Indian electricity market and power exchanges

Indian Electricity Markets & Power Exchanges

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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)

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)

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.

Marginal cost

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)

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.

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.

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."

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)

Market development

Market development..

Power market in India

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.

Some basics
 Market Volume Profile
 Market Clearing Price
 Market Clearing Volume
 Unconstrained Report

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.

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

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.

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.

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.

Price discovery
 Price discovery would be through double side bidding and buyers and suppliers shall pay/receive uniform price.
 double side closed auction

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

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

On-line
National
Automated
Standardized
Contracts
Central
Counterparty
Delivery…
•Spot
•Intra-Day
•Day-ahead
•Forward
•Weeks
Voluntary
Power Exchange
Handles…
 Bidding
 Delivery
 Money
 Risks

 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

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

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

Milestones & Way Forward
PX
SPOT
PX
Forward
Contracts
Transmission &
Generation
Capacity
MarketAncillary
Market
Derivatives
(Futures)
2001
2003
2004
2008
2009
Way Forward

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

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.

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.

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.

Three types of electricity 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 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

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.

Major participants on PXIL

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

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.

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.

Indian electricity market and power exchanges

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