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POWER MARKETS IN
INDIA
RAHUL BANERJEE
SENIOR ADVISER , POWER MARKETS
CERC
Disclaimer : These are the person views of the Speaker
7/7/2017
We shall cover …
Market Related Sections in Electricity Act
 Power Market Structure in India
 Market Regulations of CERC
 Power Market Data
 Regulators Role in Market Development
 International Power Markets
 Market Related Discussion Points

7/7/2017
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
7/7/2017
Electricity Act 2003





Foundation stone for creation of a modern
electricity industry
Flows 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
7/7/2017
Market related Sections in
Electricity Act 2003



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
7/7/2017
Market related Sections in
Electricity Act 2003




Development of power markets including trading - Section 66
 NEP suggests 15% of new capacities to be sold outside
long-term PPAs
 NEP stipulates power exchanges
Generation delicensed –Sec 7
Trading, Transmission, Distribution are licensed - Sec 14
 Regulatory 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)
7/7/2017
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

7/7/2017
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
7/7/2017
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
7/7/2017
Stages of Market Development
Indian Power
market is here
Continuous
Trading
OTC
Derivati
ves
Market
Maturity
Auction
markets
Spot Markets
on Exchanges
OTC
Markets
Multiple
buyers sellers
Individual
Buyer
/Seller
Time
•In matured markets all these types of markets exist
•Interplay between markets improves
7/7/2017 price discovery
Financially
settled
Derivatives
Exchange/
Options
Structure
d
Products
financiall
y settled
Power Market Structure in India
Long Term Markets
(
Regulated
Assets –
Interstate and
as State level
Short Term
Markets (up to 1
year )
Real time balancing
UI mechanism
Cost curve +
penalty
Licensed
Traders /
Bilateral
Competitive
Bidding –
case 1 and
case 2
Power
Exchange
7/7/2017
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
7/7/2017
Capacity Markets



Generators risk for project financing is taken
care of
Recovers 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 ?

7/7/2017
Market Structure
Negotiated deal/
Competitive process
direct buyer /seller
Markets
Bilateral/
OTC
Markets
Exchange
Traded
markets
Power
Markets
Delivery
based
Contract
Derivative
Contracts
Delivery
based Spot
Contracts
Contracts
Participant
Back to back deal
By traders
Aggregation of
Buyers/ sellers
Deal With Open
Position by traders
Buy Long Term &
Sell Short Term
Grid
Connected
Entities
Plain VanillaForward, swaps,
Structured Contracts
by traders / banks
Real Time
Balancing
markets
Derivative contracts
Power
Exchange
Intra day
Clearing
Corporation
Day Ahead
Exchange
Member
Term ahead
Other
Exchange
Ancillary
Services
market
REC /
Emissions
Market
Licensed
Traders
Financially Settled –
Futures
7/7/2017
Other
Transacting
parties
Some Features of Short Term Power
Markets


Trading licensees (44) – Top 5 control 80 % of market
 HHI Index to monitor market power
 Traders also facilitating investments in new capacities
 New 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
7/7/2017
Short Term vs Long term 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

7/7/2017
Short Term vs Long Term 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
7/7/2017
Regulations
7/7/2017
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 deals
 No margin on long term transactions
 Credit 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
7/7/2017
Long Term Contract
7/7/2017
Procedure, Terms and Conditions for grant of
trading licence and other related matters
Regulations, 2009
Notified 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 IntraState trading as per Rule No. 9 of the
Electricity Rules, 2005 already provides
for it.
7/7/2017
Category
Volume of
electricity
proposed
to be traded in a
year including
intra‐State
trading
Minimum License Fee
Net
Lacs Per
Worth (Rs. annum
In
crore)
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
7/7/2017
Salient 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
7/7/2017
Salient Provisions
Regulatory Audit of account in case
necessary
 Intrastate reporting
 Deemed license to submit trading reports
 Contravention and Penalties defined into
serious and non serous categories

◦ Warning to debarring upto 6 months
7/7/2017
Power Market Regulation
Market Structure
 Market 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

7/7/2017
Principles Of Market & Market
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 establishment
of Power 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% shareholding
 All 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
Above 5000 & upto 10000
Upto 5000
52
20
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 director
 SGF management committee with adequate representation from
members of

Exit policy predefined
 No uncertainty for market participnats
Membership in Power Exchange
Membership Categories:
1. Electricity Trader
2. 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 Infrastructure
and Trading System 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 Power
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










