Several policy and regulatory reforms are currently under way in the power trading segment to deepen and strengthen the power markets. Notably, the Central Electricity Regulatory Commission (CERC) has issued a staff paper on market coupling, which is expected to significantly transform the power market in the coming years. In addition, recent measures by the CERC aim to enhance the integrity and transparency of power exchanges, and address abrupt increases in power prices on these exchanges.
During April 2023-March 2024, total short-term trading volumes stood at 239.09 BUs, marking a 7.37 per cent increase compared to the same period in the previous year. These volumes accounted for 14.78 per cent of the total generation during this period, with bilateral trade constituting 5.37 per cent and trade through exchanges accounting for 7.61 per cent. The power exchanges accounted for approximately 51.49 per cent (123.11 BUs) of the total volume of transactions in the short-term market while bilateral trade accounted for 36.37 per cent, with the remaining 12.13 per cent attributed to deviations.
Power exchange and bilateral transactions
During 2023-24, a total of 1,617.04 BUs of electricity was supplied in the country, of which 86.96 BUs was transacted through bilateral trade, 123.11 BUs was traded through the three power exchanges – Indian Energy Exchange Limited (IEX), Power Exchange India Limited (PXIL) and Hindustan Power Exchange (HPX) – and 29.01 BUs was transacted through deviations.
In the day-ahead market (DAM), a total volume of 53.55 BUs was transacted across the three power exchange platforms during 2023-24, an increase of 4.26 per cent over the previous year. The IEX accounted for a major share in the DAM with a trading volume of 53.38 BUs, while PXIL accounted for 0.078 BUs and HPX accounted for the remaining volume.
The real-time market (RTM) saw an increase in volume transacted in 2023-24, reaching 27.64 BUs from 24.18 BUs in 2022-23. The IEX accounted for a major share in the RTM with a trading volume of 27.58 BUs, while PXIL accounted for 0.027 BUs and HPX accounted for 0.025 BUs.
The term-ahead market recorded a volume of 19.7 BUs in 2023-24, a decrease of 8.41 per cent compared to 21.51 BUs in 2022-23. In the green term-ahead market, an aggregate volume of 0.33 BUs was transacted during 2023-24 across the three power exchange platforms compared to 2.56 BUs in 2022-23.
The green day-ahead market (GDAM) witnessed a total transaction volume of 2.49 BUs traded on the IEX, while no transactions took place on PXIL and HPX. The total volume of electricity transacted in power exchanges under GDAM during 2022-23 was 3.817 BUs.
Electricity traded through traders was recorded at 33.8 BUs during 2022-23, accounting for 17.4 per cent of the total transaction volume in the short-term market. This marked a decline of 14.4 per cent from the 39.47 BUs recorded in the previous financial year. During 2022-23, the weighted average price of electricity transacted through traders ranged from Rs 4.70 per unit to Rs 7.47 per unit.
Renewable energy certificates
During 2023-24, 7.54 million renewable energy certificates (RECs), equivalent to 7.54 BUs, were traded on the three power exchanges, as compared to 8.25 million RECs transacted on the power exchanges and bilaterally through trading licensees in 2022-23. The categorisation of RECs as solar and non-solar has been eliminated with the introduction of the multiplier concept under the CERC (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022, effective from December 5, 2022.
The market clearing volume of solar and non-solar RECs transacted on the power exchanges increased to 2.59 million and 2.94 million in 2022-23 (up to November 2022) respectively, while the weighted average market clearing price of these RECs stood at Rs 1,189 per MWh and Rs 1,000 per MWh respectively during the same period. The market clearing volume of RECs was 2.63 million during December 2022-March 2023, whereas their weighted average market clearing price was Rs 1,000 per MWh.
