a distinct activity. Defined under section(2)

(47): “Purchase of electricity for resale thereof”• Adequate and progressive provisions governing open access both:

» to transmission networks (inter-state and intra-state) and» to distribution networks

• National Electricity Policy 2005 – Para 5.7

“ To promote market development, 15% of the new generatingcapacities, be sold outside long term PPAs”.-As the power markets develop, it would be feasible to finance projectswith competitive generation costs outside the long term PPAs….this willincrease the depth of power markets….and in long run would lead toreduction in tariff”

• Open Access Regulations , 2004 & 2008 Universal Open Access to transmission networks Separate procedures for ‘Day-Ahead Market( collective

transactions) and OTC transactions

Regulatory Boost for Power MarketDevelopment (2/2)

24

• National Electricity Policy 2005 – Para 5.7

“ To promote market development, 15% of the new generatingcapacities, be sold outside long term PPAs”.-As the power markets develop, it would be feasible to finance projectswith competitive generation costs outside the long term PPAs….this willincrease the depth of power markets….and in long run would lead toreduction in tariff”

• Open Access Regulations , 2004 & 2008 Universal Open Access to transmission networks Separate procedures for ‘Day-Ahead Market( collective

transactions) and OTC transactions

Evolution of Electricity Regulations

The Indian Electricity Act, 1910

The Electricity (Supply) Act, 1948

Electricity Laws (Amendment Act), 1991Electricity Laws (Amendment Act), 1998

And Electricity Regulatory Commissions Act, 1998The Electricity Act, 2003(Consolidates above laws)The Electricity Act, 2003(Consolidates above laws)

Open Access Regulations, 2004

Power Exchange Guidelines, 2008

Power Market Regulation, 2010

MoL Notice of Open Access Circular , Nov,2011

The Electricity Act Amendment Bill , 2014

Market related legislations in India

• De-licensing of generation• Development of a multi-buyer multi-seller market in power• Trading – licensed activity.

Electricity Act, 2003

National Electricity Policy,2005

• Sec 5.7.1 (f) Enabling Regulations for inter and intra state tradingand also regulations on power exchange shall be notified by theappropriate commission within six months

National Electricity Policy,2005

• Promote Merit Order• Competitive Bidding compulsory• Cross Subsidy Surcharge formula

National Tariff Policy, 2006

Legislative Enabler for operationalization of PowerMarkets in India : Electricity Act 2003

• Intent of the Act was to promote competition by “freeing” allpossible avenues of procurement and sale of power:

• De-licensing of generation (Sec-7)• Development of a multi-buyer multi-seller market in power

(Restructuring of SEBs – Sec 131)• Trading – licensed activity (Sec-12).• Non Discriminatory open access to transmission (Sec 38-40) and

Open Access in Distribution (Sec-42)

• Autonomous Regulatory Commission (Sec 76) to overlookfunctioning of Power markets

• Development of Power Market• Section 66 of the Electricity Act 2003 gives powers to the regulatory

commissions to develop the power market including trading

• Intent of the Act was to promote competition by “freeing” allpossible avenues of procurement and sale of power:

• De-licensing of generation (Sec-7)• Development of a multi-buyer multi-seller market in power

(Restructuring of SEBs – Sec 131)• Trading – licensed activity (Sec-12).• Non Discriminatory open access to transmission (Sec 38-40) and

Open Access in Distribution (Sec-42)

• Autonomous Regulatory Commission (Sec 76) to overlookfunctioning of Power markets

• Development of Power Market• Section 66 of the Electricity Act 2003 gives powers to the regulatory

commissions to develop the power market including trading

Framework for Development of Power MarketLegislative and Regulatory Framework• Electricity Act, 2003

Open Access means “The non discriminatory provision for the useof transmission lines or distribution system by any licensee or consumeror a person engaged in generation in accordance with the regulationsspecified by the appropriate commission”

• Open Access to transmission network was introduced after theElectricity Act,2003– Open Access to inter-state transmission immediately allowed by

the Centre

• CERC (Interstate Open Access) Regulation, 2008– Facilitates bilateral transactions– Non – discriminatory use of transmission lines– Nominated SLDC/RLDC to carry out transactions

• Electricity Act, 2003Open Access means “The non discriminatory provision for the use

of transmission lines or distribution system by any licensee or consumeror a person engaged in generation in accordance with the regulationsspecified by the appropriate commission”

