power markets in india rahul banerjee senior adviser , power markets cerc

POWER MARKETS IN POWER MARKETS IN

INDIA INDIA

RAHUL RAHUL

BANERJEEBANERJEE

SENIOR ADVISER , POWER SENIOR ADVISER , POWER

MARKETS MARKETS

CERC CERC

Disclaimer : These are the person views of the Speaker 04/21/23

We shall cover …We shall cover …Market Related Sections in

Electricity Act Power Market Structure in IndiaMarket Regulations of CERCPower Market Data Regulators Role in Market

DevelopmentInternational Power Markets Market Related Discussion Points

04/21/23

How to view electricity ?How to view electricity ?Is electricity to be treated as a public

good with universal service obligation of the state or is it a should be treated like a commodity and work on market based principles ?

Double sided bidding or supply side bidding ? Unique Commodity- Higher Risk ?

◦Consumer as soon as produced ◦Network to Transmit ◦Network Code – Operation flexibility lower◦Banker look for long term contracts

04/21/23

Electricity Act 2003 Electricity Act 2003 Foundation stone for creation of a modern

electricity industryFlows from overall liberalization of Indian

economy 1948 act was a nationalization of electricity -to

supply to semi urban and rural areas , created monolithic SEB and financial losses followed

Created a new industry structure – unbundling of SEB , private sector, competition , open access , regulatory commissions

New law, multiple interpretation , takes time to settle

04/21/23

Determination of tariff by( competitive) bidding process based on guidelines issued by GOI – Sec 63

Preventing Market Domination- responsibility of Regulators - Sec 60

Open Access to Generation ,Consumers by Transmission, Distribution cos -Sec 38, 40, 42◦ Cornerstone of the act ◦ Bring competition ◦ Similar to FERC order 888 , 889 in 1996

Access to line on payment of charges Allow transmission to recover stranded cost through energy customers All info in open market – OASIS Open access same time information

system NLDC, RLDC similar function , information asymmetry reduction

Market related Sections in Market related Sections in Electricity Act 2003Electricity Act 2003

04/21/23

Market related Sections in Market related Sections in Electricity Act 2003Electricity Act 2003

Development of power markets including trading - Section 66NEP suggests 15% of new capacities to be sold

outside long-term PPAsNEP stipulates power exchanges

Generation delicensed –Sec 7 Trading, Transmission, Distribution are licensed -

Sec 14Regulatory oversight only on trading

margin ,not on sale price by trader Max & Min tariff for a period of 1 yr in periods of

shortages – Sec 62 (3)

04/21/23

Why have a Power Market ?Why have a Power Market ? Markets - Ultimate payment security mechanism -

superior to government guarantee ◦ Induces price risk ,Reduces liquidity risk

Risk Mitigation mechanism –from take or pay contracts

◦ Liquidity improves valuation of companies as risk reduces

◦ Cost of capital reduces as alternative platform to sell

available Price acts as signal for new investments

Merchant Power capacity and private sector investment

Match short-term surplus with demand variation in a diverse country – optimal asset utilization

Bring latent generation capacity - captive power plants to market

04/21/23

Why have a power market ?Why have a power market ?

Liquidity reduces business risk Increases price volatility Access to markets - Open Access – Key to

competition ◦ Alternative to consumers - by using open access ◦ Industrial consumers getting access through PX and

technology

04/21/23

The shift The shift Till 1980’s-Government promoted

◦Capital Investment 1990’s -Government guaranteed

PPA◦Single buyer

2003 onwards - Market based ◦Multiple buyers and sellers ◦Market is the risk mitigation ◦Exit from contract in case of default

Should not be abused 04/21/23

•In matured markets all these types of markets exist •Interplay between markets improves price discovery

Auction markets

OTC Markets

Financially settled

Derivatives

Exchange/ Options

Time

Mark

et

Matu

rity

Multiple buyers - sellers

Spot Markets on Exchanges

Individual Buyer /Seller

Continuous Trading

Liquidity

Impro

ves,

Pricing m

ore efficie

nt

Structured

Products

financially settled

OTC Derivati

ves

04/21/23

Stages of Market Stages of Market Development Development Indian Power market is here

