analysis of cerc white paper over short-term trading by abhishek mazumdar
TRANSCRIPT
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Analyzing the impactof CERC staff paper
over Short-term powertrading.
Abhishek KumarMBA- Power Mgmt.
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Rationale
As of date power trading volumes = 3% of totalgeneration
Weighted avg. sale price of traded powerincreased from Rs.4.64/unit in Apr-June07 to Rs.
7.24/unit in Apr-June08.
UI rates gone up from Rs.7.45/unit in Apr-June07to Rs.10/unit in Apr-June08.
While most of the traded power is sourced from
coal/hydro power plants in which the generationcost is not more than Rs 4/unit, the the pricediscovered in the exchange has been around Rs 6-8.
The deficit states perceive it as a profiteering
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Proposed measures
The paper suggests price caps of Rs 5/unit during off-peak hours and Rs 6 during evening peak hours,based on replacement cost of electricity.
Ensuring impartial functioning of SLDCs in order toincrease power supply through Open Access.
Flexible scheduling framework so that bi-lateraltransactions can be modified at short notice keepingin view the demand pattern.
Strict monitoring of overdrawal by the states duringlow frequency so as to induce grid indiscipline andplanned purchases of electricity.
The proposed price cap is based on the replacementcost of electricity, which a consumer has to spendwhen scarcity prevails. This is nothing but the cost ofdiesel generation as offices and households switch onDG sets when the power goes.
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Key Statistics
Indian power sector is the third largest in Asiaafter China and Japan
Installed Capacity: 1,45,588 MW (as on 31st March 2008)
Peak Demand: 108,866 MW
Demand Met : 90,793 MW
Peak Deficit: 16.6%
Energy Requirement : ~ 740 BU
Energy Availability: ~ 666 BU
Energy Deficit: 9.9%
The per capita electricity consumption for 2005-06 at 631^ kWh (CEA General Review 2006),remains far below the world average of 2,429kWh.
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Cont
Unmet planned targets in generation capacity addition In last 3 Plan periods, target versus achievement ~ 50%
11th Plan (2007-2012) Target: 78577 MW Regional Demand-Supply Deficit (2007-08) Deficit
Northern Region: 9.1% Western Region : 23.2% Southern Region: 9.0% Eastern Region: 11.0% North-Eastern Region: 23.0%
Aims for Power to All by the year 2012 Domestic energy resources not adequate to meet the total
requirement
Need for diversification of energy resources and regionalcooperation - for energy security
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Mkt. Structure created by EA ,2003
CGS STATE GENCO IPP
TRADER PXDISCOM
CONSUMER
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Types of Trading
Bilateral Agreements
Banking Agreements
Power Exchange Available other resource
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EA03 & Regulations
Electricity Act 2003 The intent and object of the EA 2003 is to develop power
market through increased competition, more playersand protect consumer interests
Development of Power Market EA 2003, Section 66,
The Appropriate Commission shall endeavor topromote the development of power market,guidedby the National Electricity Policy
Suitable safeguards to prevent adverse effect oncompetition
Recognized Trading as a distinct activity
Definition under section(2) (47): Purchase ofelectricity for resale thereof Adequate and progressive provisions governing open
access both : to transmission networks (inter-state and intra-state) and to distribution networks
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Cont
National Electricity Policy 2005 Para5.7 To promote market development, 15% ofthe new generating capacities, be sold
outside long term PPAs.-As the power markets develop, it would befeasible to finance projects withcompetitivegeneration costs outside the long termPPAs.this will increase the depth of powermarkets.and in long run would lead toreduction in tariff
Ministry of Power
A progressive Merchant Power Policy with-
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Power Market
The market determined prices in the short termmarket has encouraged IPPS and merchantgenerators to look at the sector with renewedvigour and as an investment destination .
An evidence of this is that PTC has entered intoPPAs to procure long term power with IPPS formore than 10,000 MW and / MoUs for around30,000 MW.
