Indian Power Market Reforms

EE E16 Ms.T.Abinaya saraswathy [AP/EEE] ACET/EEE/2020-2021
ACHARIYA
COLLEGE OF ENGINEERING TECHNOLOGY
(Approved by AICTE and affiliated to Pondicherry University)
An ISO 9001:2008 Certified Institution
Achariyapuram, Villianur, Puducherry – 605 110.
“UNIT V-INDIAN POWER MARKET”
INSTRUCTOR
Ms.T.ABINAYA SARASWATHY M.TECH
ASSISTANT PROFESSOR
DEPARTMENT OF ELECTRICAL AND ELECTRONICS ENGINEERING

INTRODUCTION
 National Power Scenario Indian power sector is facing
challenges and despite significant growth in generation over
the years, it has been suffering from shortages and supply
constraints.
 Energy and peak load shortages were 7.8 % and 13 %
respectively in the year 2000-01. The per capita electricity
consumption in India is about 400 kWh/year, which is
significantly lower than the world average of around 2,100
kWh/year. As GDP growth accelerates to an ambitious 8 to 10
%, the shortage of power will become more severe.

IMPACT OF ENERGY SOURCES
 Ministry of Power (MoP) and Ministry of Non-conventional
Energy Sources (MNES), Government of India, has been
promoting viable renewable energy technologies including
wind, small hydro and biomass power, energy conservation,
demand side management etc. MNES has been promoting
various sources of renewable energy since 1990.
 Wide spread need of power generation has created the need
for a cheap and readily available commercial fuel for
generating electricity at low cost. Coal was the first to be
selected in India as a commercial fuel in early thermal power
stations and is still king of the power market

CENTRAL ELECTICITY AUTHORITY
 Central Electricity Authority (CEA) has initially projected a
shortfall of 1,50,000 MW in 15 years and therefore, a capacity
addition target of 10,000 MW every year, the actual capacity
addition has been far short of targets. The CEA has recently
revised the capacity addition target to 1, 00,000 MW from
earlier target.
 This implies an annual addition of 8,500 MW as against earlier
fixed of 10,000 MW. Capacity addition in the last five years
including financial year 2000 was average 3,000 MW per year.
Out of the total capacity added during last five years, 49% was
added by the states and balance by central plants, excluding
only 4% contributed by private sector. This indicates that, the
states have been the largest contributors to incremental
capacity.

NEED OF ENERGY SOURCES
 Out of total existing generation capacity, nearly 72% is
contributed by thermal power. With a need for sustainable
economic growth, the Government of India, through the
Ministry of Non-Conventional Energy Sources (MNES), is
encouraging and catalyzing the growth of renewable energy
based power including biomass, wind, hydro, solar photo-
voltaic etc. It is expected that a judicious mix of centralized
fossil fuel power plants and decentralized renewable energy
based power plants will lead to an environmentally friendly
augmentation of the power sector in India.
 Implementation of electrical energy conservation projects /
programmes at various sectors will also help in reduction of
peak demand along with the financial gains through reduction
of energy consumption.

REGULATORY AND POLICY DEVELOPMENT
IN INDIAN POWER SECTOR
 The Electricity Act of 2003 is one of the key policy acts in the
Power Sector „
 This act encourages private sector involvement in Generation,
Transmission and Distribution „
 Open Access Provisions are provided in the Act wherein
private generators can sell directly to consumers „
 Privatization and Corporatization of SEB’s is encouraged
 Competition is promoted in Generation and Distribution „
 Unbundling of Generation, Transmission and Distribution is
proposed in order to increase the number of players in this
sector and thereby promote efficiency, consumer choice and
satisfaction „

 Multi-year Regulation through CERC (Central Electricity
Regulatory Commission) and SERC (State Electricity
Regulatory Commission) have been established to monitor
activity in this sector „
 APDRP – Accelerated Power Development and Reform
Program. Some highlights are …
States unbundle Generation, Transmission and Distribution,
and take over SEB debts …
States agree to an audit, use of IT and Metering …
 Incentives provided for improved reliability, loss reduction,
billing and metering „
 Bottom Line – there were initial improvements in some SEBS
like WB, AP. However, now enthusiasm to implement reforms
has decreases.

UNSCHEDULED INTERCHANGE RATE
The energy actually supplied by the generating station may differ
from what was scheduled. If actual energy supplied were higher
than scheduled, the generating station would be entitled to receive
a payment for the excess energy (the deviation from schedule,
technically termed as Unscheduled Interchange (UI) in
Availability Tariff terminology) at a rate dependent on frequency
at that time. If the energy actually supplied is less than what is
scheduled, the generating station shall have to pay back for the
energy shortfall, at the same frequency - linked rate.

