Trading through Power Exchange
[R V Shahi's Weekly Column for
Infraline, March 10, 2008]
Recently in January, 2008, the Central
Electricity Regulatory Commission finalized and notified new Regulations for
Open Access for inter-state transmission. Salient features of these regulations
which are improved versions on the earlier regulations are as follows :
This would facilitate traditional
bilateral transactions as well as collective transactions discovered in Power
The emphasis is on scheduling
rather than reservation because from the perspective of an open access customer
what ultimately matters is that his request is included in the dispatching
schedules notified by the Regional Load Dispatch Center (RLDC).
The types of transmission services
which will be available to open access customers are given below:
Under bilateral transaction
Scheduling and open access upto
three months in advance.
Scheduling and open access for the
current month upto four days in advance.
Scheduling and open access for the
day ahead and upto three days in advance.
Scheduling and open access for the
same day in the event of a contingency.
Under collective transaction
Greater role has been assigned to
State Load Dispatch Centers (SLDC) to bring them at par with RLDC.
Provision of standing clearance by SLDC has been introduced with the objective of accessing intra-state sources of
generation of power.
National transmission charges for
open access customers have now been fixed in terms of rupees per mwh instead of
rupees per mw per day as had been provided earlier.
In case of bilateral transactions
the transmission charges for inter-state transmission system have been notified
as given below:
Bilateral but intra-regional - Rs.
30 per mwh.
Bilateral but between the adjacent
regions Rs. 60 per mwh.
Bilateral but wheeling through one
or more intervening regions Rs. 90 per mwh.
In case of collective
transactions, charges at the rate of Rs. 30 per mwh for each point of injection
and each point of drawal shall be applicable for the inter-state transmission
The intra-state entities shall pay
transmission charges for the use of state network also as decided by the
concerned State Regulatory Commission. Wherever the State Commission has not
decided the transmission charges, the charges for the use of the State network
shall be at the rate of Rs. 30 per mwh. If the State Commission has not decided
and notified the rate, it will not be the reason for not providing open access.
Besides, operating charges for
bilateral transactions and for collective transactions have also been fixed in
the range of Rs. 2,000 to Rs. 5,000 per day for each RLDC and SLDC.
Real time deviations from the net
schedules for a State shall be settled by the RLDC in accordance with the
established mechanism of unscheduled interchange.
The State utility designated for
the purpose of collection and disbursement of unscheduled interchange shall also
be responsible for timely payment of the composite bills of the State to the
regional pool account for unscheduled interchange.
An open access customer can
exercise exit option by giving five days notice and payment of charges upto five
The transmission charges recovered
from open access customers will be utilized for reduction in monthly
transmission charges payable by long term customers of the region after allowing
25% to be retained by the Central Transmission Utility. The charges for use of
state network will be paid to the State Transmission Utility.
Separate guidelines will be issued
for long term and medium term lien on the inter-state transmission system
requiring creation of new transmission facilities.
The new regulations have brought under the
coverage the transactions through Power Exchange also. Based on experiences of
working with the regulations notified earlier a number of modifications have
been provided. This will definitely further facilitate the process of open
access in transmission, particularly the provision which states that non
determination and non notification of transmission charges for the State network
by the concerned State Regulatory Commission cannot be taken as a reason for
refusing open access on the State transmission network.
The Central Electricity Regulatory Commission
accorded approval, in August, 2007, for the Indian Energy Exchange to be set-up
and to undertake trading of power. In fact, this was in pursuance of the
guidelines issued by CERC in February, 2007, on power transmission through open
access, which also provided for setting up and operation of Power Exchanges
within the overall regulatory framework.
The Indian Energy Exchange has made necessary
preparation in last few months after it got the approval in August, 2007, and is
now ready with its platform to carry out operations in next couple of months.
With a view to disseminating all the details relating to Power Exchange the
Indian Energy Exchange organized a one day international conference on the
subject on February 20, 2008, at New Delhi. The conference was inaugurated by
Shri Sushil Kumar Shinde, Union Power Minister. Prior to the inaugural address
I had the privilege of making a few, introductory remarks which are briefly
The thrust of the Electricity Act
2003 is unambiguously clear to promote competition in the larger interest of
consumers. Electricity sector particularly the Distribution segment, under a
monopolistic system, we must all admit, has not been able to provide the quality
of service to its consumers which they deserve. Experiences of several sectors
emphasize that it is the competition alone which offers choices to customers and
it is such options which, under competitive environment, inspire, motivate and
quite often compel the service providers to offer the best quality of service to
Electricity Act has recognized
trading as a distinct licensed activity. So far the Regulatory Commission has
already given trading license to as many as 27 licensees. This number has grown
gradually from 13 as in 2004-05. However, as against 27 trading licensees
granted permissions by CERC hardly a dozen are active. There are also others
granted licences by State Regulators.