• Open Access to transmission network was introduced after theElectricity Act,2003– Open Access to inter-state transmission immediately allowed by

the Centre

• CERC (Interstate Open Access) Regulation, 2008– Facilitates bilateral transactions– Non – discriminatory use of transmission lines– Nominated SLDC/RLDC to carry out transactions

• ~15% of new generation can be sold outside PPA• To increase the depth of power markets• Additional alternative to generators and licensees/consumers to

sell/purchase power which would facilitate reduction in tariff in longrun

• As power markets develop, financing projects with competitivegeneration costs outside long-term PPA would be feasible

• Development of Power Market by Central and State Commission withdue consultation with stakeholders

• CSS: ‘’the amount of surcharge and additional surcharge levied from OAconsumers should not become so onerous that it eliminatescompetition…….”

National Electricity Policy, 2005

Policy initiative for market development

• ~15% of new generation can be sold outside PPA• To increase the depth of power markets• Additional alternative to generators and licensees/consumers to

sell/purchase power which would facilitate reduction in tariff in longrun

• As power markets develop, financing projects with competitivegeneration costs outside long-term PPA would be feasible

• Development of Power Market by Central and State Commission withdue consultation with stakeholders

• CSS: ‘’the amount of surcharge and additional surcharge levied from OAconsumers should not become so onerous that it eliminatescompetition…….”

• 8.3.2: Tariff to be +/-20% of cost of supply by 2010-11

National Tariff Policy

Evolution of Power Markets in India:Regulatory Framework

• Reservation of transmission capacity: Long Term and Short Term Access• Short term open access granted on inherent margins

2004: First CERC OA Regulations

2005: Trading License Regulations

• Defined ‘Power Exchanges’• Transaction categorized as Bilateral or Collective (thru PXs)• Transmission charges: ‘PoC’ Method for collective transactio

2008 & 2009: CERC OA Regulations and Amendments

Features of Power Market Regulations, 2010

•Procedure for application, eligibility criteria, shareholding pattern, Net worth, riskmanagement by PX,

Role of PXs defined and norms for setting up and operating PX

CERC approval for setting up a PX and oversight for contracts offered

Objectives for PX

•Ensure fair, neutral, efficient and robust price discovery•Provide extensive and quick price dissemination•Design standardised contracts and work towards increasing liquidity in contracts

Objectives for PX

•Economic principle of social welfare maximisation•Closed double sided bidding, uniform price discovery, market splitting for congestion

management

Defined principle of price discovery for the exchange

Open Access in Inter-State Transmission

• Regulation Implemented w.e.f. 6-May-2004, revised Regulations w.e.f 1st April2008 and amended in May 2009. Last amended in 2015

• Transmission Capacity Reservation Categories• Monthly bilateral• Advance /FCFS• Day ahead bilateral• Collective Transactions through Power Exchange• Intra day bilateral

• Nodal Agency• Bilateral : RLDCs & Collective : NLDC

• Transmission Charges moved from “Contract Path” to “Point of Connection” forCollective/Bilateral

• Other Commercial Issues• Handing deviations from schedule• Handing reactive energy supply/drawl• Payment security• Collection and disbursement of charges

• Transmission Capacity Reservation Categories• Monthly bilateral• Advance /FCFS• Day ahead bilateral• Collective Transactions through Power Exchange• Intra day bilateral

• Nodal Agency• Bilateral : RLDCs & Collective : NLDC

• Transmission Charges moved from “Contract Path” to “Point of Connection” forCollective/Bilateral

• Other Commercial Issues• Handing deviations from schedule• Handing reactive energy supply/drawl• Payment security• Collection and disbursement of charges

Present Market Overview

Long Term

Upto 25 YearsUpto 25 Years

Medium Term

3 months – 3 years3 months – 3 years

Short Term

Intraday - 3 months

OTCPPAs

OTCBilateral

OTCBilateral

+EXCHANGE

WeeklyDaily

Day AheadIntraday

910 11 11 11 9

0200400600800

10001200

FY10 FY11 FY12 FY13 FY14 FY15

TWh

Total Generation Short Term ST Share (%)

%% % % % %

Short Term Market Remained StableShort Term Market Remained Stable

Exchange Transactions Registered Growth in Short Term Mkt.Exchange Transactions Registered Growth in Short Term Mkt.