Long Term Markets

(

Short Term Markets (up to

1 year )

Regulated Assets –

Interstate and as

State level

Competitive Bidding – case 1 and

case 2

Licensed Traders / Bilateral

Power Exchange

Real time balancing

UI mechanismCost curve + penalty

Power Market Structure in Power Market Structure in India India

04/21/23

Different Types of Market Different Types of Market Energy Market

◦We do not have pure energy and capacity markets

Capacity Market◦Case 1 Case 2 are Capacity and Energy

Markets ◦New Case 2 SBD is a pure capacity market ◦Day ahead in some sense

Real Time market◦UI , but is based on marginal cost of the

fuel Transmission Market

04/21/23

Capacity Markets Capacity Markets Generators risk for project financing is

taken care ofRecovers his fixed cost , DSCR, ROE How to price capacity – is a real call

option ◦Buyer asks for electricity to be scheduled

whenever the day ahead price is higher than the variable cost of this generators

Fuel cost is a pass through to DISCOM Fuel cost is 60 % of total power cost Can be an alternative to Power

Derivatives ?

04/21/23

Markets Contracts

Grid Connected Entities

Participant

Licensed Traders

Power Exchange

Clearing Corporatio

n

Other Exchange

Exchange Member

Other Transacting parties

Market Structure

04/21/23

Some Features of Short Term Some Features of Short Term Power MarketsPower Markets

Trading licensees (44) – Top 5 control 80 % of market HHI Index to monitor market power Traders also facilitating investments in new capacitiesNew smaller category created to penetrate market

Two Power exchanges - electronic platform for day ahead markets , week ahead markets ,intra day (Similar to Nordpool) Assured payment security and risk management Prices Dissemination across country Reduce information asymmetry Provide equal bargaining power to all players in a

supply deficit environment

04/21/23

Short Term vs Long term Short Term vs Long term Contract Contract Utilities can enter into long term

contracts for their future demand projections and in case demand does not grow as per their anticipation can sell any extra supply in the short term market as a part of their portfolio management

System Operation - Large volume of short term transaction creates congestion in transmission due to unplanned power flow

04/21/23

Short Term vs Long Term Short Term vs Long Term Contract Contract ST- Acts as a payment security mechanism in case of

default in long term contracts ST- Generation resource optimization and helps transfer

power from surplus to deficit region in a geographically seasonally diverse country like India

Is short term market a procurement market or a balancing market?

Utilities to decided their own expectation of the market prices and demand projections.

In long term contracts , utilities are stuck to a technology Long term contracts help to bring certainty of cash flow

and are necessary for making projects bankable Long term contract can be done only if , contacts on fuel

side can be done ,else risk not mitigated , chance of contract reneging

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Regulations Regulations

04/21/23

Trading Margin Regulation Trading Margin Regulation Trading - a licensed activity - Capital adequacy needed as

taking risk on behalf of participants

◦ Networth , Liquidity criteria

◦ Capital intensive players absorb credit risk of DISCOM, risk

mitigation for suppliers Trading margin imposed by regulator

◦ To ensure prices do not increase much ◦ Stymies innovation as there is no incentive to innovate and

structure dealsNo margin on long term transactionsCredit risk has gone up significantly for trader recently

◦ Liquidity and working capital constraint ◦ Bank not lending to Dicsom

Margin on Short Term Transactions ◦ 4 paisa margin if power price less than Rs 3/kwh◦ 7 Paisa margin if power price more than Rs 3/kwh

04/21/23

Long Term Contract Long Term Contract

04/21/23

Procedure, Terms and Conditions for Procedure, Terms and Conditions for grant of trading licence and other grant of trading licence and other related matters Regulations, 2009related matters Regulations, 2009Notified in 24.02.2009 3 Amendments

◦16.10. 2009 – Intra state removed◦02.06.2010 – Category 4 added ◦11.10.2012-

Inter state License also includes Intra-State trading as per Rule No. 9 of the Electricity Rules, 2005 already provides for it.

