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Power Exchange Operation ERLDC, POSOCO 3/19/2018 ERLDC: POSOCO 1 Power Exchange Operation ERLDC, POSOCO 3/19/2018 ERLDC: POSOCO 1

Contents • Overview – – Evolution of Power Market – Fundamentals: Review – Power Contents • Overview – – Evolution of Power Market – Fundamentals: Review – Power Exchange Concept – Implementation in India – Congestion Management – Experience Gained • Future Posibilities 3/19/2018 ERLDC: POSOCO 2

Transition from one voltage level to the other • The next voltage level was Transition from one voltage level to the other • The next voltage level was achieved after 15 years. • Technologically there was not much of a change in raising the voltage from 132 KV to 220 KV. • Change from 220 KV level to 400 KV level required adoption of new techniques.

Introduction • At the time of Independence power systems in the country were essentially Introduction • At the time of Independence power systems in the country were essentially isolated systems developed in and around urban and industrial areas. • • The highest transmission voltage at the time was 132 KV. The Electricity (Supply) Act, 1948 was enacted and CEA was formed for coordinated development of Power Sector State Electricity Boards (SEBs) were formed for development of generation, transmission, distribution and utilization of Electricity in their respective States and requirement of integration of the state grids felt for emergency assistance. Till such time the entire transmission was in HVAC at 132 KV.

Organisational setup of power sector • In 1964, for the purpose of integration of Organisational setup of power sector • In 1964, for the purpose of integration of State Grid systems the country was demarcated into five Regions viz. the Eastern Region, the Northern Region, the Western Region and the Southern Region • The Regional Electricity Boards were established in each of the regions for facilitating integrated operation of state systems • Inter state connections were aided by central government as centrally sponsored schemes for emergency assistance between the states

Regional grid formation • In early seventies power shortage started in various parts of Regional grid formation • In early seventies power shortage started in various parts of the country. • In 1975, Central Sector generation utilities viz. NHPC and NTPC were created to augment generating capacity & Large capacity units planned to be added. • These companies were also mandated to provide transmission for their generation. • For movement of such large block of power 400 KV lines found optimal and for sustenance of bigger generators integration of state grids required to enhance system inertia. • Regional grids were formed with 400 KV transmission as back bone

POWERGRID formed To accelerate development • To give thrust to implementation of transmission system POWERGRID formed To accelerate development • To give thrust to implementation of transmission system associated with Central generating stations and intra-regional transmission. • Inter-regional links were also planned and developed to facilitate exchange among the various regions for emergency assistance and transfer of operational surplus between the regions.

HVDC B/B INTRODUCED • • To facilitate inter-regional exchanges between asynchronously operating regional grids HVDC B/B INTRODUCED • • To facilitate inter-regional exchanges between asynchronously operating regional grids HVDC back-to-back links were developed. 500 MW link between Northern and Western Region at Vindhyachal. 1000 MW Western and Southern Region link at Bhadravati. 2 x 500 MW between Eastern and Southern Region link at Gazuwaka. 500 MW between Eastern and Northern Region link at Pusauli.

Landmark Events ü 1948 ü 1950 -60 ü 1962 ü 1964 ü 1965 -73 Landmark Events ü 1948 ü 1950 -60 ü 1962 ü 1964 ü 1965 -73 ü 1975 ü 1977 ü 1980 -88 ü 1989 ü 1990 ES Act Establishment of state Grid system First 220 k. V Voltage level Constitution of Regional Electricity Boards Formation of Regional Grids for integrated operation Central PSUs in generation and transmission First 400 k. V Voltage in state sector Growth of regional grids-400 k. V back bone network HVDC Back to Back for interregional controlled transfers Formation of POWERGRID Corporation First HVDC bi-pole Transmission line transfer within region

