The short-term power trading market is expected to gain greater prominence in the backdrop of several recent policy and regulatory developments. According to the draft National Electricity Policy, 2021 (NEP), the government aims to deepen power markets by increasing the share of spot markets to 25 per cent by the year 2023-24. Further, market-based economic despatch envisages 100 per cent power despatch through exchanges.
During 2021-22, short-term trading volumes were recorded at 186.75 BUs, of which the power exchanges accounted for 54.3 per cent by achieving an all-time high volume of 101.45 BUs, indicating a significant shift in the Indian power market that has been largely dominated by bilateral deals. After the introduction of new market segments – the real-time market (RTM) and the green term-ahead market (GTAM) – on the power exchanges in 2020, the year 2021 witnessed the launch of the green day-ahead market (GDAM).
The market also saw price increases in recent months mainly on account of early onset of the summer season leading to increased demand for power. In order to balance the interests of investors and consumers, a price ceiling of Rs 12 per unit was made applicable by the Central Electricity Regulatory Commission (CERC) last month, for a limited period across all segments on the power exchange.
A look at the key trends in power trading volumes and prices during the past year…
Short-term market overview
During 2021-22, the short-term trading volumes were recorded at 186.75 BUs, which accounted for 14.1 per cent of the total generation (excluding generation from renewable energy and captive power plants) during the year. The short-term market has shown an increase of 27.9 per cent during 2021-22 over 2020-21. Since 2016-17, the volume of short-term transactions has grown at a compound annual growth rate (CAGR) of around 9.4 per cent, while power generation has grown at a CAGR of 1.24 per cent.
Power exchanges
During 2021-22, an aggregate volume of 101.45 BUs was transacted on the two power exchanges, recording an increase of 27.5 per cent over the previous year. Of the total volume, 95.55 BUs was transacted on Indian Energy Exchange (IEX) while 5.9 BUs was transacted on Power Exchange India Limited (PXIL). The aggregate trading volume on the two exchanges has grown at a CAGR of over 19.8 per cent from 2016-17 to 2021-22.
- Day-ahead market (DAM): During 2021-22, an aggregate volume of 65.19 BUs was transacted on the two power exchanges in the DAM segment, which is the electricity trading market for delivery on the following day. This was an increase of 7.5 per cent from the 60.62 BUs recorded in the previous year. The IEX accounted for a major share in the DAM as 65.14 BUs was traded on its platform, while the remaining 0.04 BUs was traded by PXIL. The IEX’s trading volume in the DAM has grown at a CAGR of over 10.4 per cent from 2016-17 to 2021-22. The weighted average price of electricity in the DAM during 2021-22 ranged from Rs 2.90 per unit (in May 2021) to Rs 9.15 per unit (in October 2021) on the IEX, and from Rs 2.60 per unit (in March 2022) to Rs 8.05 per unit (in October 2021) on PXIL.
- GDAM: With the launch of GDAM on October 25, 2021, any interested party can set up renewable energy capacity and sell it to discoms and industries. The advantages of the free interstate transmission system (ISTS) will be available and open access will be granted within 15 days. During the five months of operation, a total volume of 0.92 BUs has been traded in the GDAM, all of it on the IEX. The weighted average price of electricity in the GDAM during the period ranged from Rs 3.71 per unit to Rs 6.96 per unit on the IEX.
- RTM: Launched by the IEX and PXIL in June 2020, the RTM allows 48 sessions of half an hour each in a day, which means the trading of electricity is done round the clock and power delivery can be scheduled at intervals of one hour. Trading in the RTM has exceeded market expectations, with the RTM trading volume recorded at 19.91 BUs during 2021-22, as compared to 9.47 BUs during the 10 months of operation in 2020-21. During 2021-22, the entire volume was traded on the IEX. The RTM accounts for around 20 per cent of the overall power traded on the power exchanges during 2021-22. The weighted average price of electricity in the RTM during 2021-22 ranged from Rs 2.61 per unit to Rs 8.34 per unit at the IEX.
- Term-ahead market (TAM): During 2021-22, an aggregate volume of 9.99 BUs was transacted on the two power exchanges in the TAM, which allows delivery of electricity up to a duration of one week. This was an increase of 14.5 per cent over the previous year. Of the total, around 5.56 BUs was traded by the IEX, while the remaining 4.43 BUs were traded by PXIL. The weighted average price of electricity in the TAM during 2021-22 ranged from Rs 3.04 per unit to Rs 7.24 per unit on the IEX, and from Rs 3.09 per unit to Rs 9.16 per unit on .
Traders
During 2021-22, about 39.47 BUs of electricity was transacted bilaterally through traders; this is an increase of 48 per cent as against the 26.67 BUs recorded during 2020-21. Volumes traded through trading licensees has increased at a CAGR of 3.3 per cent between 2016-17 to 2021-22. In 2021-22, the weighted average price of electricity transacted through traders ranged from Rs 3.20 per unit to Rs 5.93 per unit.
Open access consumer participation
A growing number of industrial consumers have turned to power exchanges owing to competitive prices. In 2020-21, over 5,400 open access (OA) consumers procured power through the two exchanges, as compared to around 5,170 consumers in 2019-20. In both the power exchanges, OA industrial consumers bought 14.38 BUs of electricity.
At the IEX, around 14.38 BUs was traded in 2020-21 by 4,768 OA consumers at a weighted average price of Rs 2.64 per unit, lower than the weighted average price of Rs 3 per unit for the total electricity transacted at the exchange. Meanwhile, around 0.24 MUs of power was procured by 632 OA consumers at PXIL at a price of Rs 2.78 per unit, as against the weighted average price of Rs 2.98 per unit for the total electricity transacted at the exchange.
Conclusion
The government has come out with several regulatory reforms from time to time, making the power trading market more vibrant. With the third power exchange – Hindustan Power Exchange Limited – in the pipeline, revised principles of transmission corridor allocation among power exchanges have been issued. These principles will be effective from June 1, 2022. Further, the National Open Access Registry (NOAR) has successfully gone live from May 1, 2022. Additionally, the Electricity (Promoting Renewable Energy Through Green Energy Open Access) Rules, 2022 have been notified to promote generation, purchase and consumption of green energy including the energy from waste-to-energy plants.
Overall, the Indian power trading market has come a long way over the past decade and is geared for the next leap forward. New product launches, incremental trading volumes (an approximately 100 BU opportunity for exchanges as plans to phase out coal plants are under way and no new long-term power purchase agreements have been signed for thermal power) and favourable policy and regulatory initiatives are expected to drive the growth of the power market in the next few years.