28 25 21 19100%

91%

4%

<1%

Intraday - 3 monthsIntraday - 3 months

Balancing Market

Real TimeReal Time

OTCBilateral

+EXCHANGE

WeeklyDaily

Day AheadIntraday

DSMFrequency

linked

33 38 51 51 53 50

7 16 16 24 31 2926 28 28 25 21 19

0%

20%

40%

60%

80%

FY10 FY11 FY12 FY13 FY14 FY15OTC(ST) Exchange DSM (Balancing)

TWh

4%

3%

2%

53%

11%1%

3%

22%

10%

Aug'1061%

9%0%2%

15%

13%

Dec'15

CoalGasDieselNuclearHydroRen'

Installed Capacity Tilted Towards Coal & RenewablesInstalled Capacity Tilted Towards Coal & Renewables

165 GW 276 GW

Products at IEX

IEX Market SegmentsDelivery-based Contracts

Day-AheadMarketsince June,08

Day-AheadMarketsince June,08

Closed , Double-sided Auction10-12 am biddingEach 15-min block , 0.1 MW min NOC required

Closed , Double-sided Auction10-12 am biddingEach 15-min block , 0.1 MW min NOC required

Term-AheadMarketsince Sep,09


Day-Ahead Contingency – Another window 3-5pm

Intra-Day - for the same day, delivery from 14:00 to 24:00

Daily- for rolling seven days (delivery starting after 4 days)

Weekly- for 1 week (Monday-Sunday)





ELECTRICITY

ELECTRICITY











Renewable EnergyCertificatessince Feb,11

Under development… Energy Saving Certificates

Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC

Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC

Auction Continuous

ELECTRICITY

ELECTRICITY

CERTS

CERTS

IEX at a glance

Delivery

Auction Type

Contract Unit

Day AheadMarket

Next day

ClosedAuction

15 minute

1. Intra-dayContracts

1400-2400 Hrssame day

ContinuousTrading

Hourly

2. Day AheadContingency

For next day

ContinuousTrading

Hourly

3. DailyContracts

From 4th dayto next 7 days

ContinuousTrading

Block of Hours

4. WeeklyContracts

For next week

Open Auction

Block of Hours

ELECTRICITYTerm Ahead Market (TAM)Day Ahead Market (DAM) Renewable Energy Cert’ (REC)

REC Market

Next day

ClosedAuction

1 Cert’

96% Market Share by volume

~80,000 MWh average daily trade

3400+ Participants

3000+ Industries

300+ Generators

7.3 5.23.6 3.5

3.5 2.83.5

0.0

10.0

20.0

30.0

40.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Volume(TWh) MCP (Rs/kWh)

DAM Gained Liquidity Over TimeDAM Gained Liquidity Over Time

Bid Matching

Open/ClosedAuction

Open/ClosedAuction

Orders accumulated duringorder accumulation phase

(no matching)


(no matching)

ContinuousTradingContinuousTrading

Price-time priority basedcontinuous matching


Open/ClosedAuction


(no matching)

Orders matched afterclosure of order

accumulation period

Orders matched afterclosure of order

accumulation period

Orders are used forcalculation common price

i.e. Equilibrium Price.

Orders are used forcalculation common price

i.e. Equilibrium Price.

All successful ordersmatched at Equilibrium

Price.

All successful ordersmatched at Equilibrium

Price.

ContinuousTrading



The highest Buy order &lowest Sell order gets the

priority

The highest Buy order &lowest Sell order gets the

priority

If the prices are samethen priority is given to

the time of the order

If the prices are samethen priority is given to

the time of the order

IEX - DAM Product Description [1/2]

• Bidding- Double sided Closed Auction

• Order Types:– 15-min block or Portfolio Orders

• Min 15 Min• Different Price-Quantity Pairs• Partial Execution Possible

– Block Orders• Relational Block Bid• Any 15-min block or series of 15-min blocks during the same day

– Customized block bid allowed

• Order Characteristics– SLDC Clearance should be ≥ 0.1 MW (Subject to state regulations issued by

concerned SLDC)– Minimum Order quantity cannot be less than 0.1 MW– Minimum volume step: 0.1 MW– Minimum price step: Rs 1 per MWh ( 0.1p/kWh)

