The central electricity regulatory commission (CERC) is thinking of introducing some innovative, power exchange-based electricity trading instruments that would deepen the short-term electricity market and encourage investment in merchant power generation capacity. The regulator is also mulling a move towards capacity trading to reduce the incidents of low grid frequency and improve the quality of power supply.
For example, the CERC is planning to introduce instruments like shorter bidding time block for day-ahead trading at power exchanges that would overcome the problem of transmission network congestion and make it easier for buyers to forecast their electricity demand.
Now buyers and sellers submit bids for an hourly block that match with the system operator's scheduling period for physical delivery, as prescribed in the Indian Electricity Grid Code. "If congestion develops in the transmission network even for 15 minutes during an hour, the operator has no option but to reject the delivery schedule. That means traded power cannot be delivered for a full hour even though congestion is just for 15 minutes", CERC chairman Pramod Deo said.
If bids are submitted for a 15-minute block instead of an hour, the system operator can deliver power for 45 minutes, if not possible for an hour. In other words, the new bidding time-frame would be more dynamic and promote power trading.
The short-term power market in the country has proved a catalyst in attracting private investment in electricity generation. It has also helped improve the quality of power supply and grid management. Annual volumes of power traded through short-term contracts have been in the range of 4% of the total electricity generation in recent years. However, this share is stagnating now.
Bidding for day-ahead trading of electricity through power exchanges is done in the morning. The CERC now plans to introduce an evening session as well. "This is meant to address the issue of opportunity loss due to uncleared and unmatched volume on power exchanges in the morning day-ahead market. The evening session would provide a mechanism to clear the uncleared orders in the morning session and help utilities balance their demand supply portfolios for the next day. The opportunity loss of power trading due to uncleared orders is quite high. It is even bigger than the volume lost due to congestion of transmission network," Deo told FE.
Power exchanges have a full bouquet of very short-term products like intra-day or contingency contracts, day ahead contracts and week ahead contracts. Now the CERC is planning to introduce longer-tenure products like month-ahead and six-month to one-year contracts. "These will be non-transferable specific delivery contracts. Such contracts will help distribution companies to procure for a longer period. For example, a month-ahead contract would allow distribution companies to buy power for the full month of December in the beginning of November," the regulator said.
However, contacts with tenure longer than 11 days are governed by Forward Contract Regulation Act (FCRA). To avoid any jurisdictional overlap with the Forward Market Commission, the CERC has advised the central government to carve out such instruments under section 27 of the FCRA. If contracts are meant for physical delivery of power and not future trading, they can be launched by exchanges under the exclusive jurisdiction of CERC.
The regulatory authority is already publishing a three-month electricity market forward curve that would provide price signals to buyers.
"We firmly believe that there has to be a harmonious development of the short -term power market, and both power exchanges and licensed traders have specific roles to play. While exchanges would provide standardised contracts, licensed traders can offer customised contracts," Deo said.
Currently, only generated power is traded. But now the CERC wants to usher in trading of power capacity. Under the model mooted by the regulator, load despatch centres will buy large generation capacity from plants which can ramp up generation at a short notice and feed power to the grid in the event of falling frequency during the peak hours.
National and regional load despatch centres will pay to generators for keeping their merchant capacity on standby. The cost will be recoverable from consumers as quality power charge. Gas and hydro power power plants are the most reliable sources for meeting peak power requirement as generation from them can be easily ramped up.
Capacity trading is already in place in Europe and America where power markets are well developed. However, this is yet to become a reality in India. Financing power plants with 100% merchant power plants is still supposed to be risky in India given that power supply from them is not tied up.
However, the scenario would radically change when the CERC moves forward on capacity trading. Since gas-based power plants can be easily started and shut down as per convenience, capacity addition in gas-fired merchant power generation is likely to get a major boost from capacity trading.
