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Indian electricity market and power exchanges
1.
Indian Electricity Markets
& Power Exchanges
2.
Copyright © 2016
Your Company All Rights Reserved. 2 Electricity Market Electricity is a commodity, capable of being bought, sold and traded. Electricity is by its nature difficult to store and has to be available on demand. Electricity is traded for both – Power (MW) – Energy (MU) An Electricity Market is a system enabling – Purchases through bids to buy – Sales through offers to sell Bids and offers use Supply & Demand principles to set the price. Trading – Short term trades (generally in the form of financial or obligation swaps. – Long term trades (contracts similar to PPA, and generally considered private bi-lateral transactions)
3.
Copyright © 2016
Your Company All Rights Reserved. 3 Electricity Market.. Markets for Energy related commodities – Trade net generation output for no. of block intervals. Markets for Power related commodities – Required and managed (and paid for by) market operators to ensure reliability – Are considered ancillary services and include such names as • spinning reserve, Non-spinning reserve, • Operating reserve,Responsive reserve, • Regulation up, regulation down and • Installed capacity. In addition, there are markets for – Transmission congestion, and – Electricity derivatives (such as electricity futures and options)
4.
Copyright © 2016
Your Company All Rights Reserved. 4 Electricity Markets…. Electricity Markets: – Wholesale Electricity market • Exists when competing generators offer their electricity output to retailers – Retail Electricity market • Exists when end-use customers can choose their supplier from competing electricity retailers.
5.
Copyright © 2016
Your Company All Rights Reserved. 5 Marginal cost
6.
Copyright © 2016
Your Company All Rights Reserved. 6 Power Exchanges in world Australia : IMO (Independent Market Operator) Belgium : APX Group Czech Republic : PXE (Power Exchange Central Europe) France : EPEX SPOT Germany : EEX (European Energy Exchange) and EPEX SPOT Hungary : HUPX (Hungarian Power Exchange) and PXE India : IEX (Indian Energy Exchange) and PXIL (Power Exchange India Ltd.) Japan : JEPX (Japan Electric Power Exchange) Korea : KPX (Korean Power Exchange) Philippines : Philippine Wholesale Electricity Sport Market Portugal : EEX Scandinavia : Nord Pool Spot Singapore : EMA (Energy Market Authority of Singapore) and EMC (Energy Market Company) USA : FERC (Federal Energy Regulatory Commission)
7.
Power Exchanges in
India
8.
Copyright © 2016
Your Company All Rights Reserved. 8 Power Exchange Power exchange is a spot market mainly day ahead, like anyother market matches demand & supply for each time block, providing a public price Index. A Power exchange facilitates equitable, transparent and efficient trading of power. Bridges the demand supply mismatch by bringing larger players together for buying and selling in an auction based system. While maintaining complete anonymity, resolves the constraints in the earlier formats, Viz. search costs, transaction costs, and counter-party risks.
9.
Copyright © 2016
Your Company All Rights Reserved. 9 PX Clearing house PX Clearing House is a subbordinate to Power exchange and acts as an intermediatary for transactions. It tracks all transactions under Power exchange. The primary role of PX Clearing house is to guarantee financial reliability to the participants. Participants are required to maintain margin accounts and Clearing House effectively hedges against credit risk.
10.
Copyright © 2016
Your Company All Rights Reserved. 10 Legal framework National Electricity Policy mandates the creation of a Power Exchange – Para 5.7.1 (d) "Development of power market would need to be undertaken by the Appropriate Commission in consultation with all concerned". Electricity Act, 2003 -"Section 66. – The Appropriate Commission shall endeavour to promote the development of a market (including trading) in power in such manner as may be specified and shall be guided by the National Electricity Policy referred to in Section 3 in this regard."
11.
Copyright © 2016
Your Company All Rights Reserved. 11 Sequence of events Development of the Power Market – Section 66, IE Act 2003 – National Electricity Policy, 12-Feb-2005, Para 5.7.1(d) Implementation of Inter-State ABT : 2002-03 – Metering, Scheduling and Settlement Introduction of Open Access in Inter State Transmission : May 2004 Development of PX – Indian Energy Exchange (IEX), 2008 – Power Exchange India Limited (PXI)
12.
Copyright © 2016
Your Company All Rights Reserved. 12 Market development
13.
Copyright © 2016
Your Company All Rights Reserved. 13 Market development..
14.
Copyright © 2016
Your Company All Rights Reserved. 14 Power market in India
15.
