The Power Ministry has proposed a new segment at power exchanges—High Price Market Segment—which will allow electricity producers and sellers with production cost of more than ₹12 per unit to participate in the market.
It will allow gas-based power plants and imported coal-based (ICB) power plants with production cost of over ₹12 per unit to sell electricity in the market. As of June 2022, India’s gas-based installed power capacity is 24,856 megawatts (MW), while ICBs have 17,255 MW capacity.
The Ministry has asked for responses from the Central Electricity Regulatory Commission (CERC), Central Electricity Authority (CEA), power exchanges and other stakeholders on introducing the High Price Market Segment for Day Ahead Market (HP-DAM). The last date for submitting responses is August 21, 2022.
“This will enable high-cost power plants to be made available during high demand periods. Only such buyers who are in deficit and can afford to pay high prices will be able to participate in this segment. The other buyers and customers will not get affected,” the Ministry explained.
In April this year, the CERC capped spot prices at ₹12 per unit in order to address the issue of high prices in power exchanges. While it ensured that spot prices are within ₹12 per unit, Gencos with high variable costs have been unable to participate in this market.
The Ministry proposed that sellers with variable cost greater than the price cap of spot at I-DAM (₹12 a unit) will be allowed to sell power in HP-DAM. These can be gas-based power plants, ICB plants or any other entity that meets variable cost eligibility.
A no objection certificate (NOC) will be provided to such sellers or entities bi-annually through the National Open Access Registry (NOAR).
The Ministry also suggested a minimum bid price of zero per unit, while the maximum price can be decided based on feedback from stakeholders, which will be higher than the existing price cap for Day Ahead Market (DAM).
The price discovery for HP-DAM will be Double-Sided Closed Auction similar to G-DAM, DAM and RTM.
Analysts are of the view that the proposal is challenging to implement and seems to have been introduced without adequate research on its implementation process as well as impact on the market.
Nangia Andersen Leader (Power Sector Advisory) Arindam Ghosh observed that several products have been proposed by the Power Ministry without adequate background research into how they would be implemented and what their impact would be.
“It appears that only a very small number of gas and imported coal stations will enter this market, since there will be always the risk of non-clearance. This will make the market illiquid. Their earlier decision of capping the normal DAM segment to ₹12 is not in the right spirit of the market. Ex-chairperson of CERC PK Pujari was vocally against it, stating that prices should be determined by the market, not by regulatory intervention,” he added.
Ghosh suggested that instead of removing the price cap on normal DAMs, it would be better to allow all gas and ICB plants to bid under normal DAMs. A handful of generators cannot influence the price discovery of the market.
“It will even be challenging for Regional Load Despatch Centres (RLDCs) to obtain NOCs. The verification process for identifying which generators qualify for the high price market would be extremely challenging. As a result, there would be a high risk of manipulation with variable cost data,” Ghosh explained.