• Bidding- Double sided Closed Auction

• Order Types:– 15-min block or Portfolio Orders

• Min 15 Min• Different Price-Quantity Pairs• Partial Execution Possible

– Block Orders• Relational Block Bid• Any 15-min block or series of 15-min blocks during the same day

– Customized block bid allowed

• Order Characteristics– SLDC Clearance should be ≥ 0.1 MW (Subject to state regulations issued by

concerned SLDC)– Minimum Order quantity cannot be less than 0.1 MW– Minimum volume step: 0.1 MW– Minimum price step: Rs 1 per MWh ( 0.1p/kWh)

• Trading Availability– Every Calendar Day

• Firm commitment to purchase or sell

• Order Entry / revise /cancel– Entry of orders on D-1 from 10:00 hrs to 12:00 hrs

related to Delivery Day (D day)

• Delivery Point– Periphery of Regional Transmission System in which the grid-

connected entity, is located

IEX - DAM Product Description [2/2]

• Trading Availability– Every Calendar Day

• Firm commitment to purchase or sell

• Order Entry / revise /cancel– Entry of orders on D-1 from 10:00 hrs to 12:00 hrs

related to Delivery Day (D day)

• Delivery Point– Periphery of Regional Transmission System in which the grid-

connected entity, is located

Features of Day Ahead Market

Closed double-sided anonymous auction for each15-min time block for the following day

Intersection between the aggregated sale andpurchase curves defines the market clearing price(MCP)

12 Bid area defined

Congestion Management through market splittingand determining Area Clearing Price (ACP) specificto an area

Bid types: Portfolio Orders or Block OrdersMinimum bid=Re.1 for 0.1MWhMinimum Price & Volume Step = 0.1p * 0.1 MWh

12 Bid Areas

Price (Rs./kWh) 0 201 2 2.1 3 3.1 4 4.11.1 2.5

Portfolio A, MW 20 020 1020

Portfolio C, MW 40 -400 -12020 0 -120-80 -81-60

SUM, Sell 0 0 -40 -120-120-80 -81-60

Net transaction 120 20 -100-80-20 -21100 80 80 -1000

DAM Price Calculation Algorithm ….each block

20 0

5.0

Portfolio B, MW 6060 2050 40 4040 4040 20

SUM, Purchase 120 100 80 80 70 60 50 40 204060 20

0

50

100

150

200

250

-150 -100 -50 0 50 100 150

MW balance

Pri

ce (

$/M

Wh

)

0

50

100

150

200

250

-150 -100 -50 0 50 100 150

MW balance

Pri

ce (

$/M

Wh

)1

2

3

4

5

Rs./k

Wh 2.52.5

Price

(Rs./

MW

h)

Volume (MW)

Purchase

Sell

Open Auction• Orders accumulated during call phase (no matching)• Orders matched after call period• Orders are used for calculation common price i.e. Equilibrium Price.• All successful orders matched at Equilibrium Price.

Continuous Trading• Price-time priority based continuous matching• The highest Buy order & lowest Sell order gets the priority• If the prices are same then priority is given to the time of the order received.

Term Ahead Market MATCHINGTerm Ahead Market MATCHING

Open Auction• Orders accumulated during call phase (no matching)• Orders matched after call period• Orders are used for calculation common price i.e. Equilibrium Price.• All successful orders matched at Equilibrium Price.

Continuous Trading• Price-time priority based continuous matching• The highest Buy order & lowest Sell order gets the priority• If the prices are same then priority is given to the time of the order received.

Salient Features of REC Mechanism

Participation Voluntary

REC Denomination 1 REC = 1 MWh

Validity 1095 Days after issuance*

Categories 1. Solar REC 2. Non-Solar REC

Trading Platform Power Exchanges only

Banking/Borrowing Not Allowed

Transfer Type Single transfer only , repeated trade of the same certificate is notpossible

Transfer Type Single transfer only , repeated trade of the same certificate is notpossible

Solar RECs *Floor Price: Rs 3,500 /MWh*Forbearance Price: Rs 5,800/MWh

Non Solar RECs Floor Price: Rs 1,500/MWhForbearance Price: Rs 3,300/MWh

Penalty for Non-compliance ‘Forbearance’ Price (Maximum Price)

Price Guarantee Through ‘Floor’ Price (Minimum Price)

*CERC Order dated: 30 Dec’14

Future Products

Milestones & Way Forward

PXSPOT

PXForward

Contracts

Transmission &Generation

CapacityMarket

AncillaryMarket

Derivatives(Futures)