04/21/23

04/21/23

Category Volume of electricity proposedto be traded in a year includingintra‐State trading

Minimum NetWorth (Rs. Incrore)

License FeeLacs Per annum

Category I No Limit 50.00 40

Category II Not more than 1500 MUs

15.00 15

Category III Not more than 500

5.00 6

Category IV Not more than 100 MUs

1.00 3

Networth required to maintained at all times

Salient ProvisionsSalient Provisions Technical Qualification for availing Trading Licence- At

least 1 full time professional possessing following qualification◦ 10 years experience in power systems, engineering

qualification◦ 5 years in Finance commerce- CA/ ICWA/ MBA Finance

Publication of license in newspaper as public notice Volume limit for a category inclusive of intra-state trade

volume Networth requirement for both existing and new

companies would be for last one year while applying for the licence

Up-gradation of licence to a higher category without publication process as due diligence already completed

Disgorgement of excess profit charged

04/21/23

Salient Provisions Salient Provisions Regulatory Audit of account in

case necessaryIntrastate reporting Deemed license to submit

trading reportsContravention and Penalties

defined into serious and non serous categories◦Warning to debarring upto 6 months

04/21/23

Power Market Regulation Power Market Regulation

Market StructureMarket design and principles Power Exchange

◦ Approval, Prudential Norms◦ Various Committees for governance ◦ Trading Systems◦ Risk management and Default Settlement

Market Oversight◦ Market monitoring◦ Reports and analysis

04/21/23

Principles Of Market & Principles Of Market & Market DesignMarket Design

Power Exchange shall ensure fair, neutral, efficient robust price discovery Day Ahead Market on Exchange

Economic principle of social welfare maximization and to create buyer and seller surplus simultaneously during price discovery.

Bidding mechanism shall be double sided closed bid auction on a day ahead basis.

Prudential norms for Prudential norms for establishment of Power establishment of Power Exchange (PX)Exchange (PX) PX shall always have a minimum networth of

Rs. 25 crore Settlement Guarantee Fund (SGF) – SGF investment in safe investments /

principal amount is not at risk. Fifty percent of the SGF proceeds shall be

kept in safe liquid investments. Shareholding norm for Power exchange-

Anchor investor can have maximum of 25% shareholding in the Power Exchange.

A member can have a maximum of 5% shareholdingAll members together can have 49 %

Ownership and Governance structure of Power Exchange:At lease one third of the members of the Board or a

minimum of two directors, whichever is higher, shall be independent directors selected from a panel constituted by the Power Exchange and approved by the Commission.

CEO cum Managing Director shall be solely responsible for running the day to day operations of the Power Exchange.

Annual Registration charge for Power Exchange:Annual Turnover of Power Exchange (in Mus)

Annual Registration Charge (` in Lakhs)

Above 10000 52Above 5000 & upto 10000 20

Upto 5000 6

Management of Power Exchange:2 Senior Management professional with ◦ 10 years experience in power systems, engineering

qualification◦ 5 years in Finance commerce- CA/ ICWA/ MBA Finance Power Exchange shall constitute a Risk Management Committee Market Surveillance Committee

headed by an independent directorSGF management committee with adequate

representation from members of Exit policy predefined

No uncertainty for market participnats

Membership in Power Membership in Power ExchangeExchange

Membership Categories:1.Electricity Trader2.Distribution licensee including deemed

distribution licensee or a grid connected entity

3.Advisory Member Member service charge shall not be more than

0.75% of transaction value Electricity traders margin will be as per

trading margin Regulations

Information Technology Information Technology Infrastructure and Trading Infrastructure and Trading System of PXSystem of PX Audit of software application used for

price discovery Periodic IT system audit for data

security, data integrity and operational efficiency and submit its reports to Commission annually

Disaster recovery site and alternate trading facility in case of emergency

Information dissemination by Information dissemination by Power ExchangePower Exchange

Prices, volumes and historic prices shall be made available on the website of the Exchange and should be in downloadable format.

An Exchange shall report price, transaction volume, buyers and sellers on its platform on monthly basis.