Landmark Events ü 1990 ü 1991 ü 1998 ü 2002 ü 2003 Generation of Landmark Events ü 1990 ü 1991 ü 1998 ü 2002 ü 2003 Generation of electricity opened up for private sector ü 2005 -06 ü 2006 National Electricity Plan ü 2008 Power exchange( day ahead market) Synchronous operation of ER and NER Grids Electricity Regulatory Commissions Act 765 k. V initially charged at 400 k. V Inter regional HVDC Transmission system Goal set for All India National Power Grid EA 2003 - Balancing and short term markets Synchronous operation of Western with Easter and North Eastern Grid- Central Grid Synchronous operation of Northern , Western , Eastern and North Eastern Grid- first phase of National Grid Complete- The ‘NEW’ Grid

Agenda Competitive Power Markets Evolution of liberalized power markets Developments in the Indian context Agenda Competitive Power Markets Evolution of liberalized power markets Developments in the Indian context Need for Competition Development of Markets and Marketplaces Development of Power Exchange in India Way Ahead

Evolution of Liberalized Power Market Vertically integrated monopolies used to supply electricity until 1980 Evolution of Liberalized Power Market Vertically integrated monopolies used to supply electricity until 1980 s, worldwide (deregulation of transportation / financial services / wholesale market for Natural gases). De-regulation and unbundling into Generation, Transmission, Distribution, System Operation, PX (Pools) resulted in enormous efficiency gain & price reduction of electricity. Liberalization of Electricity Markets 1 st serious attempt to form liberalized electricity market: Chile, 1982 Followed by England Wales in 1990 and Nordic Market (now Nordpool) in 1991 Australia, New Zealand, North America, California, Netherlands: Later half of 1990 s Electricity Act 2003 ushered in wide-scale changes in the sector 3/19/2018 ERLDC: POSOCO 12

Power Sector in India: Prior to EA 2003 Vertically Integrated SEBs Only SEBs entitled Power Sector in India: Prior to EA 2003 Vertically Integrated SEBs Only SEBs entitled to buy or sell electricity Generation and Supply largely owned by state or central sector companies Inefficiencies leading to enormous losses in the system – debt restructuring Private participation almost non-existent Generation needed license No significant participation in Transmission, distribution Cost plus model followed by generators and distributors Power traded through Long Term PPAs of 25 years or so Complete absence of competition Large captive capacities come up due to continued poor and inadequate supply Need Felt to Develop a Competitive Power Market 3/19/2018 ERLDC: POSOCO 13

What is a competitive market? Large number of participants interact Through free, fair and What is a competitive market? Large number of participants interact Through free, fair and transparent marketplace To provide appropriate goods and services At fair prices Determined by both long-term and short-term demand-supply considerations 3/19/2018 ERLDC: POSOCO 14

How Does Competition Help? Allows multiple participants to compete with each other to Provide How Does Competition Help? Allows multiple participants to compete with each other to Provide High Quality At Low Prices Allows participants to manage their supply requirements by Purchasing deficits from the market Selling excess to the market Therefore, investments on unneeded capacities is not wasted Allows participants to manage the cost of supply Purchasing lower cost supply from market and back-down expensive generation Availability of an efficient market allows investors to set-up capacities Part of long term capacity kept for sale as merchant capacity Even long term capacity is easily set-up with the availability of a market as a back-up 3/19/2018 ERLDC: POSOCO 15

EA 2003 sets the stage for Competition Allows multiple generators to come up and EA 2003 sets the stage for Competition Allows multiple generators to come up and compete Allows larger consumers to choose supplier Prescribes competitive procurement of power on long term Aims to create a National Market via compulsory open access Policy framework assures Reasonable and stable returns on investments Well defined Regulatory mechanisms Makes governments responsible for providing Power on demand Commits the Nation to creating A Competitive National Market in Electricity 3/19/2018 ERLDC: POSOCO 16

National Markets require: 3/19/2018 ERLDC: POSOCO 17 National Markets require: 3/19/2018 ERLDC: POSOCO 17