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
7/7/2017
Power Exchange
Standardized products
 High Liquidity

◦ Pricing improves
Standardized risk management
 Electronic price dissemination

◦ Quick and nation wide
◦ Reduces information asymmetry
7/7/2017
Transmission Congestion

How 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
7/7/2017
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 marketclearing price lies on a very elastic portion of supply
curve, sellers will have less surplus
7/7/2017
Month in 2012
Uncongested
Volume
cleared
cleared volume (
after taking into
MU)
consideration
%
of
Congestion
congestion
( MU)
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
7/7/2017
7/7/2017
1-Dec-12
2-Dec-12
3-Dec-12
4-Dec-12
5-Dec-12
6-Dec-12
7-Dec-12
8-Dec-12
9-Dec-12
S1 & S2
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1 & S2
S1 & S2
2
3
3
3
3
3
3
2
2
10-Dec-12
S1 & S2
2
11-Dec-12
12-Dec-12
13-Dec-12
14-Dec-12
15-Dec-12
16-Dec-12
17-Dec-12
18-Dec-12
19-Dec-12
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1, S2 & W3
S1 & S2
S1,S2 and A1, A2
S1,S2 and A1, A2
N1, N2,S1,S2, W1,W2 and W3
3
3
3
3
3
2
4
4
7
20-Dec-12
A1, A2 & S1, S2
4
21-Dec-12
S1,S2 and A1, A2
4
22-Dec-12
S1,S2 and A1, A2
4
23-Dec-12
S1 & S2
2
24-Dec-12
S1, S2 & W3
3
25-Dec-12
S1,S2 and A1, A2
4
3258.66
2824.89
2969.12
3000.36
2912.72
3108.80
3158.61
2818.83
2739.75
2758.45
Other regions- 2737.59, S- 6920.66
Other regions-2562.33, S- 6992.13, W3- 1449.61
Other regions-2649.65, S- 6995.03, W3- 1817.05
Other regions-2489.52, S- 7065.4, W3- 2461.51
Other regions-2637.54, S- 6970.93, W3- 1999.66
Other regions-2804.6, S- 6991.63, W3- 1979.92
Other regions-2600.01, S- 6991.4, W3- 2302.44
Other regions- 2433.43, S- 6992.27
Other regions- 2399.67, S- 6966.61
77139.62
69297.64
69430.19
73768.01
73335.94
75297.14
70894.66
76588.23
72066.50
Other regions- 2302.23, S- 6990.14
71750.26
Other regions-2321.28, S- 6962.66, W3- 2305.41
74735.36
Other regions-2369.95, S- 6957.51, W3- 1994.75
75949.42
Other regions-2436.87, S- 6844.87, W3- 1899.08
71922.44
Other regions-2249.63, S- 6556.62, W3- 1499.02
77318.65
Other regions-2400.49, S- 6268.05, W3- 1399.93
76467.48
Other regions- 1999.87, S- 5667.73
73858.41
Other regions-2099.21, A- 4103.83, S- 5065.77
69035.73
Other regions-1799.89, A- 5500.27, S1- 4999.23, S2- 5046.2
62771.25
Other regions-1498.01, N- 1999.44, S- 5088.66, W- 1999.44
69289.33
Other regions-2000.09, A= 2403.93, S1= 4998.62, S2= 5160.46
71871.67
Other regions-2258.54, A=2405, S1= 4998.92, S2= 5258.79
71446.62
Other regions-2389.85, A=2404.94, S1= 4999.25, S2= 5256.49
74344.07
Other regions-2408.3, S- 5273.66
75792.86
Other regions-2564.79, S- 5252.25, W3- 1349.98
69357.01
Other regions-2527.58, A- 2613.41, S- 5261.35
Un MCP- 2808.67, A- 2653.97, E- 2559.27, N- 2750.15, S-5222.98, W2736.88
80066.31
Other regions-2791.8, S- 5226.35
73795.24
Other regions-2749.87, A- 2953.85, S1- 4998.03, S2- 5235.83,W3- 1710.43
67640.60
Other regions-2779.23, A- 2953.55, S- 5257.56, W3- 0.51
Other regions-2779.16, A- 2853.53, E- 2749.03, S- 5238.48, W3- Nil(for
18hrs)
61810.12
2928.90
2684.74
7/7/2017
Other regions-2499.31,
A- 2853.09, S1- 4997.77, S2- 5231.46, W3- 2499.08
2739.37
2739.39
2744.98
2697.85
2708.64
2708.52
2608.23
2205.22
2374.78
2612.77
2673.25