SALIENT FEATURES OF INDIAN ELECTRICITY
ACT 2003
 There is a provision for private transmission licenses.
 Distribution licenses would be free to undertake generation.
 There would be a Transmission Utility at the central
and State level.
 Generation is being delicensed not as before and
captive generation is freely permitted.
 The State Electricity Regulatory Commission may permit open
access in distribution in phases.
 There is direct commercial relationship between
the consumer and generating company or a trader.
 There is a provision for transfer scheme.

 System for generation as well as distribution will be
permitted in the rural and remote areas.
 There is a provision for Constitution of Central Electricity
Authority.
 There is provision for Constitution of Central Commission as
well as the State Commission
 There is provision for Constitution of Central Advisory
Committee as well as the State Advisory Committee.
 There is provision for Establishment of Fund by the Central
Government and the State Government.
 There is provision for Establishment of Appellate Tribunal for
adjudicating the grievances face by the Consumers etc.
 There is provision for Offences and Penalties to be imposed on
the person/ persons on the charge of Theft of Electricity such
as materials, damaging work, stolen property etc.

OPERATION OF INDIAN POWER EXCHANGE
 Electricity trading through Power Exchanges (PX) is hitherto
introduced in many electricity markets. In India, two power
exchanges viz., Indian Energy Exchange (IEX) and Power
Exchange of India Ltd. (PXIL) are functioning with guidance
from Central Electricity Regulatory Commission (CERC).
Exchanges in India have only two years of experience and are
continuously evolving.
 Evolution of power exchange depends on the experiences and
lessons from international power exchanges. Nord Pool power
exchange (Elspot) is being considered as a standard exchange
design. Design and implementation issues of a power
exchange or power market, in general, depend on the market
supplies and demands, liquidity, economy etc

. In India, electricity market is supply deficit (in some regions)
and has a mix of different generation technologies. PX is a
trading center where utilities, power marketers, and other
electricity suppliers submit price and quantity bids to sell
energy or services, and potential customers submit offers to
purchase energy or services. Key points of a power exchange
include:
 • facility for trading of electricity
 • foster the development of competition
 • transparency
 • liquidity

TRADING IN POWER EXCHANGE
 The idea of trading through an exchange enables the traders to
discover the best price in the market and to find the optimum
buyer or seller for trade. Power exchange introduces
transparency in the market clearing and reduces counter-party
credit risk. Exchange manages trades, clears market and settles
financial transactions.
 In the electricity market, the exchange is synchronized with
Transmission System Operator to get technical clearance for
transacting power over the grid. Trading should be done in an
efficient manner to provide quality and affordable power to
end users. Power exchange formation could prove to be a mile
stone in the above mentioned purpose.

 Power Exchange (PX) directly operates wholesale energy
markets, such as day-ahead and hour-ahead markets, while the
real-time market for energy balancing and the market for the
ancillary services may be operated directly by the TSO or by
PX on behalf of TSO and under specific technical
requirements.
 The TSO controls and operates the transmission grid and
facilitates transactions and transmission avoiding influence on
the generation schedules created by the PX. Success factor of a
PX can be measured with the following inputs: • Number of
participants in PX • Liquidity in the market • Market growth in
terms of traded volume • Competitiveness of fee structure

AUCTION SCHEME
 For PX, the day-ahead energy market is based on a single or
double-side auction scheme. Single side auction allows either
buyers or sellers to submit their bids or offers respectively. In
double sided auction scheme, both power suppliers and
consumers are allowed to submit volume-price offers and bids
respectively.
 Auction process can be open or closed (sealed). In open
auction participants repeatedly bid and know about the
previous bids. In close or sealed auction, bids or offers are not
opened to the market participants. In most of the PX, double
sided sealed auction scheme is implemented. Participation in
electricity trading through exchange can be mandatory or
voluntary. Mandatory participation, though, maximizes the
traded

 volume and better price discovery in the market, it restricts the
participants for arranging bilateral contracts. Electricity flows
on a transportation network and physical delivery of trades
may cause congestion in the network. Issue of congestion
should be handled in the market clearing mechanism.
Congestion management techniques differ in implicit and
explicit auctions. Some PX use market splitting method in case
of network congestion
 The issue of congestion management is not discussed in this
paper. Most of the exchanges provide hourly and block bid
products. Some new bid structures are also proposed in
considering generators’ start up and shut down cost.

