Govt eyes 25% power purchase in spot market

The government is considering expansion of the size and reach of competitive power markets, or spot trading, targeting purchase of around 25 per cent of the total electricity supply through such a market mechanism by the end of 2023-24. If approved, this will form part of the draft National Electricity Policy (NEP).

An expert group set up by the Power Ministry suggested increasing the share of short-term power trading from around 5 per cent now to 25 per cent by FY24 so as to expand this market and realise more benefits from efficient procurement.

Panel report

The expert committee report, which was submitted in October, is being vetted by the Power Ministry for preparing the draft NEP, which will then be shared with stakeholders for deliberation before the final policy is prepared, sources said.

These preparations are to formulate the NEP that, according to the Electricity Act, 2003, is to evolved by the Centre in consultation with the Central Electricity Authority (CEA) and State governments.

The first policy came in 2005 with the objective of ‘electricity for all’ over the next five years. According to July data, India’s total power generation, excluding renewable and captive power plants, stood at 1,15,654.66 million units (MU). Of this, 14.72 per cent was transacted through short-term deals, 7.67 per cent through bilateral (traders and term-ahead contracts on power exchanges and directly between distribution companies), 5.05 per cent through the ‘day ahead’ market and real-time market of power exchanges, and 2 per cent through deviation settlement mechanism.

According to the Central Electricity Regulatory Commission (CERC), of the total electricity procured in 2019-20, the short-term market accounted for 10 per cent. The balance was procured mainly by distribution companies through long-term contracts and short-term intra-State transactions.

Although the total short-term trading is around 14-15 per cent of the total power supply volume, most of this is bilateral PPAs and exchange trading is 5 per cent. The Power Ministry wants to increase this 5 per cent to 25 per cent by FY24.

The expert group also suggested the introduction of capacity markets in power trading, which works alongside an existing electricity market and where trade is on maintenance of capacity. This mechanism is created to balance generation and demand in the grid. Various models of capacity markets are being implemented in the US, the UK, Germany and Western Australia.

Another source explained that capacity markets can be helpful in doing away with the rigidity of the present long-term power purchase agreements, even while addressing the need for reliability.

“Capacity markets can help immensely with generation resource adequacy, which is the capability of a power market to meet any level of demand at all times. Here capacity markets will work with spot and other markets to ensure adequate capacity and reliability. For India, this can help with meeting short-term power demand,” said a source.

General network access

Another significant recommendation is the implementation of the General Network Access (GNA) in transmission. This is to encourage investments in the power generation and transmission sectors as also to move towards a market-determined pricing structure.

The committee’s view was that this will provide flexibility to distribution firms to optimise procurement costs irrespective of the duration of their contracts, a source said , adding that distribution licensees and generating companies with long-term PPAs need to be encouraged to route the scheduling through the ‘day-ahead’ market to achieve a better ranking of available sources for electricity generation.

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