Creating Independent & Efficient Marketplaces Power Exchanges provide : Common infrastructure for all market Creating Independent & Efficient Marketplaces Power Exchanges provide : Common infrastructure for all market participants to buy & sell Transparent & Fair price discovery through Anonymous bidding Equity in terms of trades • Common risk and reward structure provide comfort • Similar to standardized bidding documents in long term space Helps tide over poor credit quality of Discoms • Daily payment culture setting in Bring efficiency in usage of Transmission capacity Providing encouraging investment signals to investors in generation Power Exchange is the Market Place for Competitive Power Market 3/19/2018 ERLDC: POSOCO 18

Agenda Competitive Power Markets Development of Power Exchange in India Regulatory roadmap Exchanges in Agenda Competitive Power Markets Development of Power Exchange in India Regulatory roadmap Exchanges in India and Benefits New product development Way Ahead

Regulatory Framework for Power Exchange 2007 February – guidelines on setting up PX 2003 Regulatory Framework for Power Exchange 2007 February – guidelines on setting up PX 2003 June – enactment of EA 2003 2006 July – CERC issues staff paper on PX 2008 June guidelines for scheduling of transactions on PX 2008 January – guidelines for collective transactions 2008 October – instructions for multi exchange scenario In transition towards a competitive market structure 3/19/2018 ERLDC: POSOCO 20

36 34 32 30 28 26 24 BASE LOAD 22 BASE LOAD 1 2 36 34 32 30 28 26 24 BASE LOAD 22 BASE LOAD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Base Load – Managed through Long Term PPA’s Seasonal Variations – Managed through Short Term trades, by 1) Traders, 2) Bilateral Contracts or 3) Wheeling/Banking Arrangements Daily Variations – Managed through 1) Day ahead Power Exchange or 2) UI Balancing Hours in 100 MW For illustrative purposes only Load Curve and Management of Demand

Day Ahead Contracts Real Time Market Day-ahead Spot Market Hours Buy Bids Hours Sell Day Ahead Contracts Real Time Market Day-ahead Spot Market Hours Buy Bids Hours Sell Bids Prices (INR / KWh) 1 5 7 10 00 -08 200 08 -16 500 400 250 16 -24 400 Prices (INR / KWh) 1 5 7 10 00 -08 150 08 -16 400 500 600 16 -24 350 INR/KWh Calculation of Imbalances Resources Commitments Imbalance Price MCP Day of Delivery (minus ‘ 1’) Double-sided closed bid Auction Price / Volume Bids Binding Contracts Financial settlement based on Cleared Volume and Price Day-Ahead generation Volume Metered Schedule MW Day of Delivery Final Day-Ahead Schedule includes PX transactions. Deviations, linked to frequency of the Grid; - Balanced on a real-time basis - Penalties for over-drawal or under-supply - Benefits for under-drawal or over-supply The Day-Ahead-Market for Indian PXs has been fashioned on the Nord. Pool Market

Market Maturity Product Development Life Cycle 6 7 5 4 1 2 3 Time Market Maturity Product Development Life Cycle 6 7 5 4 1 2 3 Time Market maturity depends on: a. Extent of liberalization of market c. Participation by entities b. Regulatory Support d. Liquidity of transactions Note: The time period varies from 2 to 8 years 1, 2, 3 Spot Market (DAM, Intraday, Contingency) 4 OTC through Exchanges 5 Forward Market (Week / Month Ahead) 6, 7 Futures and Options

 Various Products Sl. No. Products Term / Duration 1 Intraday contracts For trades Various Products Sl. No. Products Term / Duration 1 Intraday contracts For trades during the day 2 Day-ahead-contingency contracts For 24 Hrs the next day 3 Week ahead contracts 24 Hrs of calendar week 4 Month-ahead-contracts 1 st, 2 nd and 3 rd calendar months 5 Intra-state contracts For 24 Hrs after two days – Only within State geographical boundary