AVAILABILITY BASED TARIFF
 Availability Based Tariff (ABT) is introduced by Central
Electricity Regulatory Commission (CERC) for suggesting
improvement in bulk power tariff in India. Options from the
various utilities like State Electricity Boards, DVC, NTPC,
NHPC etc. were taken and then arrived at a decision which
suited the best under Indian conditions
 It may be defined as the market mechanism for centralized
scheduling and dispatch of Central Sector generation and State
Sector drawals and decentralized scheduling for state sector
generation.
 It may also be defined as merit order operation of the units to
attain higher levels of economy in terms of production of
electricity.

ELEMENTS OF ABT
Capacity or fixed charges
Incentives
Energy Charges
Unscheduled Interchange (UI) Charges
KVAR charges.

Capacity or fixed charges:
Capacity or fixed charges are computed on the basis of
(a) interest on loan capital
(b) Depreciation
(c) Return on equity
(d) Operation and maintenance expenses including insurance
(e) Interest on working capital.
Capacity charges are also related to availability of the generating
station. ‘Availability’ means the readiness of the generating
station to deliver ex-bus output expressed as a percentage of its
related ex-bus output capabilities as per rated capacity.

INCENTIVES
 Incentive payments are made to the Generator when the actual
generation is more than normative generation corresponding to
the target availability. The total incentive payment calculated
on an annual basis are shared by the various beneficiaries as
per their individual allocated capacity.
 The payments of incentives are paid on monthly basis and are
adjusted on a financial year basis. In view of this, there is no
question of “deemed generation” or “backing down
certification” which were being followed before this ABT
system

Energy Charges
Energy charges are calculated on the basis of paise/kwh on Ex-
bus energy scheduled to be sent out from the generating stations
as per the following formula: Energy charges = Rate of energy
charges x scheduled generation (Ex-Bus)
 Unscheduled Inter-change (UI) Charges:
ABT has a provision for unscheduled interchange (UI) charges in
order to stabilize the frequency in the regional grids and to
minimize extreme deviation in the frequency. It is the practice
that all generators must declare their availability and beneficiaries
also place their requisitions to RLDC.

 RLDC prepares a generation and drawal schedules in advance
after taking into account the transmission losses. This schedule
is being finalized each day for the following day starting from
00 hrs. Separately for 96 time blocks of 15 min each.
 It is expected that the schedule of generation and drawals must
be respected by the respective parties with flexibility granted
to modify the schedules with advance notice and with
exemption in appropriate cases like grid disturbances,
transmission constraint, grid safety etc

 Any variation of the actual generation or drawal from the schedule shall be
liable to a special UI charges payable/receivable by parties concerned. This
charge is reckoned with reference to the frequency of the grid at which the
deviation takes place.
 It is possible that a deviation sometimes is favourable or unfavourable to
grid operation. Depending upon whether a utility is helping or adversely
affecting the grid, UI charges will be receivable or payable. A proper
metering arrangement is provided so that deviation in each time block is
clearly projected and billing may be done accordingly.
 Charges for all UI transactions are worked out based on average frequency
of the time block. The UI charges may be positive or negative depending
on the variation in actual generation/drawal and scheduled
generation/drawal that may be expressed as
 UI charges = (Actual Energy-Scheduled Energy) x UI rate

KVARH charges:
 KVARH charges are payable by the agency drawing VAR at
low voltage or injecting VAR at high voltage. Central Sector
generators and CTU(Central Transmission Utilities) are
exempted from making payment for KVARH. KVARH
charges which are being levied are accumulated in a pool for
installation of voltage control devices (viz. capacitor Bank
etc.)

AVAILABILITY
 ABT notification defines availability for any specific time
period as the ratio of the average send-out capability (SOC) for
all time blocks of the time period to the rated SOC. Thus
availability of thermal generating station for any period may
be expressed as under:

 SOCi = SOC of the ith time block of the period in
 MWH n = Number of time blocks during the period
 Aux = Normative of Auxiliary consumption as a percentage of
gross generation.
 CL = Gross MWH of capacity of units kept closed on account
of generation scheduling order
 h = No. of hours during the period=n/4.
 IC = Installed Capacity of station in MW
Illustration: Let Sent Out Generation = 900 MW, CL = 100MW,
Aux Consumption = 9.5%, IC =1260 MW, then in 4 nos. of time
block, Availability = 86.86%

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