Open access consumer participation
In the power exchanges, open access (OA) industrial consumers bought 7.6 BUs of electricity, which accounted for 9.6 per cent of the total DAM, GDAM and RTM volume transacted during 2022-23. OA consumers at the IEX and PXIL stood at 5,159 and 769 in 2022-23 respectively, as of March 2023. HPX, which started in July 2022, had 239 OA consumers in 2022-23, constituting 49.5 per cent of its portfolio. The weighted average price of electricity bought by OA consumers at the IEX was Rs 3.92 per kWh, lower than that of the total electricity transacted on the IEX (Rs 5.90 per kWh), through DAM, GDAM and RTM.
Regulatory updates
In August 2023, the CERC released a staff paper on market coupling, covering the regulatory provisions for market coupling, international experience, the objectives of market coupling in India, the issues and challenges in the implementation of market coupling, and other key points for discussion. The enabling provisions for market coupling were already provided by the commission in the CERC (Power Market) Regulations, 2021. To study the readiness of the market and identify the prerequisites for a smooth transition towards market coupling, the CERC discussed some of the key issues in the implementation of market coupling in its paper, and invited stakeholders’ comments on designing the framework for the implementation of market coupling.
Later, in February 2024, the CERC issued a suo moto order directing Grid India to implement a shadow pilot model for the coupling of power markets. The proposed shadow pilot seeks to couple three markets on the power exchanges – the RTM of the three power exchanges, the RTM with security constrained economic despatch (SCED) and the DAM of the three power exchanges. This pilot is expected to help in evaluating the operational, market and regulatory consequences prior to undertaking a full-scale implementation.
Recently, in May 2024, the CERC released a staff paper on “Regulatory Oversight on Bidding Behaviour in Power Exchanges” to address issues like abnormal increases in power prices. The paper discusses price discovery mechanisms, uniform market clearing prices, pay-as-bid and bid screening to enhance market predictability. As per the staff paper, all sellers must disclose their variable costs and technical parameters monthly, with this information remaining confidential. Each seller’s variable cost will be their benchmark supply offer (BSO), and the designated agency will communicate the BSO for each category of suppliers to the power exchanges monthly. The power exchanges must ensure that a seller’s bid price offer for a time block does not exceed 1.6 times the respective BSO, and that the average bid price offer submitted by a seller throughout the day (96 time blocks) does not exceed 1.2 times the respective BSOs.
On February 21, 2024, the CERC issued a suo moto order to the power exchanges aimed at enhancing market integrity and transparency. The order mandates that no manual entry of bids by exchanges on behalf of their members is allowed during or after trading hours, and no bids will be accepted after trading hours. Within one month, the exchanges must implement a robust system with end-to-end data encryption from members’ trading workstations to the exchange platform. The order validation process must be fully automated, without manual intervention. In addition, bid cancellation and modification are not permitted after trading hours, and there will be no extension of trading hours.
In July 2023, the Central Electricity Authority issued amendments to facilitate the cross-border transfer of power through the RTM segment of India’s power exchanges. As per the amendment, any Indian power trader, on behalf of any entity of a neighbouring country, may trade in the Indian power exchanges (DAM/RTM/both DAM and RTM) after obtaining approval from the designated authority up to a specified quantum (MW) and duration. The entity on behalf of which the Indian power trader is trading must belong to a neighbouring country that has signed an agreement for cooperation with India in the power sector, and the generating asset from which the power is being traded must be owned/controlled by the same country.
Conclusion
As India advances towards its net zero targets, the role of power exchanges is set to expand, driven by innovative trading products and efficient energy market management. The expected extension of long-duration contracts up to 11 months will enhance stability and adaptability in procurement. The introduction of a capacity market will balance power demand and generation by determining optimal energy mixes for states and facilitating electricity capacity purchases as needed.
By 2024, the power exchanges will play a crucial role in enhancing efficiency and sustainability in India’s power sector. With the aim of achieving 500 GW of renewable capacity and 50 per cent non-fossil fuel power generation by 2030, new products will be introduced on exchange markets, catering to India’s changing energy mix and growing demand.
