Economy

Need to deepen short-term power market, pave way for national pool real-time market: IEEFA

Our Bureau Hyderabad | Updated on September 24, 2020 Published on September 24, 2020

Discoms are struggling with huge financial losses at ₹,88,686 crore and a total outstanding debt of ₹4,78,000 crore in FY2018/19.

Trading in the short-term can allow discoms to better balance supply with demand at all time intervals, says Energy Economist Vibhuti Garg

A transition towards more national trading of electricity in real-time could help India’s power sector achieve competitive price discovery, reduce costs for consumers and accelerate the shift to a renewables-based system, according to IEEFA.

“While long-term contracts should remain the dominant procurement model in India, particularly with the growth in low-cost, deflationary 25-year solar power purchase agreements, India needs a national pool real-time market to improve the transparency and competitiveness of buying and selling electricity,” Vibhuti Garg, energy economist at the Institute for Energy Economics and Financial Analysis (IEEFA), says.

“A national pool would drive down the average cost of supply, forcing closure of end-of life, inefficient and polluting thermal power plants while addressing the issue of overcapacity in the thermal power sector.”

Also read: All-India energy demand on a recovery path

Transactions by participants in the short-term market made up just 11 per cent of India’s overall electricity generation in the fiscal year 2019/20 – a share that has remained virtually unchanged over the past decade. To-date, renewable energy trading in the short-term market has been minimal, at less than 1 per cent.

Garg notes the recent developments in the short-term market such as the rollout of the real-time market in June and the Green Term-Ahead Market in August will facilitate the trading of renewable energy. They can help developers and distribution companies price and hedge risk without having to sign long-term PPAs to secure financial closure of projects.

Long-term contracts

Long-term contracts have locked discoms into buying expensive power from polluting and inefficient thermal power plants, reducing flexibility in managing peak as well as baseload requirements.

Discoms are struggling with huge financial losses at ₹,88,686 crore and a total outstanding debt of ₹4,78,000 crore in FY2018/19. They pay capacity charges for contracted volume, even at cheaper off-peak times and regardless of whether power is despatched and consumed or not.

“By improved transparency in a national market, trading in the short-term can allow discoms to better balance supply with demand at all time intervals. It allows them to sell the surplus power they have already paid for in their contracts,” says Garg.

“A shift to real-time electricity pricing for large consumers whose monthly consumption is greater than 1 megawatt per hour would benefit the market,” says Garg.

Transmission capacity

Currently, liquidity and efficient price discovery in the short-term market are constrained because transmission capacity is allocated to bilateral contracts with only the remainder made available for trading at the power exchange.

The Central Electricity Regulatory Commission has played a crucial role in supporting the short-term market with policy guidelines and regulations that have led to the introduction of new financial products and availability of open access for trading of power.

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Published on September 24, 2020
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