Longer Tenure Products – On Exchange Longer tenure Products Contracts directly between utilities or Longer Tenure Products – On Exchange Longer tenure Products Contracts directly between utilities or via traders Contract structure continues to remain non-standardized • Risks have to be detailed for each transaction separately Individual search has to be conducted for buyers / sellers Information asymmetry among different entities causes huge price variations Credit issues also create lack of liquidity and uncertainty of financial transaction Single unit owners (like captives) have huge uncertainty in the absence of appropriate penalty and risk management structure Longer tenure products available on the Exchange help by Increasing information transparency by providing a central infrastructure Exchange ensures payments for all transactions Managing open access applications centrally through the Exchange

Agenda Competitive Power Markets Development of Power Exchange in India Way Ahead Experiences so Agenda Competitive Power Markets Development of Power Exchange in India Way Ahead Experiences so far Way Ahead

Experience so far - Policy & Regulatory Gap Electricity Act is silent on Power Experience so far - Policy & Regulatory Gap Electricity Act is silent on Power market initiatives “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” National Electricity Policy makes a mere mention of it 5. 7 COMPETITION AIMED AT CONSUMER BENEFITS 5. 7. 1 To promote market development, a part of new generating capacities, say 15% may be sold outside long-term PPAs…In the coming years, a significant portion of the installed capacity of new generating stations could participate in competitive power markets…: • . . . D. Development of power market would need to be undertaken by the Appropriate Commission in consultation with all concerned… • . . . F. Enabling regulations for inter and intra State trading and also regulations on power exchange shall be notified by the appropriate Commissions within six months. Need to define the development course to be adopted

PX is important part of competitive electricity market PX promotes competition in generation that PX is important part of competitive electricity market PX promotes competition in generation that leads to improved efficiencies, increased supply & reduced price. PX is an important mechanism to utilise transmission capacities between regions, thus promoting a better national & inter-regional utilization of sparse generation resources. PX promotes Demand Side Response of price signals. Demand Side Response is essential in any competitive market & contribute in effect as an alternative to Generation Capacity. PX provides financial security for long term investments in generation & transmission. Runs competitive auctions of electricity on non discreminatory basis. 3/19/2018 ERLDC: POSOCO 29

Benefits of PX in Indian Electricity Sector Reduce Transmission Costs Efficiency in Price Discovery Benefits of PX in Indian Electricity Sector Reduce Transmission Costs Efficiency in Price Discovery Optimize Generation Capacity Utilization Optimize Transmission Capacity Facilitate Sell from Captive Generators Optimize Cost of Electricity Procurement Facilitate Policy Objectives related to “Merchant Gen. Capacity” Managing Counter Party Risk Boost Investments 3/19/2018 ERLDC: POSOCO 30

Constituents of a Competitive Elec. Market A competitive electricity market generally consists of five Constituents of a Competitive Elec. Market A competitive electricity market generally consists of five elements working together for efficient operation of the market: Government, Regulator – Enabling Framework Network Owner, System Operators - Infrastructure Power Exchange, Bilateral Market – Market Places Generators, Consumers, Suppliers, Traders – Market Participants Balance Responsible, Portfolio Managers – Service Providers 3/19/2018 ERLDC: POSOCO 31

Constituents of a Competitive Elec. Market Government & Regulator – Govt. provides legal & Constituents of a Competitive Elec. Market Government & Regulator – Govt. provides legal & policy framework for development of competitive electricity market. CERC responsible for regulation of inter-state entities & SERCs for intra-state entities. Infrastructure Providers – Transmission Utilities – CTU owns & operates all inter-state lines & STU own & operates all intra-state transmission assets. System Operators – Responsible for Real time operation of power System ensuring security & stability of grid operation. Power Exchange & Bilateral Market – Both the market co-exists & provides platform for trading. Price reference of bilateral market is from PX. 3/19/2018 ERLDC: POSOCO 32