Though power trading has been in
existence for over six years, even now the volume of trading has remained
stagnant at below 3% of the total power supply.
As a result of such a poor volume
of trading, quite often the electricity utilities have to pay excessively high
price for power purchased under the trading arrangement. Out of the 800 billion
units which are generated and supplied, if the trading volume is less than 30
billion units, what needs to be appreciated is the amount of pressure on price
this low volume on offer for purchase will create. In any case, the recent
change by the CERC for the rate at which the utilities will be charged for
unscheduled interchange, which is now Rs. 10 per unit, the rate for traded power
between Rs. 7 to 8 per unit gets fully vindicated. If the volume under trading
increases to say 10 to 15%, this will result in substantial reduction in price
to the relief of distribution utilities and in turn to consumers. Consequently
the volume of overdrawals by various States, warranting penal rates of
unscheduled interchange, will also reduce.
will it happen? The most crucial role would be introduction of open access in
distribution together with open access in transmission which has already
happened right from the beginning of Electricity Act. A large number of State
Regulators have yet to put in place workable and effective mechanisms to make
open access in distribution a reality. The Act provides the deadline of
January, 2009. But, this important and powerful tool of competition could have
been put in place even earlier. What is needed is a friendly framework which
could facilitate for consumers of 1 MW and above demand to choose their
suppliers. Regulators need to ensure that by doing so the suppliers' benefit,
the concerned consumers gain and the availability of distribution infrastructure
by the distribution utilities does not pose to be a problem. This of course
will require a fine balancing of various interests.
Having said this, it is equally important
that the amount of power which could be offered for such transactions
through trading has got to be increased. In a situation when the system is
confronted with the peaking shortage of the order of about 14%, the obvious
consequence is limited availability, excessive tariff with inevitably
unbearable burdens on distribution utilities. In such a situation, all
options to source additional power, such as power from captive plants, from
utilities particularly in the Eastern region who quite often have surpluses,
could be workable strategies. Long term strategy however has to be
development of a reasonable proportion of merchant capacities.
Ministry of Power must be complimented
for introducing an element of 40% capacity as the merchant capacity in the
new hydro electric project policy. This obviously has a huge potential to
offer large volumes under medium to short term trading. However under this
policy it would take a minimum of five years for these projects to fructify
and supply electricity to the system. Therefore, other options of developing
merchant power plants, and certain merchant capacities even in projects
which are otherwise for long term PPA, could perhaps provide quicker relief.
Developing merchant capacities to about
15% of the capacity could be a desirable goal. This will require sufficient
amount of cushion in the transmission capacity both in the National Grid as
well as in the State Grid. It is gratifying that the Central Electricity
Authority and the Central Transmission Utility are fully alive to this
requirement and it is understood that they are providing for about 30%
additional transmission capacity in the system. Similar approach needs to be
followed in the case of State transmission systems as also in the
Power Exchange is
going to bring power trading into an altogether different orbit. Fully
equipped with electronic systems and sophisticated software, this could
emerge as an important instrument of quicker decisions, faster relief, sale
transactions at competitively determined optimum price and, above all, it
would provide an objective and transparent process.
In his inaugural address the Union Power
Minister, while highlighting the importance of Power Exchange made a number of
The new Electricity Act and
various policies have deregulated the power sector through a number of policy
reforms. It has paved the way for setting up of a competitive, nationwide power
market under the regulatory framework.
One of the most tangible results
of the objective to set up the nationwide power market is the establishment of
Power Exchanges. The first of such Exchange is the India Energy Exchange (IEX).
It is good to learn that the India
Energy Exchange places the Indian power market at par with the most
sophisticated markets in the world. The Exchange technology which comes from an
alliance between Financial Technologies (India) and OMX Technology of Sweden is
believed to be one of the most efficient in the world.
Though approximately only 3% of
power is being traded on short term basis in the country, even this works out to
almost 4,000 MW. It is not very big, but a big enough volume of power to be
traded. As the Indian electricity market grows, short term market will also
grow on the lines of those in developed countries. We are also facilitating
merchant plants to come up. In the new hydro policy a very meaningful provision
has been made for merchant capacity.
There are issues of concern for
Power Exchange to be effective. For example the open access policy provided in
the Electricity Act is yet to be implemented effectively by most of the States.