Whistle blower policy

Power Exchange Power Exchange Multiple power exchange model Voluntary participation Demutualised and Ring fenced Public interest independent directors For profit organizations- Market operator Co ordinate with system operator Two Power Exchanges operational , 3rd in principle

approval Electronic platforms Transparent price discovery and anonymous bidding Equal bargaining power to buyer and seller

◦ In a supply deficit market Helped in introducing open access at ground level Technology has acted as a great leveler

◦ Large participation , different from other markets where only wholesaler participates

04/21/23

Standardized productsHigh Liquidity

◦Pricing improvesStandardized risk managementElectronic price dissemination

◦Quick and nation wide◦Reduces information asymmetry

Power Exchange Power Exchange

04/21/23

Transmission CongestionTransmission CongestionHow frequently congestion is

happening◦ Congestion has occurred every day in December

2012 and in all 15 minute time blocks every day

How much flow is getting restricted due to congestion ◦ ((Uncongested volume cleared – Volume cleared taking

into consideration congestion) / Volume cleared taking into consideration congested ) X100

04/21/23

Transmission Congestion Transmission Congestion In how many corridors congestion

is happening ◦S1- S2, W3, N3, ER- NER ( recently

phenomenon) What is the cost of congestion

◦Price and Volume both matter When market-clearing price lies on a very

elastic portion of demand curve, i.e. quantity demanded is very sensitive to price, buyers will have less surplus, and when market-clearing price lies on a very elastic portion of supply curve, sellers will have less surplus

04/21/23

Month in 2012 Uncongested

cleared volume

( MU)

Volume cleared

after taking into

consideration

congestion

( MU)

% of

Congestion

August 2001.34 1821.02 9.90

September 2217.58 1878.69 18.04

October 2452.07 2277.60 7.66

November 2479.54 2119.01 17.01

December 2633.26 2242.51 17.6

04/21/23

04/21/23

1-Dec-12 S1 & S2 2 3258.66 Other regions- 2737.59, S- 6920.66 77139.622-Dec-12 S1, S2 & W3 3 2824.89 Other regions-2562.33, S- 6992.13, W3- 1449.61 69297.643-Dec-12 S1, S2 & W3 3 2969.12 Other regions-2649.65, S- 6995.03, W3- 1817.05 69430.194-Dec-12 S1, S2 & W3 3 3000.36 Other regions-2489.52, S- 7065.4, W3- 2461.51 73768.015-Dec-12 S1, S2 & W3 3 2912.72 Other regions-2637.54, S- 6970.93, W3- 1999.66 73335.946-Dec-12 S1, S2 & W3 3 3108.80 Other regions-2804.6, S- 6991.63, W3- 1979.92 75297.147-Dec-12 S1, S2 & W3 3 3158.61 Other regions-2600.01, S- 6991.4, W3- 2302.44 70894.668-Dec-12 S1 & S2 2 2818.83 Other regions- 2433.43, S- 6992.27 76588.239-Dec-12 S1 & S2 2 2739.75 Other regions- 2399.67, S- 6966.61 72066.50

10-Dec-12 S1 & S2 2 2758.45 Other regions- 2302.23, S- 6990.14 71750.26

11-Dec-12 S1, S2 & W3 3 2739.37 Other regions-2321.28, S- 6962.66, W3- 2305.41 74735.36





16-Dec-12 S1 & S2 2 2708.52 Other regions- 1999.87, S- 5667.73 73858.41

17-Dec-12 S1,S2 and A1, A2 4 2608.23 Other regions-2099.21, A- 4103.83, S- 5065.77 69035.73

18-Dec-12 S1,S2 and A1, A2 4 2205.22 Other regions-1799.89, A- 5500.27, S1- 4999.23, S2- 5046.2 62771.25

19-Dec-12 N1, N2,S1,S2, W1,W2 and W3 7 2374.78 Other regions-1498.01, N- 1999.44, S- 5088.66, W- 1999.44 69289.33

20-Dec-12 A1, A2 & S1, S2 4 2612.77 Other regions-2000.09, A= 2403.93, S1= 4998.62, S2= 5160.46 71871.67

21-Dec-12 S1,S2 and A1, A2 4 2673.25 Other regions-2258.54, A=2405, S1= 4998.92, S2= 5258.79 71446.62

