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Developing a Power Market in India

Developing a Power Market in India . Tantra Narayan Thakur CMD Power Trading Corporation of India Ltd. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

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Developing a Power Market in India

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  1. Developing a Power Market in India Tantra Narayan Thakur CMD Power Trading Corporation of India Ltd.

  2. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

  3. Rationale for Trading • Optimal utilisation of existing resources in power sector • Due to diversity in demand patterns within different regions of India • Due to different infrastructural facilities in different regions in the country • Hydro potential in Bhutan and Nepal. • Impending reforms in the power sector • Shortages in the deficit locations are minimised • Could help in deferring investment for additional generation capacity • Reduction in average cost of power. • Scheduled exchange will increase and un-scheduled exchange will reduce bringing in grid discipline • Better grid discipline will improve quality of power.

  4. Power Trading Scenario in India • Volume of exchanges is very low (about 2.5% of energy generation) • Consumers are served by respective State Power Utilities/Private Licensees etc. • Little or no choice to Buyers and Sellers • Pricing has primarily been notified by the Central and State Governments (now under Regulatory Commissions’ purview) .

  5. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

  6. Issues • Financial viability of Utilities. • Grid discipline. • Lack of adherence to contractual commitments. • No commitment to provide adequate service. • Disconnection of Supply is the preferred solution to Power shortages. • Non payment of Bills not dealt with strongly. • Reliability of supply and off take.

  7. Issues • Adequacy of transmission capacity. • Low capacity utilisation factor of HVDC interregional connections due to weaknesses in the downstream transmission system, including the issue of reactive power management. • Need of adequate inter regional interconnections for Power transfer. • Many of the State transmission schemes face time/cost overruns and the capacity becomes available only after considerable time delay. • Statutory provisions for direct sale by IPPs/CPPs/ Licensees outside the State . • No Provision for direct sale of surplus Power to Outside State. • Lack of awareness on the SEB’s part to make profitable use of the IPP/CPPs. • 14000 MW of the 20000 MW captive power is grid connected. • Proper Market Mechanism.

  8. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

  9. Opportunities • CERC / SERC s laying emphasis on the optimal utilisation of resources. • CERC orders on the Grid Code and Availability Based Tariff inducing utilities to follow grid discipline and find commercial solutions. • Cross Border trading opportunities with Bhutan and Nepal having large hydro potential and Bangladesh with large natural gas resources. • Focus is shifting towards formation of transmission highways with 30000 MW of inter regional transmission capacity proposed by 2012. • Electricity Act Provisions: • Establishment of bulk electricity market and Setting up of generation stations without license. • Non-discriminatory accessto the transmission system. • Gradual introduction of open access for the distribution system.

  10. Implications for Utilities • Reduced Search and Transaction Costs: A vibrant power market significantly reduces the search costs of buyers and sellers finding each other. • Reduction in the average cost of Power: With better utilisation of existing resources and more competition in generation, price of power would be closely correlated to the cost of power. • Greater price transparency: The Price setting in an open transparent market will be based on certain procedures. • Better Management of Utilities’ loads. • Distribution of information: Real-time price information is critical to executing short-term energy contracts. Power Exchanges with real-time price discovery should allow instantaneous trades. • Easy contract management: Automating transactions with the advent of power exchanges could reduce inefficiencies and transaction and process costs for participants.

  11. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

  12. Market Mechanisms • Direct contracting between counterparties, with optional balancing market. • Generators responsible for dispatching contracted loads. Bilateral Contracts • Generators sell electricity into a "pool" and suppliers purchase out of this pool. • Market participants trade in the Pool against a defined set of rules. • Variants: System Marginal Pricing (SMP) and Pay Bid Pricing. Pool Contract Pool Process Generators give their “supply function” for the next day (for each settlement period). The market operator schedules the units to minimize costs and meet the forecast demand. The most expensive unit scheduled determines the “System Marginal Price” (SMP). All dispatched units receive the SMP and all available unitsreceive a capacity payment. The “Pool Selling Price” is then proposed to buyers.

  13. Power Trading: An Overview. Issues affecting Power Trading in India. Opportunities for Trading. Comparisons of Market Mechanism. Ensuring a Successful Wholesale Power Market.

  14. The Power Trading Market of the future • Simple arbitrage opportunities exist across regions • Imperfect information, relationships, a phone / fax line along with a spreadsheet is sufficient for business. Spatial Trading This state of the market is fleeting and when all the arbitrage opportunities have been captured, many start ups will bite the dust and a handful of strong companies will survive. • Capture the arbitrages across time. • Will result in a strong long term market complemented by a market for futures. • Risk management framework inbuilt into operations. Competencies • Management Sophistication, improved capability for analysis, strong financial base and database of information. Temporal Trading

  15. Future Outlook and Strategy • Segmenting the market into local, regional and national. • Strategies to be based on volumes and attractiveness of the segments & the match with entity’s internal strengths. Segmentation • Strategic alliances / franchises with local players. • They would offer knowledge of niche markets. Alliances • More comprehensive pricing structures increased pricing efficiency, with recognition of the fundamental principles of commodity pricing (e.g. time period left to transaction) Pricing • Employing appropriate IT Strategies. (including building capacity in existing &new entities). IT

  16. Ensuring a Successful Wholesale Power Market Physical Investment • Strengthening the upstream/ down stream transmission networks and better reactive power management to better utilise the existing Inter-regional transmission capacity. • Capacity additions with redundancies. Market Structure • Pool day-ahead market, with Pay SMP settlement, may produce lower prices than the bilateral and balancing model. • Need for more market participants , with none having market power so that the price is more competitive. Regulations • Streamlining levy of reasonable transmission charges, wheeling charges and losses on power to be traded for making trading competitive. • Transmission losses should be charged on actuals. • Installed-capacity requirement may be made mandatory to prevent capacity shortages either through self capacity additions or long term PPAs. • Bottled-up capacities of the IPPs/Captive Generators/ Utilities to be tapped for better utilisation of resources

  17. Thank you...

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