2575.40
2623.12
2608.76
2804.39
2808.67
26-Dec-12
27-Dec-12
28-Dec-12
29-Dec-12
30-Dec-12
31-Dec-12
All regions
S1 & S2
S1,S2 , A1, A2 and W3
S1,S2 , A1, A2 and W3
A1,A2,E1,E2,S1,S2 and W3
S1,S2 , A1, A2 and W3
12
2
5
5
3002.12
2875.18
3001.59
7
5
72413.08
65095.97
77959.23
Market Breakup
Share of Different Segments in Total Electricity Generation in 2011-12
4%
2%
2%
3%
89%
Bilateral Transactions through traders
Bilateral Transactions between DISCOMS
Power Exchange Transactions
UI Transactions
Long Term Transactions
What is the right mix of long term and short term market ?
7/7/2017
Short Term Power Price-Volume Trend
7.31 7.49
Power
Exchange
Price ( Rs/
kwh)
7.00
6.00
Rs/Kwh
5.00
4.00
3.00
2.00
1.00
0.00
5.26 4.96
4.79
4.18
3.47
3.57
60.00
51.38
50.00
Volume (BUs)
8.00
Total Volume of Electricity Transacted
through Traders and
Power Exchanges
Trader Price
( Rs/ kwh)
43.22
33.91
40.00
30.00
24.19
20.00
10.00
0.00
Prices showing a declining trend in Short term power market
Short Term volume has grown at CAGR of 25 % over last 4 years
at7/7/2017
Short Term Price and Volume Trends
Trader
Year
Volume in
Billion
Units
Trader
Price
Power Exchange
Size of
Market
Volume in Power
through
Billion
Exchange Traders
Units
Price
($Billion)
Total Size
of Short
Total
Size of
Term
Volume
Market Market
(BU)
through Excluding
(Trader+PX)
Exchanges
UI
($Billion ) ($Billion)
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
* Till Nov. 2012
Short Term Market though 8 %, is a $ 4Billion Market
7/7/2017
(1$=52 INR)
Short Term Open Access - Number
of Transactions and Energy
80000
70000
66987
60000
55232
50000
39457
40000
30521
30000
20000
24111
19883
18128
15414
10000
0
2008-09
2009-10
NO. OF TRANSACTIONS
2010-11
APPROVED ENERGY (MU)
7/7/2017
2011-12
Electricity Trading Margin
Period
Weighted
Weighted
Average
Average
Volume of
Electricity Traded Purchase Price Sale Price
(`/kWh)
(`/kWh)
(Mus)
Actual Trading
Margin
charged(`/kWh)
3.14
3.23
2005-06
14,189
Introduction of Trading Margin Regulation in 2006
0.09
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
7/7/2017
Risk Model for a Company
Fuel Price Risk
Financial /Credit
Risk and
Operational Risk
Power Price
Risk
Power Plant
Input
Natural Gas / Coal
Output Electricity
Spark Spread Contracts to Hedge
If can pass on the risk to customers no need to hedge
If Competitor gives fixed price , may need to hedge
Long term physical contracts on both sides – is also a hedge
7/7/2017
How a hedge works ?
Power Price increases to Rs 5 / Kwh
Sells financial Contract at Rs 5 /Kwh
Profit of Rs 1 /Kwh
Buys in Day Ahead at Rs 5/ kwh
Effective Price = 5 - 1 = Rs 4 / Kwh
Discom today buys Electricity futures
expiring in 1st Dec 2013 expiry at Rs
4 / Kwh.
This is the Futures contract price
Price Fixed at Rs
4/ Kwh come what may !
No price risk
Time
1 st Feb2013
1st Dec 2013
Price decreases to Rs 3/ Kwh
Sells financial contract at Rs 3
Loss of Rs1/ Kwh
Buy in day ahead at Rs 3/ Kwh
Effective Price = 3+ 1 = Rs 4/ Kwh
Both physical and financial position to be looked at together in a hedge else is a
speculative position
7/7/2017
PJM


RTO and market operator, Non profit
organization
13 US sates with 700 members
 Gencos, Discom, Trading Cos, Large Eng users ,captives
 Capital intensive cos- Aluminum, steel , Cement


