The enactment of the Electricity Act 2003 introduced the Indian Power Sector to a relatively new domain-inter-state trading in electricity. By identifying electricity trade as a distinct activity, Electricity Act 2003, along with pursuant regulations from the Central Electricity Regulatory Commission (CERC), paved the way for a paradigm shift in the power sector. Interestingly, trade in electricity is not a new phenomenon in the India’s power sector. For long, utilities in India have exchanged electricity by means of ‘Wheeling and Banking arrangements’. However, the open access regulations opened avenues for more active participation from the private sector as well in this vibrant market segment.
The Indian Electricity Market
India is the fifth-largest power system in the world. State Utilities / Distribution Companies are the bulk purchasers, since they have an obligation to supply electricity to bulk and retail buyers. Most of the bulk supplies are in form of Power Purchase Agreements (PPAs) having station wise tariffs and are essentially long-term. Power markets generally operate with PPAs for long-term trading and bilateral contracts for the short-term. For very short-term requirements, there is the UI (Unscheduled Interchange). Currently, short-term trading constitutes only 3%
of the total energy market.
The emerging scenario is more competitive where we are moving from the traditional electricity market of long-term PPAs, short-term agreements, bilateral markets, and UI to one that encompasses all these along with a common electricity marketplace for standard contracts with a nationwide reach, assuring a better price along with payment security.
Era of Deregulation
Unbundling of SEB’s: Unbundling of SEBs and introduction of many players offer ample scope for power trading. Under the new regime, the players would have ample choices. The consumer has a number of choices to get his power. The generators can also compete among themselves for selling to distribution companies / individual consumers.
De-Licencing Generation: Generation capacity has been boosted as no licence is required to set up a power generation plant (except in case of hydro). Many captive players who produce electricity primarily to meet their own demand are in a position of trading their surplus generation and thus emerging in the market, bringing more players and power into the system. As per the Act, the captive players are allowed to sell excess power to any eligible customer.
Open Access Regulations: As per the new Electricity Act, 2003, open access refers to ‘non-discriminatory provision for use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or Genco, in accordance with rules and regulations.’ The implications of open access are that players would have non-discriminatory access to transmission lines that would give them the freedom to buy and sell electricity by paying transmission charges and cross-subsidy surcharge. This would facilitate competition for bulk supply. It would induce third-party demand for wheeling electricity through the transmission networks at inter-state and inter-regional levels. The transmission charges / wheeling charges would be shared as per the regulations. The third-party access would facilitate more competition among power traders.
Hence, unbundling, open access regulation, and de-licensing generation and recognition of power trading as a distinct licensed activity provide an adequate platform for power trading in India.
The Transition
The deregulated electricity markets offer new possibilities for power suppliers. Historically, the suppliers have been bound to the power that they themselves have produced, or to long-term bilateral supply contracts. Since the dawning of deregulation, electricity trading has emerged as important component of the Indian power sector, essential for overall resource optimization.
Under the new trading arrangements, the bulk electricity will be traded through a variety of bilateral and multi lateral contracts such as:-
Bilateral contracts: These refer to mutual contracts where buyers and sellers search and negotiate. These contracts could be long-term or short-term. The long-term power purchase agreements (PPA) in India between the Central Generating Stations and their beneficiaries are a classic example of a bilateral contract. Such transactions are characterized by huge search costs, asymmetric information, and lack of transparency.
The enactment of the Electricity Act 2003 introduced the Indian Power Sector to a relatively new domain-inter-state trading in electricity. By identifying electricity trade as a distinct activity, Electricity Act 2003, along with pursuant regulations from the Central Electricity Regulatory Commission (CERC), paved the way for a paradigm shift in the power sector. Interestingly, trade in electricity is not a new phenomenon in the India’s power sector. For long, utilities in India have exchanged electricity by means of ‘Wheeling and Banking arrangements’. However, the open access regulations opened avenues for more active participation from the private sector as well in this vibrant market segment.
The Indian Electricity Market
India is the fifth-largest power system in the world. State Utilities / Distribution Companies are the bulk purchasers, since they have an obligation to supply electricity to bulk and retail buyers. Most of the bulk supplies are in form of Power Purchase Agreements (PPAs) having station wise tariffs and are essentially long-term. Power markets generally operate with PPAs for long-term trading and bilateral contracts for the short-term. For very short-term requirements, there is the UI (Unscheduled Interchange). Currently, short-term trading constitutes only 3%
of the total energy market.
The emerging scenario is more competitive where we are moving from the traditional electricity market of long-term PPAs, short-term agreements, bilateral markets, and UI to one that encompasses all these along with a common electricity marketplace for standard contracts with a nationwide reach, assuring a better price along with payment security.
Era of Deregulation
Unbundling of SEB’s: Unbundling of SEBs and introduction of many players offer ample scope for power trading. Under the new regime, the players would have ample choices. The consumer has a number of choices to get his power. The generators can also compete among themselves for selling to distribution companies / individual consumers.
De-Licencing Generation: Generation capacity has been boosted as no licence is required to set up a power generation plant (except in case of hydro). Many captive players who produce electricity primarily to meet their own demand are in a position of trading their surplus generation and thus emerging in the market, bringing more players and power into the system. As per the Act, the captive players are allowed to sell excess power to any eligible customer.
Open Access Regulations: As per the new Electricity Act, 2003, open access refers to ‘non-discriminatory provision for use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or Genco, in accordance with rules and regulations.’ The implications of open access are that players would have non-discriminatory access to transmission lines that would give them the freedom to buy and sell electricity by paying transmission charges and cross-subsidy surcharge. This would facilitate competition for bulk supply. It would induce third-party demand for wheeling electricity through the transmission networks at inter-state and inter-regional levels. The transmission charges / wheeling charges would be shared as per the regulations. The third-party access would facilitate more competition among power traders.
Hence, unbundling, open access regulation, and de-licensing generation and recognition of power trading as a distinct licensed activity provide an adequate platform for power trading in India.
The Transition
The deregulated electricity markets offer new possibilities for power suppliers. Historically, the suppliers have been bound to the power that they themselves have produced, or to long-term bilateral supply contracts. Since the dawning of deregulation, electricity trading has emerged as important component of the Indian power sector, essential for overall resource optimization.
Under the new trading arrangements, the bulk electricity will be traded through a variety of bilateral and multi lateral contracts such as:-
Bilateral contracts: These refer to mutual contracts where buyers and sellers search and negotiate. These contracts could be long-term or short-term. The long-term power purchase agreements (PPA) in India between the Central Generating Stations and their beneficiaries are a classic example of a bilateral contract. Such transactions are characterized by huge search costs, asymmetric information, and lack of transparency.