22-Dec-12 S1,S2 and A1, A2 4 2575.40 Other regions-2389.85, A=2404.94, S1= 4999.25, S2= 5256.49 74344.07

23-Dec-12 S1 & S2 2 2623.12 Other regions-2408.3, S- 5273.66 75792.86


25-Dec-12 S1,S2 and A1, A2 4 2804.39 Other regions-2527.58, A- 2613.41, S- 5261.35 80066.31

26-Dec-12 All regions 122808.67 Un MCP- 2808.67, A- 2653.97, E- 2559.27, N- 2750.15, S-5222.98, W-

2736.88 72413.08

27-Dec-12 S1 & S2 2 3002.12 Other regions-2791.8, S- 5226.35 73795.24

28-Dec-12 S1,S2 , A1, A2 and W3 5 2875.18 Other regions-2749.87, A- 2953.85, S1- 4998.03, S2- 5235.83,W3- 1710.43 67640.60

29-Dec-12 S1,S2 , A1, A2 and W3 5 3001.59 Other regions-2779.23, A- 2953.55, S- 5257.56, W3- 0.51 61810.12

30-Dec-12 A1,A2,E1,E2,S1,S2 and W3 72928.90 Other regions-2779.16, A- 2853.53, E- 2749.03, S- 5238.48, W3- Nil(for

18hrs) 65095.97

31-Dec-12 S1,S2 , A1, A2 and W3 5 2684.74 Other regions-2499.31, A- 2853.09, S1- 4997.77, S2- 5231.46, W3- 2499.08 77959.2304/21/23

Market BreakupMarket Breakup

04/21/23

What is the right mix of long term and short term market ?

Prices showing a declining trend in Short term power marketShort Term volume has grown at CAGR of 25 % over last 4 years

Short Term Power Price-Volume Short Term Power Price-Volume TrendTrend

at04/21/23

04/21/23

Short Term Market though 8 %, is a $ 4Billion Market

* Till Nov. 2012

Short Term Price and Volume Trends

Year

Trader Power Exchange

Size of Market through Traders

($Billion)

Size of Market through

Exchanges ($Billion )

Total Size of Short

Term Market

Excluding UI

($Billion)

Total Volume

(BU) (Trader+PX

)Volume in Billion Units

Trader Price Volume in

Billion Units

Power Exchange

Price

2008-09 21.42 158.91 2.77 162.83 3.4 0.45 3.86 24.19

2009-10 26.82 114.35 7.086 108.48 3.07 0.77 3.84 33.91

2010-11 27.70 104.13 15.52 75.43 2.88 1.17 4.06 43.22

2011-12 35.84 81.24 10.01 71.61 2.91 0.72 3.63 45.85

2012-13* 23.72 82.11 14.64 72.16 1.95 1.06 3.00 38.35

(1$=52 INR)

04/21/23

Electricity Trading Margin Electricity Trading Margin

04/21/23

Period Volume of Electricity Traded

(Mus)

Weighted Average

Purchase Price (`/kWh)

Weighted Average

Sale Price (`/kWh)

Actual Trading Margin

charged(`/kWh)

2005-06 14,189 3.14 3.23 0.09

Introduction of Trading Margin Regulation in 2006

2006-07 15,023 4.47 4.51 0.04

2007-08 20,965 4.48 4.52 0.04

2008-09 21,917 7.25 7.29 0.04

2009-10 26,820 5.22 5.26 0.04

2010-11 29,683 4.74 4.79 0.05

2011-12 35,840 4.13 4.18 0.05

Trading Margin has reduced

Power Plant

Input Natural Gas / Coal

Output Electricity

Spark Spread Contracts to HedgeIf can pass on the risk to customers no need to hedgeIf Competitor gives fixed price , may need to hedge Long term physical contracts on both sides – is also a hedge

Fuel Price Risk Power Price

Risk

Financial /Credit Risk and Operational Risk

Risk Model for a Company Risk Model for a Company

04/21/23

Discom today buys Electricity futures expiring in 1st Dec 2013 expiry at Rs 4 / Kwh.This is the Futures contract price

1 st Feb2013 1st Dec 2013

Power Price increases to Rs 5 / KwhSells financial Contract at Rs 5 /KwhProfit of Rs 1 /Kwh Buys in Day Ahead at Rs 5/ kwh Effective Price = 5 - 1 = Rs 4 / Kwh

Price decreases to Rs 3/ KwhSells financial contract at Rs 3Loss of Rs1/ KwhBuy in day ahead at Rs 3/ Kwh Effective Price = 3+ 1 = Rs 4/ Kwh

How a hedge works ?