20042008

2009

2001

2003

2004

WayForward

Indian Power MarketProducts…Missing Blocks (1/2)

Medium TermMedium Term3 months- 3years3 months- 3years

OTC Licensed traders (42)ExchangesOTC Licensed traders (42)Exchanges

Short-TermShort-Term OTC Intraday- 3 monthsOTC Intraday- 3 months

ExchangesExchangesIntraday - 3 monthsIntraday - 3 months1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives

1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives

Balancing MarketBalancing Market Unscheduled Interchange/DSMUnscheduled Interchange/DSM



Real TimeReal Time Ancillary ServicesAncillary ServicesDemand ResponseDemand Response

TransmissionTransmission25 Years25 Years

Transmission LicenseeTransmission Licensee

ExchangesExchanges

Financial Transmission RightsPhysical Transmission RightsFinancial Transmission RightsPhysical Transmission Rights

Indian Power MarketProducts…Missing Blocks (2/2)

Financial Transmission RightsPhysical Transmission RightsFinancial Transmission RightsPhysical Transmission Rights

Missing Blocks (1/2)

• Ancillary Services Ancillary Services for frequency control are a necessity for the huge

Indian power system. Market based Mechanisms for Frequency Control Ancillary Services help

to procure ancillary services at optimum cost, maximizing the globalwelfare.

Proposed Ancillary Mechanism 2015 largely involves URS, to start with

• Demand Response Demand-side response may prove as a appreciation to power

management in supply deficit situation like ours

• Derivative Products: Electricity Derivative (hedge) products allow managing the risk

associated with purchasing electricity off the spot (wholesale) market.Hedge contracts can shield your expected electricity costs fromunpredictable shifts in the spot market.

• Ancillary Services Ancillary Services for frequency control are a necessity for the huge

Indian power system. Market based Mechanisms for Frequency Control Ancillary Services help

to procure ancillary services at optimum cost, maximizing the globalwelfare.

Proposed Ancillary Mechanism 2015 largely involves URS, to start with

• Demand Response Demand-side response may prove as a appreciation to power

management in supply deficit situation like ours

• Derivative Products: Electricity Derivative (hedge) products allow managing the risk

associated with purchasing electricity off the spot (wholesale) market.Hedge contracts can shield your expected electricity costs fromunpredictable shifts in the spot market.

Missing Blocks (2/2)

• Financial Transmission Rights (FTRs): Holding a financial transmission right would prevent company from price

hike in power due to transmission congestion. A counter product to congestion charge. Transmission right will guarantee the market participant about price

certainty and delivery of power

• Financial Transmission Rights (FTRs): Holding a financial transmission right would prevent company from price

hike in power due to transmission congestion. A counter product to congestion charge. Transmission right will guarantee the market participant about price

certainty and delivery of power

The aforementioned products can help a participant to better predict demandand create a portfolio which may optimize his cost.

Energy Savings Certificates(ESCerts)

PAT

• Covers 478 designated consumers in 8 sectors• All DCs consume about 165 mtoe energy• National Target = 6.6 mtoe at the end of 1st PAT Cycle (2012-15)

Perform Achieve and Trade (PAT)

A market based mechanism to enhance costeffectiveness of improvements in energy efficiency in

energy-intensive large industries and facilities, throughcertification of energy savings that could be traded

• Covers 478 designated consumers in 8 sectors• All DCs consume about 165 mtoe energy• National Target = 6.6 mtoe at the end of 1st PAT Cycle (2012-15)

ESCerts Trading Mechanismin a nutshell

• MoP in consultation with BEE notifies ‘Targets’ (SEC)for each DC for a 3 year period. Targets are based onSEC of a DC in the Baseline period

• DCs on closure of target year should get energy audited(M&V) by ‘AEA’ and submit the audit result to BEEspecifying the SEC achieved

• If SEC in target year exceeds the Target, ESCerts areissued to the DC (Seller)

• If SEC in target year falls short of Target, DC has topurchase ESCerts for the shortfall

• DCs not complying face penal action by SERCs/StateAdjudicator

• MoP in consultation with BEE notifies ‘Targets’ (SEC)for each DC for a 3 year period. Targets are based onSEC of a DC in the Baseline period

• DCs on closure of target year should get energy audited(M&V) by ‘AEA’ and submit the audit result to BEEspecifying the SEC achieved