Power market has in fact become a catalyst forprivate investment in power sector.
75,000 MW under development by IPPs withoutany Government support.
Rs. 40,000 to Rs. 45,000 Crores investment already
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Cont.
The wholesale market for electricity in India iscompletely voluntaryby design - that none of themarket participants are obliged to operate through arestricted and compulsory market.
This is because the buyer is free to choose from any of
the following options: Long term PPA based mechanisms Medium Term Short term bilateral trades Day ahead market (through the power exchange)
Real time mechanisms (UI) Even the real time arrangements are completely
voluntary, since the UI mechanism permits frequencyto float within a range, providing tremendousflexibility to market participants.
Further, the rules regarding standards of supply are
more liberal, permitting greater flexibility to utilitieson demand side res onse.
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Cont.A fledgling, nascent market
Limited growth of volumes ofshort term traded market dueto
Overall deficit scenario
Limited number of activeplayers and resultantliquidity crunch
Transmissionconstraints/congestion
Rising cost of traded power:
(The average cost Rs.4.50/kWh in 2007-08)
Due to overall shortagesituation (widening demand-supply gap)
Lack of capacity additions
Linkage with UI rates andRising fuel prices
1.90%
2.00%
2.10%
2.20%
2.30%
2.40%
2.50%
(%)
2003-04 2004-05 2005-06 2006-07 2007-08
(Period)
Volume of Electricity Traded by the Trading Licensees in Total
Generation (%)
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Integrated Energy Policy
24 BU
1%
401 BU
11% 375 BU
10%
2828 BU
78%
Hydro Nuclear Thermal RE
Source: Integrated Energy PolicyTotal 3628 BU
India - Installed Capacity
153220
306
425
575
778
155233
337
488
685
960
0
200
400
600
800
1000
1200
2006-07 2011-12 2016-17 2021-22 2026-27 2031-32
GW
8% GDP Growth 9% GDP growth
Generation Mix 2031-32
(8% GDP )
India InstalledCapacity
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Trading Scenario
Inter-state tradinglicenses (25 Yearsvalidity) in thepurview of CERC
Twenty Six (26)
Trading licensesissued by CERC Volume of bilateral
exchanges is still low(about 2.5% to 3% of
energy generation) Total short term
market approximately21 billion units* in2007-08
* Includes cross- border
Trading Volumes (in MUs)
1102911846
1418815023
21301
0
5000
10000
15000
20000
25000
FY 04 FY 05 FY 06 FY 07 FY 08
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Cont
Most of the supplies are locked up in long term PPAs.
Short term trading constitutes 3% of the total supply.
Trading essentially between surplus & deficitdistribution utilities.
Trading is essential for resource optimization andmeeting short term peak demand.
Most of the trading is inter-regional
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Key Player & Market share
Market Share 2007-08
46%
16%6%
8%
7%
4% 12%1%
PTC
NVVN
AdaniTata Power
JSW
Reliance Energy
Lanco
Others
Trading
LicenseesVolumes (MU)
PTC # 9889
NVVN 3324
Adani 1322
Tata Power 1682
JSW 1479
Reliance Energy 776
Lanco 2600
Others 229
Total 21301
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Benefits
Increasing realization among
utilities of power as a source for
revenue earning
Improved PLF, particularly of State
Power Utilities
An example: DVC - a rise of
5% in PLF
No backing down
Reduction in load shedding
82
74
75
73
72
6970
60
65
70
75
80
85
2001 2002 2003 2004 2005 2006 2007
Trading results in optimization of resource utilization
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Cont.
Price volume break up (%)98
36
92
59
125
48
26
FY 05 FY 06 FY 07
Rs 1-3 Rs 3-4 Rs 4-5 Rs 5-6
The short term market has created value for power. Thereis a distinct shift towards higher revenue realization
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Cont.