Price Fixed at Rs4/ Kwh come what may !No price risk

Time

Both physical and financial position to be looked at together in a hedge else is a speculative position 04/21/23

PJMPJM

04/21/23

PJMPJMReliability Pricing model –

Capacity Market ◦ Capacity auction market upto 3 years ahead ◦ Every year incremental capacity auctioned as

forecast improves ◦ All load serving entities have to forecast peak

demand and procure capacity through self supply, bilateral contracts , remaining through PJM capacity auctions

◦ Long term price signal for new genco investment ◦ Mandatory to participate in day ahead energy

market thereafter participate

04/21/23

Financial electricity Financial electricity derivatives in US derivatives in US NYMEX,ICE

◦Derivative contracts settled on PJM prices

◦Large number of contracts settled at various hub prices

◦To hedge LMP price risk ◦Large number of OTC contracts ,

Clearing done though exchange ◦Not as liquid as gas markets

04/21/23

Financial Transmission Financial Transmission Rights Rights LMP at each hub different due to

transmission congestion , generation cost at the hub

Price risk = LMP gen- LMP Disco against the bilateral contract done

FTR to hedge this price risk

04/21/23

NordpoolNordpool Large power cos - State owned

◦ Market power mitigation through Unbundling vs integrated market

Generation competition , Transmission regulated monopoly, Discom network regulated monopoly , retail competition ( many retailers )

In US -Discom is regulated monopoly in most states

Market Design Day ahead Spot – Elspot- demand and supply in full

Nordic region ◦ Energy + transmission capacity right

Balancing market – Elbas- Intra day upto 1 hour before delivery – Continuous market

Financial Futures market – Upto 4 years ahead Participants can also do long term physical bilateral if they want =

Spot physical + Financial Futures Provides flexibility and exit whereas bilateral ‘take or pay’04/21/23

NordpoolNordpoolContract for difference(CFD)

◦Basis risk between Financial contract ( settled on unconstrained system spot price ) and Bid area hedged with this

TSO Dispatch based on market bids of participants

04/21/23

Comparison Comparison

04/21/23

Regulators role Regulators role Regulator to think from systemic risk point of view As market size increase , market integrity to be

maintained Role of regulator will be as watchdog of market Regulators role transformation from tariff fixation to

market oversight

04/21/23

Regulatory InstitutionsRegulatory InstitutionsLevel playing field to private sector as

government was owner of the other assetsOther sector regulators

◦ Protect small player from large institutions◦ Unequal bargaining power ◦ Skewed market structure

Evolving OrganizationsCost of Compliance

Stymie innovation Regulatory Certainty

◦ Open minded but not vacillate

04/21/23

Role of CERC: Providing alternatives for

power procurement through development of

Power Market

04/21/23

Alternatives to Procure Power Alternatives to Procure Power

o Created a Market Structure and Market Rules• License to electricity traders , power exchanges

o Multiple alternatives available to purchase power today • Directly through Open Access• Electricity Traders• Power Exchange

o Open access in interstate transmission being encouraged Approx 2000 industrial consumers and Discoms procuring

electricity through Power Exchanges regularly

04/21/23

Development of Power Development of Power MarketsMarkets

o License to electricity traders• Large number of licensed traders (43)

• Two Power Exchanges operational for last 3 years

• Anonymous and Competitive price discovery• Based on real demand and supply

• Electronic platform• Quick Price dissemination across country

o Introduced various products • Day ahead, week ahead, intraday/contingency

traded, RECo Regulations notified • Grant of Trading License • Power Market Regulation • Trading Margin Regulation • Short Term Open Access Regulation