• If SEC in target year exceeds the Target, ESCerts areissued to the DC (Seller)

• If SEC in target year falls short of Target, DC has topurchase ESCerts for the shortfall

• DCs not complying face penal action by SERCs/StateAdjudicator

ESCerts MechanismStart 2012Compliance MandatoryObligated Entities Energy intensive industries from 8 sectors, 478 in total

Target 6.6 Mtoe for1st cycle, allocated on SEC basis for each plant

Mechanism Market based Cap and TradeBanking Allowed till next cycle

Denomination of ESCert 1 toeDenomination of ESCert 1 toeIssuance Ex-post based on Energy Audit (80% issuance for intra-cycle,

every year)Cycle span 3 yrs (2012-15 for 1st Cycle)

Market Place Multiple Power Exchanges, regulated by CERCTrading Regulator CERCAdministrator & Scheme R’tor BEECentral Registry POSOCO

Penalty As per Section-26(1A) of EC Act, 2001, to be decided by SDA

Industry Sector Annual Energy ConsumptionNorm to qualify as DC (toe)

No. of Identified DCs

Aluminum 7500 10Cement 30000 85

Chlor-Alkali 12000 22Fertilizer 30000 29

Pulp & Paper 30000 31

Designated Consumers

Pulp & Paper 30000 31Thermal Power Plants 30000 144

Iron & Steel 30000 67Textiles 3000 90

Total 478

*Railways not included

• Accounts for about 165 mtoe of energy consumption annually• 1st Cycle target of 6.686 mtoe (TPPs’ target share is 3.2 mtoe)

Proposed ESCert Contract on IEX

Name of the Tradable Instrument: Energy Savings Certificate (ESCert)Underlying Energy Savings Attributes of 1toe of energy savings by

Designated Consumer allowed in Energy Conservation (EnergyConsumption Norms and Standards for Designated Consumers, Form,Time within which, and Manner of Preparation and Implementation ofScheme, Procedure for Issue of Energy Savings Certificate and Value ofPer Metric Ton of Oil Equivalent of Energy Consumed) Rules, 2012

Instrument Types ESCert denominated by Cycle (e.g. ESCERT-C12-15)Price Quotation INR/ESCertPrice tick 1 INRPrice Quotation INR/ESCertPrice tick 1 INRPrice Limits Not ApplicableVolume tick 1 ESCertMinimum Order volume limit: 1 ESCertTransaction Fee Specified by the exchange from time to time, upon approval

by the Commission

Matching Closed double-sided uniform price auctionTrading Cycle Once a month, Weekly trading from Jan’15 to Form -D

submission date (TBD)

REC Vs ESCerts SchemeREC ESCert

Cycle 1 year 3 yearsLife of Cert’ 365 days (second time extended to

1095 days)Closure of second Cycle(> 3 years)

Target State specific set by SERC, for Solarand Non-Solar

Plant/DC specific, set by GoI

Unit 1MWh equivalentRenewable Attribute

1 ToeEnergy Conserved

Buyers Obligated Entities (Discoms, CPPs andOA Consumers)

Designated Consumersfalling short of Target

Buyers Obligated Entities (Discoms, CPPs andOA Consumers)

Designated Consumersfalling short of Target

Sellers Qualified Renewable Generators Designated Consumerssurpassing Target

Banking No Yes (1 Cycle)Multiple Trading No (Once traded renders Extinguished) ---Floor Price Yes (Solar: Rs 3,500 /MWh,

Non-Solar: Rs 1,500/MWh)No

Forbearance Price Yes (Solar: Rs 5,800 /MWh,Non-Solar: Rs 3,300/MWh)

No

Regulator CERC (Trading) & SERCs (Compliance) BEE(Scheme) & CERC(Trading)Penalty SERCs SERCs

Best Power Exchange in India– Enertia Awards ’14, ’13 &’12– India Power Award 2014– Power Business View 2014

Inc India Innovative 100 Award for‘Innovation in Product and Technology’

Thank You for your attentionThank You for your attentionwww.iexindia.comwww.iexindia.com

Inc India Innovative 100 Award for‘Innovation in Product and Technology’

Best Performing Power Exchange –Power Line Awards ’13 & ‘12

India Power Awards ‘15 & ‘09

akhilesh awasthy - 3 - functioning of power exchanges

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