The proposed introduction of market coupling in India presents substantial challenges and may not deliver significant benefits.

The nation’s power market landscape is complex characterised by various power purchase agreements leading to diverse pricing structures.

Eninrac, a leading energy consultancy and advisory firm, said the concept of market coupling has successfully integrated electricity markets in Europe, but in India where 90 per cent of power is bound by fixed-price and long-term PPAs outside the market, the aspiration of achieving a single price convergence seems unrealistic.

Limited application

Market coupling would only apply to a limited 5 per cent of the market, leaving the remaining 95 per cent with distinct pricing arrangements, it said.

The Central Electricity Regulatory Commission had floated a paper on implementing market coupling in the power sector in August.

Stakeholders were to submit their responses by September-end. However, the deadline has been extended to October 16.

“India already operates under a voluntary market model with multiple power exchanges competing nationally. The introduction of market coupling could increase operational costs, introduce rigidities, and stifle market innovation, contradicting the reforms outlined in the Electricity Act of 2003,” the research report noted.

Essentially, it said the proposal resembles “price coupling” among different power exchanges rather than true market coupling, as India already benefits from geographic integration with uniform pricing.

Moreover, it said allowing new power exchanges to couple with established ones could create disadvantages and create an uneven playing field.

Market coupling will reduce power exchanges to mere bid collectors and will have little incentive to introduce new products.

Further, there is a heightened likelihood of market concentration, where a few larger players could amass most trading volumes due to their enhanced capabilities and resources. Following this, small traders may not get the support and services that power exchanges once provided and impact their ability to compete in the evolving market landscape.

Market coupling might hurt capacity addition

The introduction of market coupling may also hurt capacity addition in the renewable sector, where India is building 500 GW capacity by 2030.

The integration of renewable energy into the grid is expected to become more intricate after the implementation of market coupling, particularly when there are disparities in generation patterns across various regions. Addressing these disparities would necessitate substantial investments in infrastructure and the deployment of larger-scale energy storage solutions.

The implementation of market coupling in the proposed form has the potential to disrupt various models available to renewable energy generation companies which may deter new project financing, it said.