Copyright © 2016
Your Company All Rights Reserved. 15 Power Exchange Presently CERC has allowed only Day ahead Market (DAM) At present CERC has allowed only National level operated Power exchanges. In due course if need arises Regional level operated exchanges might come. In power exchanges, as per CERC norms the price discovery is through Double sided closed auction. Collective transaction means a set of transactions discovered in power exchange through anonymous, simultaneous competitive bidding by buyers and sellers For Power Exchange transactions the Nodal agency will be National Load Despatch Centre (NLDC). Generally the ATC declaration is done by NLDC on its web site every day. Depending on the corridor availabilities the solution is found out by the power exchanges and the allowed trades will be intimated to NLDC. If there is no congestion NLDC will accept the trades and issue the schedules to the power exchange and the same will be implemented in RLDC schedules. In Power Exchange transactions both buyer and seller have to pay the Transmission and operating charges separately. The transmission losses also have to be borne by the buyer and seller separately.
16.
Copyright © 2016
Your Company All Rights Reserved. 16 Some basics Market Volume Profile Market Clearing Price Market Clearing Volume Unconstrained Report
17.
Copyright © 2016
Your Company All Rights Reserved. 17 Indian Energy Exchange (IEX) 27th June 2008 promoted by Financial Technologies -Multi Commodity Exchange of India Ltd (MCX), co-promoters – PTC India Ltd – IDFC, – Adani Enterprises, – Reliance Energy, – Lanco Infratech, – Rural Electrification Corporation (REC), – Tata Power Company.
18.
Copyright © 2016
Your Company All Rights Reserved. 18 Power Exchange India Ltd (PXI) 22nd October 2008. promoted by NSE & National Commodities & Derivatives Exchange Ltd (NCDEX). co-promoters – Power Finance Corporation, – Gujarat Urja Vikas Nigam, – JSW Energy, – GMR Energy, – Jindal Steel & Power
19.
Copyright © 2016
Your Company All Rights Reserved. 19 Options for exchange between PXs Priority, based on pre-defined rules: – Lowest MCP – Highest MCV – Highest MCP X MCV – Maximisation of social welfare, consumer surplus, etc. Pro-Rata Explicit auctioning Merging the bids obtained by each PX and then finding a fresh solution honouring the constraints declared. Merging the bids received by multiple PX and then finding a combined solution.
20.
Copyright © 2016
Your Company All Rights Reserved. 20 Features of PX Nationwide, Online and Electronic platform Voluntary participation. Neutral, Unbiased and Transparent Offer Day-Ahead Market(DAM) Exchange time-line consistent with time-line of Load Despatch Centres Activities of the Exchange will be carried out in accordance with the – “CERC (Open Access in inter-State Transmission) Regulations, 2008”, dated 25.01.2008, – Procedure for scheduling of collective transaction issued by the Central Transmission Utility (PGCIL) – Bye-Laws, Rules and Business Rules of the Exchange.
21.
Copyright © 2016
Your Company All Rights Reserved. 21 Benefits of PX Transparency: – Px offers a transparent, national-level platform for trading electricity in India leading to a vibrant power market. Access a diversified portfolio: – Px offers a broader choice to generators and distribution licensees at the national-level so that they can trade in smaller quantities and smaller number of hours without additional overheads. Payment security: – Px stand in as the counter-party for all trades; so participants need not be concerned about the risk-profile of the other party. Minimal transaction overheads/charges: – All charges are displayed on the Px trading terminals; so there is no room for negotiation. The cost of transactions through Px is much less than any other mode of transaction. Efficient portfolio management: – Px enables participants to precisely adjust their portfolio as a function of consumption or generation. Participants, especially distribution licensees, are enabled to precisely manage their consumption and generation pattern. Hedging UI risks: – Px provides a tool to hedge against adverse movements in electricity prices. Thus, price risks are minimised. Market development: – Px has plans to launch a range of products to facilitate development of power markets in India in such a way that investment in capacity enhancement is encouraged.
22.
Copyright © 2016
Your Company All Rights Reserved. 22 Price discovery Price discovery would be through double side bidding and buyers and suppliers shall pay/receive uniform price. double side closed auction
23.
Thank you
24.
Copyright © 2016
Your Company All Rights Reserved. 24 Present Indian Market Long Term Exceeding 7 Years Medium Term 3 months – 5 years Short Term Intraday - 3 months Balancing Market Ancillary Services OTC PPAs OTC Bilateral OTC Bilateral + EXCHANGE Collective-DAM Bilateral-TAM Weekly Daily Day Ahead Intraday DSM/UI Frequency linked % Participation of Market Remained Stable Exchange Transactions Registered Growth in Short Term Mkt. 91% 4% 3% 2% <1% 53% 11% 1% 3% 22% 10% Aug'10 61% 8% 0% 2% 14% 14% FY'16 Coal Gas Diesel Nuclear Hydro Ren' Installed Capacity Tilted Towards Coal & Renewables 165 GW 302 GW Real Time
25.