04/21/23

CERC has helped create a robust market structure

Role of CERC: Market Oversight and Grid

Discipline

04/21/23

Market OversightMarket Oversighto Ensures that market is Free, Fair and

Transparent o Regularly monitors Trading Margin and short

term power prices o Publishes Monthly and Annual market reports

for Information dissemination o CERC intervened in market when prices

increased exorbitantly • Price Cap introduced in day ahead market in

September 2009 for 45 day period

o Ensure large entities do not exercise market power

04/21/23

CERC ensures Market Integrity

Market Monitoring Market Monitoring Focus is more on Short Term market presently

◦ Started creating a forward curve as no futures market exists Start monitoring long term , medium contracts also

◦ 92 % of market is long term ◦ State market difficult to monitor centrally ◦ Forward looking and not post facto only

Look at open positions of traders -is a metric to monitor risk ,not just prices – when price going down Financial health of gencos companies who have large number of contracts – when sale price fixed and

fuel cost increasing Contract reneging phenomena – is it increasing ?

◦ especially as contract period is 25 yrs Physical /Economic withholding of assets Generators cost curve monitor ? PJM , California do this

04/21/23

Discussion Points - 1Discussion Points - 1 Regulated as well as Merchant assets in same

physical location ◦ Tariff determination and standard of performance◦ Gaming by players

Dedicated lines vs Transmission licensee◦ Market power ◦ Should they be converted ?

What is the Right mix of Long term and Short term market:◦ Transmission planning is a issue◦ Share of short term purchase in portfolio low but

rising◦ Is upto 15- 30 % of total portfolio ( Rel Infra-

JVVN) , Avg 5 % Should Long term PPA be perquisite to build a

transmission line ?

04/21/23

Discussion Points- 2 Discussion Points- 2 What is the corrcet risk sharing

mechanism between generators and utilities? ◦How long should the long term contracts

be ?◦Evaluation escalable and non escalable

Should we explore centralised disptach model like US ◦Will be synergy in a large country be

more ?◦Will there be fuel savings ?

04/21/23

Discussion points - 3Discussion points - 3Should merchant power plant be always available in

shortage condition?◦ Should they declare capacity daily?

◦ Is generator a public utility ?◦ Has no assured return , why commit availability?

How to equitably allocate corridor between license trader and power exchange to increase social welfare ?

System operators role while scheduling contracts ?◦ Tight spot ,Should it be adjudicating?◦ What is the way out ?

04/21/23

Discussion Point- 4 Discussion Point- 4 Market Rules should compliment

Grid reliability and security ◦ Revision of contracts vs Firm contracts

Short term contract treated as firm contract in many markets , cannot be revised , supply from other generator to be arranged

◦In case of grid failure How quickly revision should be

communicated in unaffected areas Exposed to financial risk when revision done later

Should they be insulated ?

04/21/23

Discussion Points -5Discussion Points -5Generation Capacity addition vs

Fuel ◦Stranded assets ?◦Should we stop and sort out issues

first?More Transparent platform

◦Electronic web based Open Registry◦SLDC to use this to give open access◦Like Depository for stocks ◦

04/21/23

Disclaimer – These are personal views and may not necessarily be the views of the Commission

04/21/23

Mandate of CERC as per Mandate of CERC as per ActAct

o Tariff Determination • Tariff for bulk supply from Central Government owned/inter-

state generating companies and transmission companies(Consumer tariff is under the jurisdiction of State ERCs)

o Regulating Inter State Transmission and Grid Code

o Market Development – facilitating framework(Generation capacity planning responsibility of

Government)

o Licensing, Adjudication, Advice to Government

04/21/23

Role CERC : Role CERC : Balancing Consumer Interest and Investment Balancing Consumer Interest and Investment

promotion need promotion need o Consumer interest served by

• Enhanced Power Supply and Transmission Availability• Inducing Efficiency in operation of power plants –

gains for Consumers • Ensuring Reliable Power Supply• Providing Alternatives to procure power

o Investment Promotion:• Enabling framework for Market Access to Generators • Development of Power Market• Competition in Transmission• Promoting Green Energy

o CERC is responsible for Oversight of Market and Grid Security

04/21/23

What Regulatory What Regulatory Commission have achieved ? Commission have achieved ? New Institutions, resource

constraintsUp against the might of government

controlled monolithic behemoths Transparency in working Stakeholder consultation, public

hearing Statement of reasons for any

regulation Display of information on website

04/21/23

Transmission Market Transmission Market structure structure Long Term term -

◦Through CTU ,Participants are Generators/ Customers/ Traders

◦ In case of no corridor is available new corridor is built

◦No auction based mechanism –First come first serve principle used or new corridor built