Is a centralized dispatch model – security
constrained economic desptach
Energy market
 Day ahead forward ( both buyers and sellers)
 Real time balancing- 5 minute based on grid condition
 Day ahead Scheduled Reserve market – 30 minute , offer based price
for gencos, after PJM forecast of day ahead market
 Operating reserves - offer based price for gencos
 LMP = marginal power price+ transmission congestion + marginal
loss
7/7/2017
PJM

Reliability 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
7/7/2017
Financial electricity 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
7/7/2017
Financial Transmission 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

7/7/2017
Nordpool

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’
7/7/2017
Nordpool

Contract 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
7/7/2017
Comparison
Nordpool
PJM








SO and MO same
Centralized Security Constrained
Economic Dispatch
LMP=Nodal marginal price
Marginal Transmission Loss in LMP
Capacity Market for future
investment and reliability planning
by SO
Load Serving entity - Regulated
monopoly in many states
Explicit transmission right auction
FTR
SO investor in MO
 Market based dispatch
 Pool Price = Marginal price
 Market splitting to signal transmission
investment
 Transmission charge – Postage stamp
 Price risk hedged through Financial
Futures
 Retailer – Retail competition
 Implicit Transmission auction
 CFD
 Initiating market coupling to maximize
synergy and optimal transmission
utilization

7/7/2017
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
7/7/2017
Regulatory Institutions





Level playing field to private sector as government was
owner of the other assets
Other sector regulators
◦ Protect small player from large institutions
◦ Unequal bargaining power
◦ Skewed market structure
Evolving Organizations
Cost of Compliance
 Stymie innovation
Regulatory Certainty
◦ Open minded but not vacillate
7/7/2017
Role of CERC:
Providing alternatives for power
procurement through development
of Power Market
7/7/2017
Alternatives to Procure Power
o
Created a Market Structure and Market Rules
• License to electricity traders , power exchanges
o
o
Multiple alternatives available to purchase power today
• Directly through Open Access
• Electricity Traders
• Power Exchange
Open access in interstate transmission being encouraged

Approx 2000 industrial consumers and Discoms procuring electricity
through Power Exchanges regularly
7/7/2017
Development of Power Markets
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, REC
o
Regulations notified
•
•
•
•
Grant of Trading License
Power Market Regulation
Trading Margin Regulation
Short Term Open Access Regulation
CERC has helped create a robust market structure
7/7/2017
Role of CERC:
Market Oversight and Grid
Discipline
7/7/2017
Market Oversight
o
o
o
o
Ensures that market is Free, Fair and Transparent
Regularly monitors Trading Margin and short term power
prices
Publishes Monthly and Annual market reports for
Information dissemination
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
CERC ensures Market
Integrity
7/7/2017
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 contract
– 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

7/7/2017
Discussion 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 ?
7/7/2017
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 ?
7/7/2017
Discussion points - 3

Should 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 ?
7/7/2017
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 ?
7/7/2017
Discussion Points -5

Generation 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
◦
7/7/2017
Disclaimer – These are personal views and may not necessarily be the views of the Commission
7/7/2017
Mandate of CERC as per Act
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
7/7/2017
Role CERC :
Balancing Consumer Interest and Investment 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:
•
•
•
•
o
Enabling framework for Market Access to Generators
Development of Power Market
Competition in Transmission
Promoting Green Energy
CERC is responsible for Oversight of Market and Grid Security
7/7/2017
What Regulatory Commission have
achieved ?
New Institutions, resource constraints
 Up 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

7/7/2017
Transmission Market 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 Structure
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 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
Ebidding for Transmission Corridor

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 ?
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
7/7/2017
Enabling framework for 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
7/7/2017
Enabling framework for 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
CERC’s framework has reduced various risks - default /payment risk,
operational risk, liquidity risk in generation business
7/7/2017
Private Generation growth
Private Sector Capacity Addition
250000
Private gencos
200000
Central gencos
54276
State gencos
150000
100000
13688
14139
17113
20011
22879
37496
48361
48971
50993
54413
76116
79392
82453
38790
39923
45121
65941
70224
70096
74689
31/3/2005
31/03/2006
31/3/2007
31/03/2008
50000
0
29014
31/3/2009 31/03/2010
7/7/2017
61409
31/3/2011
59683
62827
85667
86701
31/03/2012 30/11/2012
Source: CEA
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 ?
7/7/2017