Copyright © 2016
Your Company All Rights Reserved. 25 Power Procurement options Procurement Contracts Pros Cons Long Term • Escape volatility of short term and spot markets • Meets base load requirements • Transmission availability • Capacity + Energy • Falling short term prices may make costly contracts obsolete and sunk Medium Term • Escape volatility of short term and spot markets • Meets intermediary load requirements, help escape long term commitment for such requirements • Transmission availability after LT • Only to meet fixed seasonal or intermediary load requirements Short Term Bilateral • No long term commitment • Flexible response to demand • Priority over PX, unless Spot • Costlier than PX Spot • Congestion • Regulatory risks PX Spot • No long term commitment • Price transparency • Flexible response to demand • Volatile • Congestion • Regulatory risks UI/DSM • Realtime load balance • Volatility • Penalties
26.
Copyright © 2016
Your Company All Rights Reserved. 26 On-line National Automated Standardized Contracts Central Counterparty Delivery… •Spot •Intra-Day •Day-ahead •Forward •Weeks Voluntary Power Exchange Handles… Bidding Delivery Money Risks
27.
Copyright © 2016
Your Company All Rights Reserved. 27 Price Transparency – Ability to know the price of electricity now and in the future (up to 15-18 months) Risk Management – Manage price/ delivery risk – Secure and Regulated market Guaranteed performance of trades – Credit tracking mechanism – Default Mitigation mechanism Lower Transaction Cost Flexibility – Term of delivery – Time of Closure Access to a wider/ larger market spectrum Power Exchange facilitates
28.
Copyright © 2016
Your Company All Rights Reserved. 28 IEX Market Segments Day-Ahead Market since June,08 • Delivery for next day • Price discovery: Closed , Double-sided Auction Term-Ahead Contracts since Sep,09 • For delivery up to 11 days • Daily Contracts, Weekly Contracts Renewable Energy Certificates since Feb,11 Energy Saving Certificates since 27 Sep’17 Intraday Market & Day-Ahead Contingency Round the clock since Jul’15 • Intraday: For Delivery within the same day • Day Ahead Contingency: Another window for next day • Gate closure : 3 hours • Green Attributes as Certificates • Sellers : RE generators not under feed in tariffs • Buyers: Obligated entities; 1MWh equivalent to 1 REC • 1 Ecert= 1 Mtoe( Metric Tonne Oil Equivalent) • Trading Session on every Tuesday of the Week • Trading time 1300 hrs to 1500 hrs Auction Continuous
29.
Copyright © 2016
Your Company All Rights Reserved. 29 Bid Matching Open/Closed Auction Orders accumulated during order accumulation phase (no matching) Orders matched after closure of order accumulation period Orders are used for calculation common price i.e. Equilibrium Price. All successful orders matched at Equilibrium Price. Continuous Trading Price-time priority based continuous matching The highest Buy order & lowest Sell order gets the priority If the prices are same then priority is given to the time of the order
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Your Company All Rights Reserved. 30 Milestones & Way Forward PX SPOT PX Forward Contracts Transmission & Generation Capacity MarketAncillary Market Derivatives (Futures) 2001 2003 2004 2008 2009 Way Forward
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Your Company All Rights Reserved. 31 IEX capabilities Spot Auction (Closed or Open) for real time prices Continuous Trading for Long-term contracts Automated matching engine Onlineriskmanagementsystem Online clearing & banking interface for margins & trade proceeds payment Derivatives - for Hedging & Price Discovery Forwards Futures Physicalorfinancialsettlement
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Your Company All Rights Reserved. 32 Growth in short term market During 2013-14, short-term volumes (oTC & PX) formed approximately 8.64%9 of the total generation in the country. However, the trend indicates a CAGR of 22.86% in the last 5 years.
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Your Company All Rights Reserved. 33 Power trading mechanism Long-term Power Purchase Agreements – Power from various generating stations is allocated to State Electricity Boards (SEBs) and distribution companies (Discoms) at the price determined on the basis of historical cost based tariff principles notified by the regulatory commission or as per the Power Purchase Agreement (PPA). The SEBs/Discoms, which have the obligation to provide electricity to their consumers, mainly rely on supplies from these long-term contracts. The annual transmission charges, which are determined after deducting adjustable revenue from short term customers, are shared by the long term customers. Generally for the last couple of years on an average 89% of electricity has been traded by long term power purchase agreements and 11% by short term trading. Short-Term Bilateral Contracts: – Short-term contracts are mostly inter-state or inter-regional, requiring open access through the Central Transmission Utility (CTU) network and purchase and sale of electricity takes place mostly through traders, which have been granted license by the CERC.
