Open access is a key instrument in power trading, says Jayant Deo.In the last decade there has been significant growth in the Indian infrastructure sector, especially in the power sector, with adequate intervention of the Central and state governments aided by a host of private investments from within and outside the country. Power is a critical infrastructure on which the socio-economic development of a country depends. The demand for power in India is enormous and is growing steadily. The vast Indian power market today offers one of the highest growth opportunities for private developers.From monopoly to competitionWhen India got Independence in 1947, the installed capacity was only 1,362 MW. To develop an efficient power system in the country, state electricity boards (SEBs) were constituted under the first Five-Year Plan. These SEBs were responsible for generation, transmission and distribution of power. The mid-70s saw the emergence of two power sector giants, namely NTPC and NHPC. However, the monopoly of SEBs continued.By the late 1980s, most of the SEBs had gone into the red. The plants were operating at extremely low PLFs and T&D losses had escalated to above 50 per cent and employees were not motivated enough to perform well. The government realised that ardent steps were needed to revamp the power sector. The economic reforms of 1991-92 called for participation of private players into the power sector, but the steps taken were not enough.The revolution came with the Electricity Act 2003, which gave the power sector a fresh lease of life. The salient features of the Act included de-licensing of generation, National Electricity Policy and Tariff Policy, recognising power trading as a distinct activity. The Electricity Act 2003 broke the monopoly and changed the functioning of utilities to supply power to all through competitive market forces. This fundamental change is being supervised by regulators (one for each state and one central for interstate transactions).It also included the development of a competitive and transparent power market in the country. The Electricity Act recognised open access as one of the most important instruments for transforming the power sector. The Act afforded consumers the ability to directly source their electricity from suppliers using existing networks and recognised trading as a separate line of business. A number of central and state-level regulatory initiatives have sought todevelop and strengthen open access rules.Thus, 100 years back, the Indian Electricity Act, 1910 optimised resources to cities, the Electricity Supply Act 1948 optimised them at the state level and with the Electricity Act 2003 and the coming up of electricity exchanges, resources are getting optimised at the national level. Now, we are heading towards optimisation at the regional level (SAARC) so that they are fully optimised.Evolution of IEXAn exchange is essential for a market-driven economy where prices are decided by demand and supply. Establishing power exchanges in the country was a step forward to establish competitive markets in the true spirit of the Electricity Act 2003. In 2007, the Central Electricity Regulatory Commission (CERC) issued guidelines to set up electricity exchanges in the country and in 2008, it accorded approval to the Indian Energy Exchange (IEX) to commence operations. On 27 June 2008 the first electricity exchange in the country, the IEX, went live. It became the first power exchange across the globe to operate in a supply-deficit scenario. Major investors in IEX included Financial Technologies (India) and PTC India as promoters and IDFC, Adani Enterprises, Reliance Infrastructure, Lanco Infratech, Tata Power and Rural Electrification Corporation.The exchange began with just one product i.e., the day ahead market (DAM) where one can either buy/sell electricity for the next day. Thereafter, the term ahead market (TAM) was launched on 15 September 2009 and recently the Renewable Energy Certificates (REC) have been added. The day ahead market has emerged as the most preferred product. For longer duration trading, currently one can trade only for the next two weeks, however with the inception of monthly or quarterly contracts, volume in this market segment is also expected to rise.Open access - a key instrumentWhen IEX was launched, people doubted that such an electricity exchange could operate in a country like India, which is a hugely power deficit nation. The per capita consumption of power in India is one of the lowest in the world at 730 kWh. However, open access has been instrumental in making power trading a reality. It has been a boon to Indian consumers, especially the industrial consumers who have high consumption levels. Power trading volumes are expected to rise exponentially in the coming years. Even in states that have not yet been allowed open access, State Electricity Regulatory Commissions (SERCs) in those states are being pursued to implement open access.Trading at IEXEvery day from 10 am to 12 pm in the day ahead market, double-sided closed auctions are conducted and bids are received from both buyers and sellers. Till now, bids have been received for more than 25,000 hourly contracts. For bidding, a trader work station (TWS) is established at the member's end. Based on the bids received, a market clearing price is calculated every hour of the day using an automated algorithm.In case of congestion in any transmission corridor, the market gets split and area clearing prices start showing marginal cost of power in that area after taking constraints into consideration. The costlier power station in a deficit-constrained area will get dispatched and the area prices will reflect the marginal cost of power in that area. Similarly, surplus area will have lower area price than unconstrained MCP.Performance so farThe total traded volume on the exchange has crossed 22.5 billion units, with an average of 40 MUs being traded daily. Over 600 participants mark their presence by bidding daily on the exchange and it has maintained over 85 per cent market share since three years of its inception.The exchange has grown from a few participants in June 2008 to over 1,000 participants in 29 states and four Union Territories, thus making a significant presence across the nation. Over 110 private generators use the exchange platform to sell electricity. Major participants on it are state utilities, captive generators, IPPs and open access consumers. In states like Punjab and Tamil Nadu, which are extensively industrialised and allow open access, small industries are flocking to use the platform to procure electricity. This enables them to ensure power during deficit hours when state discoms are unable to supply. It also facilitates state utilities in receiving power economically. At present, there are over 800 open access consumers who use the platform to procure power.Way ForwardA sound infrastructure, enabling adequate availability of electricity, is one of the key factors for setting up any industry.India is expected to witness a 10 per cent growth rate in the near future and this will lead to emergence of new industries. The power sector needs to grow much faster in order to be able to bridge the demand-supply gap. This lends a huge opportunity to further develop the Indian power market.At present, renewable purchase obligation (RPO) compliance is allowed to utilities through purchase of green power and the remaining, if required, through accumulating renewable energy certificates (RECs). However, non-utilities (which include other consumers such as industries) are only allowed to acquire RECs. These entities should be allowed to purchase green power for consumption and compliance and should not be forced to purchase paper certificates. Several multi-national companies and forward-looking Indian corporates are keen to have green power, but may not have adequate resources to go for captive power. Hence, there is a pressing need to go green.Along with the day ahead market, there is a need to set up a financially settled futures market to enable price hedging. A common exchange for fuel along with electricity will be to the interest of this trade. With the availability of high quality IT infrastructure, dealing with a huge number of entities should not be a problem.ConclusionDuring the last eight-nine months, a large quantum of power has remained unsold at the exchange despite the fact that power is available at a lower price and consumers are grappling with power cuts and load-shedding. This is because of non-implementation of the Act in its true spirit.There is a need to radically change and accept reforms envisaged in Electricity Act 2003 for a truly competitive power market. All those consumers who use 1 MW of power and more should be given an option to choose their supplier and shouldn't have regulated tariffs. All of them should come to the national market. Similarly, universal service obligation (USO) of distribution companies is limited for providing connection to the system and supply of power if required at market based prices. This will ensure a level-playing field for distribution companies.In fact, India may adopt the Singapore model of vesting contracts and for supply of power required by retail consumers through discoms at highly cross-subsidised rates and to create a competitive market for all consumers needing over 10,000 kWh per month. If this doesn't happen, private participation in the sector will dry up. In order to maintain our economic growth, we have to reach a capacity of 8 lakh MW by 2030 from the present level of 1.75 lakh MW.The author is MD & CEO, Indian Energy Exchange (IEX). Views are personal.
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