It is expected that well before January, 2009, the State Regulatory Commissions
will see to it that open access in distribution becomes an effective tool for
The States will definitely remove
restrictions on trade. They are doing so in their agricultural markets. They
will do it in power market as well. Not only Ministry of Power but even the
Hon'ble Prime Minister is aware of the need for power market deregulation in the
States. Market participants can definitely feel assured that a common Indian
Power Market is coming sooner than many may think. This will be in the interest
of all the stakeholders and ultimately consumers will benefit.
One of the sessions in this conference, that I
chaired, was a panel discussion on "Strategies for Participants in Emerging
Power Markets. The panelists included Senior Representatives from TATA Power,
Lanco Electric Utility, West Bengal State Electricity Development Corporation
and India Energy Exchange. Prior to this session there was a Technical Session
on Power Trading and Power Exchange in which there was a comprehensive
presentation from Power Grid. I summarise below the salient points of the
Technical Session as also of the Panel Discussion :
Formation of National Grid,
through the process of creating additionalities in transmission systems as also
by interconnecting various regional grids, has been a continuous process. In
March, 2003, Western region was connected with Eastern region and North-Eastern
region for a synchronous operation in AC mode. When this event was being
planned, I recall, there were serious apprehensions whether such a large grid of
almost 50,000 MW capacity would lead to frequent grid disturbances on account of
cascading effect of one fault leading to another. Time has shown that such an
integration provided greater degree of stability. It needs to be underscored
that regional grid interconnection towards formation of a strong National Grid
is sine-qua-non for facilitating inter-regional transmission of power, which is
essential for promoting open access. Similarly when North was to be connected
with East which would have meant synchronous operation of North-East, East,
North and West with a total capacity of almost 90,000 MW, the apprehensions were
even greater. Obviously adequate preparations and necessary cautions become
imperative when such operations have to be carried out. Finally, we had the
combined grid of these regions a reality in August, 2006. This has indeed
supported, in a significant way, in not only mitigating the shortage problems
particularly in Western and Northern regions but have also assisted the
comparatively under utilised capacities of power plants in Eastern regions.
While there are enormous advantages of integrated grid operations in a large
national grid, equally enormous is the nature of care and caution required in
maintenance of the grid.
Reliability margins are essential
and non negotiable. The expectation of grid operators is to have sufficient
cushion in the system so that dynamically the operator is able to adjust to
changing needs of demands as also of the system outages. The perspective of the
consumer is the need for continuity of supply, common transmission reserves to
take care of contingencies and availability as per need.
The ultimate beneficiary of the
reliability margin is the larger group of consumers and therefore such margins
over a large integrated grid do provide the required degree of freedom to take
care of the concerns of the system operator on the one hand and expectations of
consumers on the other.
In the context of availability of
open access, Congestion Management has assumed great relevance. This is an area
of concern now and it is likely to continue to be an issue in future as well.
Though sufficient actions have been launched to continually augment and upgrade
the regional and national grid systems, the way power generation capacities are
being added and demands are growing, Congestion Management would continue to be
Open access in transmission was
implemented, in a systematic way, in May, 2004, as the Electricity Act 2003
provided a non discriminatory open access to all generators right from the
beginning of the Act. The scheme provided both for Long Term Access and Short
Term Access (monthly, day ahead and intra day transactions).
Experiences gained over the years
have constantly been assimilated by revisiting the approach and the procedure,
the objective being that if there is no technical constraint access should never
be denied. And, technical constraint removal should be a continuous process.
Generators' perspective during
panel discussions did highlight that though payment security may not be a major
area of concern (though we need to keep this issue under watch regularly), a
number of other associated factors are relevant for developing merchant
capacities. These include fuel tie-ups, State government support and most
importantly timely development of additional capacities in the transmission
system. Each of these areas will not only require pro-active government
intervention and support but also hand-holding during execution.
Power Exchange is a timely development and
definitely it is a proactive effort. Though, for many, it appears to be
premature but time will show that this initiative played an important role in
creating and developing a competitive electricity market. Aided adequately by
latest hardware and software, this instrument is not only going to provide an
objective and transparent mechanism to facilitate online trading but is going to
assist distribution utilities and large consumers in accessing electricity at an
optimal cost and in time. When volume increases, realistic price discoveries of
power will take place. All stakeholders need to support this initiative in the
overall interest of all concerned and of Indian power sector. Obviously, as in
any new initiative, this will also go through a learning curve and experiences
gained will go on fine tuning and refining the process. What would, therefore,
be necessary is the understanding and co-operation of all the players in the
game particularly during the period of such a learning curve. Similarly, it
would be important for the Power Exchange managers to have a positive approach
towards useful feedbacks during the period when Power Exchange as an instrument
and as a process matures to become an acceptable and useful tool for power