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Your Company All Rights Reserved. 34 Types of transactions “Bilateral transactions”means a transaction for exchange of energy (Mwh) between a specified buyer and a specified seller, Directly or through a trading licensee, or discovered at power exchange through anonymous bidding from a specified point of injection to a specified point of drawl for a fixed or varying quantum of power (MW) for a fixed or varying quantum of power for any time period during a month. “Collective Transaction” means a set of transaction discovered in power exchange through anonymous, simultaneous competitive bidding by buyers and sellers.
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Your Company All Rights Reserved. 35 Three types of electricity trading
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Your Company All Rights Reserved. 36 Short term bilateral contracts Short-term contracts are mostly inter-state or inter-regional, requiring open access through the Central Transmission Utility (CTU) network and purchase and sale of electricity takes place mostly through the traders, which have been granted license by the CERC. Bilateral Trading in Short term Transaction Market : – As Power Market is expanding rapidly, more intermediaries are emerging out as a licensed trader. The benefit which the trader gets through intermediaries is that the search costs are reduced. They had not to spend money in finding customers; intermediaries match buyer and seller and act as a facilitator in concluding trading arrangements. Both types of arrangement serve as a symbol of mutual bargaining process where the actual price is not disclosed. In short term electricity market the bilateral trading take place through following methods • Through bilateral short term contracts between buyers and sellers • Un-Requisitioned Surplus of NTPC stations. Bilateral Contracts between Buyers and Sellers: – It is a back to back contract between a Specified buyer and a specified seller for a definite point of injection to definite point of withdrawal
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Your Company All Rights Reserved. 37 PXIL Power Exchange India Limited (PXIL) is India's first institutionally promoted Power Exchange that provides innovative and credible solutions to transform the Indian Power Markets. A deep understanding of the local markets is matched by PXIL’s non-partisan, unbiased and often fearless functioning, at times even in the face of uncomfortable conclusions. core values are – integrity, excellence, commitment and continued innovation. These are the bedrock on which the edifice of PXIL stands. PXIL’s unique combination of local insights and global perspectives helps its stakeholders to make better informed business and investment decisions, improves the efficiency of the power markets, and helps shape policies and projects. PXIL is India's first and only Quality Management System "ISO 9001:2008" certified Power Exchange in the country.
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Your Company All Rights Reserved. 38 Major participants on PXIL
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Your Company All Rights Reserved. 39 Future aspects of PXIL Positively affecting the policy and regulatory environment for sustainable development Enhancing our product offerings – Long tenure products – Ancillary services – Energy efficiency certificates D .Peaking products – Capacity contracts Building a national level clearing corporation Bringing international standards to the national electricity market. Extending our participants base Reaching out to short term Open Access customers
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Your Company All Rights Reserved. 40 PTC –Power Trading Corporation of India Ltd Power Trading Corporation of India Ltd. (PTC), the leading provider of power trading services, in India is trading power on a sustained basis since June 2002 through purchase from surplus utilities and sales to deficit State Electricity Boards (SEBs) at an economical price, providing best value to both the buyers and sellers and ensuring that the resources are utilized optimally. PTC is a ‘pure-play’ trading entity, and does not own any generating units or transmission facilities.PTC acts as a single- window service provider that manages both financial as well as operational risks for the buyer and seller entities in its trading transactions. On the one hand timely payments are ensured to the sellers of power and on the other hand a definite quantum of power is delivered to the buyers of power in a reliable manner. For its services, PTC charges a predeterminedamount of transaction charges, worked on a per unit (KWh) basis or as a percentage of the cost of power. The pricing and margin information is known to both the counterparties in a transparent manner. In some instances PTC has both bought and sold power from the same entity at different times of the day depending upon the load profile of the entity.
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Your Company All Rights Reserved. 41 PTC.. PTC catalyses the development of power projects by entering into multi-year contracts for future trading of power.These Power Purchase Agreements with PTC are being recognized by lenders as security for financial closure of power projects. Typically, the counterparty contracts for these projects or Power Sale Agreements are structured with multiple buyers, through which about 80% of the power generation from the project is tied up for long term sale, and 20% is kept as reserve for the short-term market. PTC has been identified as the nodal agency for cross border trading with neighboring countries: Bhutan, Nepal and Bangladesh, which are rich in hydro power resources. Utilities in Bhutan account for the nearly 24% trading volumes from cross- border sources. Being the pioneer in trading in India, PTC sees a developmental role for itself to increase the depth and breadth of the market under new Electricity Act 2003. PTC also views an opportunity in alliances with emerging entities for setting up their operations in the manner that the business is recognized globally. In future, it intends to set up an online trading platform similar to a power exchange.
Editor's Notes
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