Encouraged IPPs to invest in generating assets- spurt in investmentbased on competitive tariffdue to widening demand supply gap
Market-based returns
No sovereign/government guarantee
Large merchant capacity is being funded
States Governments of Chhattisgarh, Jharkhand, Orissa, Himachal
Pradesh, J&K, Uttaranchal, etc. have recognized Power as Resource
Planned rapid capacity additions have devised policies to become
Power Hubs
MoU with developers forCapacity addition
Jharkhand 9,110 MW
Chhattisgarh 30,000 MW
Orissa 17,000 MW
Tamil Nadu 10,000 MW
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Default Market for trading
UI rate serves as default rate fortrading.
UI rate depends on frequency isindicator of demand-supply gap
Rate depends on demand-supply gap-
efficient market.
Encourages trading agreements tohedge risk of UI charges
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Market Clearing Price for the period 12/08/2008 to
19/08/2008
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Date:19/07/2008 IEX Rate
in Rs/MWh UI RATEFREQ1 8,076.09 9.73 49.032 8,059.63 9.73 49.033 8,059.17 9.73 49.034 8,043.78 9.73 49.035 8,043.48 9.01 49.11
6 8,051.17 9.01 49.117 8,050.99 9.01 49.118 8,050.95 9.01 49.119 8,058.55 9.01 49.1110 8,271.77 8.11 49.2111 8,289.10 8.11 49.21
12 8,289.10 8.11 49.21
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Date:19/07/2008 IEX Rate
in Rs/MWH UI RATEFREQ13 8,289.10 8.11 49.2114 8,289.10 8.11 49.2115 8,300.88 8.11 49.21
16 8,300.88 8.11 49.2117 8,300.88 7.84 49.2418 8,529.99 7.84 49.2419 8,533.05 7.84 49.2420 8,534.32 7.84 49.2421 8,534.32 7.84 49.24
22 8,534.32 9.46 49.0623 8,300.91 9.46 49.0624 8,091.48 9.46 49.06
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Work in progress
Present issues in Power market. PX, ABT & Trading. Emerging factors conducive to electricity trade. The new CERC UI regulations. Small work to answer
What is likely D-S scenario in 2012 Can India afford all this power. Is the regulatory scenario condusive to investment. Will the xmission network support. What are the option for sale of power. Fuel sourcing options. Typical contracting structures.
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Problem/Outcome
The imposition of price caps, which are
aimed to prevent profiteering at the costof ultimate consumers of power deficit
states, would be possible only after athorough review of unscheduledinterchange(UI) charge and after bringingthe hydro power projects under the
regulatory mechanism.
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Results
Fuel-cost & Power-shortages have not much impactover price of electricity being sold in short-term.
There is a direct correlation between price of short-term traded power and UI rates.
Sellers may resort to discriminatory methods inselecting buyers.
Capping could play havoc with market sentiments.
Might lead to undoing of the capacity creation
programme of IPPs/MPPs/CPPs.As the situation improves,the need for regulatoryoversight in such transactions would automaticallyget reduced.
The price caps may also drive up the average price
of power.
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Suggestions
While it is a fact that the price at which power isbeing traded bears no correlation with the cost ofpower generation -- a point that is highlighted in the
paper -- it is also a fact that it is this price of tradedpower which is encouraging investments in thepower generation sector, especially investments inwhat are called MPPs. A higher price of power in theshort term is therefore the route to ensure lower
prices of power in the long term, through supplyaugmentation. Price caps will most certainly chokesuch investment in generation, and in the processwiden the demand-supply gap in the long run.
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Cont..
It should look at tapping the increased ability, andwillingness, of the consumer to pay a premiumfor power. The average consumer in Pune iswilling to pay a surcharge to get assured 24 x 7
power. That would also be true of many othercities in the country.
It is time for the regulator to shift its focus fromprice to assured availability.
There is no power that is as expensive as nopower.
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Further Scope
D-F test.
Granger Causality.
ECM.
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Power Market Ripple Effect
Power trading share is 3% of Indias total energy generated butits indirect impact on the power sector is several times bigger
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THANK YOU !!