◦ Investment made on cost plus route or Competitive Bidding route

◦ Investment Cost recovered through transmission charge as per POC

◦Line constructed only when PPA exists ◦Connectivity and LTA regulations

Transmission Market Transmission Market StructureStructure Medium Term – Corridor booking by CTU after

LTA granted Short Term – Through System Operator After LTA / MTOA , margin left are available in

Short Term ◦ Explicit Auction in Advance Bilateral – Traders

Based on existing contract ,Point to Point ◦ Implicit Auction in Day Ahead – Power Exchange

Collective Transaction , Individual contract not required Congestion Fund created ,does not go to Transmission

Company or Long Term Customers In Both case Auction mechanism used to SELECT

who should use the Corridor Price signal has not been used for identifying

which corridor to develop /strengthen OR Extra income ( increased price ) not passed to

Transmission Company for further investments

Ebidding for Transmission Ebidding for Transmission Corridor Corridor 3 month advance bidding done

through auction in case corridor available is less than the demand

E bidding in short term market in frequent Trader proportionately reduce their requirement

generally ( unwritten code of conduct )

Suggestion of NLDC ◦Move E Bidding presently conducted

by NLDC to Power Exchanges

Operational Challenges presently ◦Very elementary platform , run by

NLDC ◦Single price, no time differentiation ◦For 15 min block , for full month

W3 to Nr , SR , WR – How bidding should be done for such cases How to identify which corridors to auction ?

Any conflict of interest in case PX directed to also participate in e bidding for its corridor in future ?

Ebidding for Transmission Corridor

Larger Implications Larger Implications At a policy level are we in for creating

transmission corridor market ? Debate needed in following Are we promoting auction concept in Short term

transmission market ? In short Term markets transmission market already exists

Do we intend to extend this to Long term markets also at a later stage ? Auction Rights to physical owners of line Financial Transmission rights thereafter

Is a good exit route in case of failed PPA E.g. PTC stuck with LTA Corridor in Jaypee Karcham

Wangtoo Impact on the consumer – increase in cost of power

?

Role of CERC: Enabling framework for Investment in Generation

04/21/23

Enabling framework for Enabling framework for Investment in Generation…Investment in Generation…o Pre 2003:

• Government guarantee on PPA required to attract investment in private generation

• No markets – or alternatives to sell in case of default by buyer

o EA 2003 and CERC regulations :• Concept of open access through Act : Framework by CERC

o Interstate Open Access regulations • Allowed generators to sell power to any buyer across the

country

o Connectivity, Long term and Medium Term Open Access • Improved Market Access for generators • Provides certainty and surety of evacuation for new capacity

04/21/23

Enabling framework for Enabling framework for Investment in Generation …Investment in Generation …o Development of Power Market through

regulations• Provided multiple buyer seller model• Multiple alternatives available to generators to sell

power – directly, traders, power exchange o Regulatory approval for transmission network

augmentation • Ensures Transmission Network expansion keeps pace

with Generation capacity addition • Ensures new generation is not stranded

o Introduced Point of Connection Tariff • Removes regional cascading of transmission

charges • Level playing field among all generators to compete in

Competitive bidding

04/21/23

CERC’s framework has reduced various risks - default /payment risk, operational risk, liquidity risk in generation business

Private Generation Private Generation growth growth

04/21/23 Source: CEA

Discussion Points-4 Discussion Points-4 How stakeholders should view

PPP projects ?Public assets being built with

private capital – How much profits should be allowed ?

Should natural resources of country be allocated or auctioned ?◦Who gains in this process ?

04/21/23

power markets in india rahul banerjee senior adviser , power markets cerc

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