Electricity market in the country lacks depth, CERC

New Delhi, July 20 (UNI) Dominated by a limited number of suppliers, the Indian power market lacks depth and there is a need to develop short-term trading in electricity, the Central Electricity Regulatory Commission, (CERC) said today.

CERC has said that it is not advisable to disturb existing long-term contracts for the sake of market development and short-term trading is essential for resource optimisation and meeting peak demand.

At present, electricity can be traded bilaterally at mutually agreed rates. There is a need to further develop short-term trading to bring equity, transparency and efficiency in trading.

Short-term trading through Open Access constitutes 2-3 per cent of the total supply. '' The market lacks depth. It is dominated by limited number of Suppliers having limited quantum of tradable power,'' CERC said.

Participation in the Power Exchange (PX) may be voluntary for the present and should handle trading and transmission clearance in a composite manner.

The PX should be designed in line with all relevant provisions of Indian Electricity Grid Code and function in close coordination with Regional Load Dispatch Centres.

The PX should be a counter party to all trades, providing payment security to the suppliers. It should provide a common trading platform.

The PX should be designed for the purpose of dispensing short-term power available for trading through competitive bidding by inviting simultaneous anonymous bids from buyers as well as sellers on day-ahead hourly basis.

The PX should adopt marginal pricing principle. It is proposed that the PX may essentially follow the classic market splitting model. However, in a congested zone, the buyers could be served at the weighted average cost of supply and the PX may not collect any congestion revenue.

Uniform pricing philosophy based on marginal cost of supply may be followed for suppliers. In order to ensure that suppliers quote close to their true marginal costs, bid caps could be considered.

Since the amount of tradable power is low, PX on regional basis may not be viable. Only one PX at the national level could be conceived subject to availability of adequate power.

The Electricity traders should have a useful role in the PX trading. The PX would be run by an independent board having five directors including chairperson. Entities buying from and supplying to the PX would recommend name of an eminent professional for each vacant position including that of Chairperson and three other Directors for approval of the Commission.

One of the directors would be appointed on the recommendation of Regional Load Dispatch Centres.

There would be a separate clearing house for financial settlement. The PX would provide a platform for harnessing captive generation and cogeneration. It would also provide positive signal for investment in merchant generation and encourage setting up of peaking power plants.

Merchant power plants should be allowed grid connectivity.

Additional supplies would have to be ensured for PX to enable it to serve open access consumers.

The right time to launch a Power Exchange needs to be debated.

It may be argued that it would be better to wait till the aggregate demand and supply streams are more or less balanced on all India basis so that it is feasible to meet the twin objectives of serving the peak demand and resource optimisation through a common trading platform. On the other hand, it may be prudent to launch it in the near future to send the right signal to investors and consumers about transparent market development.

Organising the electricity market is a challenging task requiring detailed study, preparation and investment. The Commission has released the Staff Paper to provide a starting point for an informed debate with the stakeholders as a part of the consultation process for developing the electricity market.

The Commission has sought for comments and suggestions from all stakeholders, by August 31. Thereafter, the Commission proposes to hold open consultations with stakeholders on the subject.

UNI RT RS1844