Constituents of a Competitive Elec. Market Participants – Generator, Consumer, Supplier & Trader Generators Constituents of a Competitive Elec. Market Participants – Generator, Consumer, Supplier & Trader Generators – Operate both in wholesale market & PX. Generator includes ISGS, State Generators, IPP & Captive Generators Consumers/End users – Large scale consumers may operate in wholesale market & PX Suppliers – Normally serve end-users based on their own generation or power purchased in wholesale markets Traders – Although all PX participants are trader in a sense, buying & selling energy, the term is used to classify entities without ownership/control of physical assets to back up their positions. The traders facilitates transactions between buyer & sellers and takes position in the market to arbitrage on price fluctuations. 3/19/2018 ERLDC: POSOCO 33

Constituents of a Competitive Elec. Market Balance Responsible – RLDC’s are responsible for operating Constituents of a Competitive Elec. Market Balance Responsible – RLDC’s are responsible for operating the interstate balancing markets(UI Mechanism). Each of the states is a balance responsible entity. However on implementation of intra-state balancing market (intra-state ABT) each of entities become balance responsible entities as per the provision of Intra-State balancing market regulation. Portfolio Managers – Service providers are participants who themselves do not have positions in the electricity market. These entities are “Portfolio Managers, are companies who provide trading services on behalf of their clients. This can include trading, electricity procurement, risk management, forecasting, profiling, settlement and invoice service. 3/19/2018 ERLDC: POSOCO 34

Fundamentals: Review Fundamentals: Review

Market – A mechanism through which buyers and sellers interact to determine prices and Market – A mechanism through which buyers and sellers interact to determine prices and exchange goods and services – Entire set of conditions surrounding production, transport and distribution of a product – Size determined by transport, costs, etc. geography,

In a market everything has a price !!! • Price – is the value In a market everything has a price !!! • Price – is the value (not cost) of the good/service in terms of money – represents the terms on which voluntary exchange of goods & services takes place – Serves as signal to the producers and consumers

Demand • Need + Purchasing power = Demand • Law of downward – sloping Demand • Need + Purchasing power = Demand • Law of downward – sloping demand – When price of a commodity is raised, buyers tend to buy less of the commodity, other things remaining constant (e. g. , purchasing power, related goods, preferences, environment, etc. ) Price Quantity

Supply Curve • The supply curve shows the relationship between its price and the Supply Curve • The supply curve shows the relationship between its price and the amount of that commodity that producers are willing to produce and sell, other things held constant (e. g. , cost of production, technological advancement, related goods, etc. ) Price Quantity

Equilibrium Quantity demanded is equal to quantity supplied Surplus Shortage Price of commodity Quantity Equilibrium Quantity demanded is equal to quantity supplied Surplus Shortage Price of commodity Quantity

Shift in equilibrium Shift in equilibrium

Price elasticity (responsiveness) of demand %age Change in Quantity Demanded in response to a Price elasticity (responsiveness) of demand %age Change in Quantity Demanded in response to a one percent change in price. Elastic More Elastic Perfectly Inelastic Less Elastic Perfectly elastic

Power Exchanges: Concepts Power Exchanges: Concepts

Power Exchanges An electricity Power Exchange provides a spot market, mainly day-ahead, for electricity, Power Exchanges An electricity Power Exchange provides a spot market, mainly day-ahead, for electricity, which like any other market matches demand supply for each time block, while providing a public price index

Role of an Exchange • Standardized Specifications - Contract structure. Tool for system operator Role of an Exchange • Standardized Specifications - Contract structure. Tool for system operator to obtain the real-time balance • Standard margining system – Eliminates credit rating(stakeholder’s ability to pay debt) • Risk Management in a volatile market – Robust Clearing & Settlement systems • counter party credit risk absorbed – Fair, Safe, Orderly market • Rigorous financial standards and surveillance procedures

