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Power Exchange and Changing Roles of Power Trading Agencies, Shri R V Shahi, Former Secretary, Ministry of Power

In last few years, a number of developments have happened in Indian Electricity Sector. In the architecture of the electricity industry, Electricity Act provides a number of institutions and instruments aimed at creating competition, leading to options for consumers, thereby facilitating better consumer services both in terms of quality of service as well as price of power. Another objective of such an architecture is that the assets and facilities that are created are utilised optimally which will lead to economic generation and supply of power. Electricity Act provides for Trading as a distinct licensed activity. In the last few years, Trading Licensees have done a remarkably good job by collecting and creating reliable database for power that may be available with any power generator or with any other agency which could be sold and also database on all such distribution licensees and other large consumers who need power. This matchmaking exercise has enabled, on the one hand a number of power generating plants to improve generation and Plant Load Factor and, therefore, improve their top and bottom lines, and on the other, mitigate power shortages in a number of States. A few Trading Agencies have gone beyond matchmaking and have started taking even financial risks. This phenomenon even with the limitation of facilitating a very small volume of less than 3% of total power in the system has helped both these categories of organisations that is, generators and distributors. The contributions of the Trading Licensees, have therefore, been appreciated by various power generation and distribution utilities.

When Trading as a concept started, it received enormous interest and response from a number of organisations seeking to get Licenses from Central Electricity Regulatory Commission as well as State Regulatory Commissions. Power Trading Corporation was promoted by central public sector companies of the Ministry of Power, viz. NTPC, NHPC, Power Grid and PFC. This was necessary to enable the concept of Trading to take off. If Central Government initiative had not been taken, by forming this organisation, perhaps the Trading concept itself may not have materialised in the manner it did. After a reasonably good take off of the PTC, a number of organisations recognised the merit of trading activities. The few years, that followed, saw a large number of organisations seeking permissions of the Regulatory Commissions for granting Licenses to carry out Power Trading. Organisations which have been granted Licenses by the Central Electricity Regulatory Commission itself number more than 125. More than 85% of the volume of power that is traded has been under the jurisdiction of less than half a dozen Licensees. Therefore, during the period of Trading in last few years, though a large number of agencies have gone into this business, their share has been negligible.

In the National Electricity Policy, in order to develop a good electricity market, apart from various other instruments which will facilitate this to happen, Power Exchange was also envisaged as a transparent and reliable means of electricity sale and purchase transactions through electronically aided systems. The Ministry of Power, during the year 2005-06 had set up a Team to study the operational experiences of some of the successful Power Exchanges in the world, especially in European countries. Since then, a number of exercises were carried out leading, finally to commencement of first Power Exchange in the country viz. India Energy Exchange in June, 2008. Subsequently another Exchange viz. Indian Power Exchange has also become operational. The nature of transactions to be handled through the Power Exchange system is such that right in the conceptual stage it was well recognised that substantial part of power trading handled by Trading Agencies would gradually shift to Power Exchange systems. A large number of Trading Agencies have been engaged in short term transactions. The day-ahead transactions which were entrusted to the Power Exchange would obviously be in competition with the role that Power Trading Agencies had been handling in so far as day ahead transactions were concerned. This was known right from the beginning and this is what had happened. It is understood that more than 90% of day-ahead transactions have already shifted to Exchanges.

One of the factors that contributed to the Trading Agencies remaining confined to short term trading has also been the provisions relating to Open Access. The Notifications of the Central Electricity Regulatory Commission, until a few months back, allowed Open Access either upto 3 months or 25 years and beyond. This issue remained under discussions and debates for sometime. Finally, it is gratifying that the new Notification provides for a few options viz. upto 3 months, 12 years and 25 years. This will definitely create much better scope and opportunities for Trading Licensees. A point that needs to be emphasised is that a few more time slot durations could facilitate electricity market development faster and with more convenience. What needs to be recognised is that, with Case-1 and Case-II Bidding processes in operation, coupled with project development initiatives by a number of State generating utilities leading to supply scenario changing with reference to different durations of time, unless sufficient options are made available to the State utilities, they may not be able to decide only for 12 years or 25 years. Ideally speaking, there could have been a number of time duration slots, so that power generating capacities could be created suiting to different buying utilities and generating companies working out their strategy for development of generating capacities and matching them to the needs of different buying utilities at different points of time. It could be expected that while the change that has been brought about by the CERC is a welcome change, soon we might see this provision of Open Access evolving into various options and not limiting to just two or three time slots.

Power Trading Corporation, the largest Trading Licensee, rightly recognised the evolving role of trading. I recall, while reviewing the progress of PTC in Ministry of Power on a quarterly basis, this used to be one of the few Key Result Areas for the company. Periodically, we used to check how much of power generating capacity they have been able to block with generating companies, so that they could trade power, in the future, on longer term basis. That short term trading could be expected to be a small proportion of their total transactions in time to come, is a fact that was recognised right in the year 2003-04. A further thought that in order to arrange generating capacities to be transacted on longer term basis, PTC could even think of creating a financing outfit, which could assist generating project developers by way of providing last mile equity, was also a well conceived strategy. Time has shown that this has helped both PTC in enhancing its status, credibility and more importantly in facilitating power project development. This is the evolving and emerging role of Power Trading Agencies which would stand them in the stead. Large power trading companies should outgrow their present jurisdiction of being short term traders and graduate into becoming facilitators of new capacity additions. As a matter of fact, all short term transactions upto one year should gradually, and in phases, shift to the jurisdiction of Power Exchanges. The recent decision of the CERC to allow term ahead transactions through Exchanges upto a period of one week is a landmark initiative. As we pass through the learning curve, fine tune the procedures to perfections, the weekly term ahead could be enlarged to a periodicity of monthly transactions and subsequently to quarterly and yearly transactions. I would definitely feel that in a period of next 12 to 18 months, after making necessary corrections and adjustments based on experiences, Power Exchange operations would occupy most of the space which has hitherto been the domain of Trading Agencies.

The five Trading Agencies which account for more than 85% of the short term transactions are the right candidates to have a medium and long term vision to become power project development facilitators. Not only their own profile, in terms of size and quality, will enhance but also they would be making invaluable contribution towards country's capacity addition programmes. Bankability of many of the power projects which becomes an issue could be adequately addressed through such arrangements. It would be a win-win situation for these trading companies, as well as for such developers as have problems of financial closures. It is in this context that I consider it relevant to mention that organisations like NTPC, Tata Power, Reliance Infrastructure etc., which have created different outfits (separate companies) for power trading, may consider doing so through their main companies. This will serve the dual purpose of creating higher degree of confidence among the lenders of power projects with whom these Trading Agencies organise long term trading arrangements, and at the same time enhance significantly shareholders values for these companies. We may imagine what great value it will add to the power generating initiatives, if NTPC had trading on its own balance sheet, would undertake to facilitate development of about 10,000 MW power in next five years by various Agencies with whom they organise short, medium and long term Trading Contracts. Bankability of such power projects would become much easier, NTPC will add to its topline and bottomline significantly, a number of small and medium developers would join the power industry and above all, the country and consequently consumers will benefit enormously.