Role of an Exchange • Price Transparency – Anonymous auction platform – Price discovery Role of an Exchange • Price Transparency – Anonymous auction platform – Price discovery by matching of demand-supply – Long term price signals • Transparent real time, pan-geographic price dissemination – Benchmark Reference Price – Liquidity to Participants • Risk Management – Separation of Pricing Function – Neutral, Secure and Self Regulated Market

Bilateral Markets Bilateral: Cooperative Approach – Major Concerns – • • Price Discovery Price Bilateral Markets Bilateral: Cooperative Approach – Major Concerns – • • Price Discovery Price Discrimination Liquidity Transaction Costs Power Exchange: Non-Cooperative Approach

Exchange vs. OTC Contract OTC contract Exchange Traded Available to limited market participants Liquid Exchange vs. OTC Contract OTC contract Exchange Traded Available to limited market participants Liquid market – wider market participation Bilateral/ Customized Contracts Standardized contracts Counter party credit risk Counter party risk assumed by exchange Is an involved participant Platform is Neutral Opaque dealing Transparent price discovery mechanism Bilateral dispute settlement mechanism Well defined dispute settlement mechanism Difficulty in reporting and regulating various trades The exchange is the central reporting and regulating entity

Interplay: PX – Bilateral Markets (OTC) • Rivals – • Competition between two types Interplay: PX – Bilateral Markets (OTC) • Rivals – • Competition between two types of markets • Complementary – • Competition limited to day-ahead • Preference to OTC in longer time frame • Inter-dependent – • Prices on the PX & OTC must be very close else arbitrage occurs (Practice of taking advantage of a price difference between two or more market) • Hedging (Practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment)

The PX Clearing House A clearing house is a financial institution that provides clearing The PX Clearing House A clearing house is a financial institution that provides clearing & settlement services for financial and commodities derivatives and securities transactions. It stands between two clearing firms and reduces the risk of one (or more) clearing firm failing to honor its trade settlement obligations. • • Subordinate to the PX Intermediary for transactions Tracks all transactions Primary Role – Guarantee financial reliability to the participants • Participants required to maintain margin accounts • Effectively hedges against credit risk

Auction Models PRICE Demand Supply Estimated Demand MCP MCV VOLUME One Side Auction MCP Auction Models PRICE Demand Supply Estimated Demand MCP MCV VOLUME One Side Auction MCP = Market Clearing Price MCV VOLUME Two Side Auction MCV = Market Clearing Volume

Market Clearing Price PRICE Accepted Purchase Bids (>= MCP) Purchase (Consumers’ Discount) MCP Accepted Market Clearing Price PRICE Accepted Purchase Bids (>= MCP) Purchase (Consumers’ Discount) MCP Accepted Sale Bids (<= MCP) (Generators’ Surplus) MCV Sale

Price Calculation Algorithm -Day ahead– Hourly Bids PRICE-paise/k. Wh 0 100 230 250 270 Price Calculation Algorithm -Day ahead– Hourly Bids PRICE-paise/k. Wh 0 100 230 250 270 300 400 500 600 700 PARTY A-ZONE-1 600 600 400 400 200 150 100 PARTY B-ZONE-1 600 400 300 200 0 0 -50 -100 -200 PARTY C-ZONE-2 0 -100 -200 -300 -400 -500 PARTY D-ZONE-2 0 0 -200 -300 -400 -500 -600 1200 1000 800 700 600 400 200 150 100 0 -100 -300 -400 -500 -600 -800 -1050 -1100 -1300 1200 1100 700 400 200 0 -400 -800 -900 -1000 -1200 SUM, PURCHASE SUM, SALES NET TRANSACTION AGGREGATED PURCHASE BIDS AGGREGATED SALE BIDS Market Clearing Price (MCP) : 270 p Market Clearing Volume (MCV): 600 MW

Price Calculation Algorithm …. each hour Price (Rs. /k. Wh) 0 1 1. 1 Price Calculation Algorithm …. each hour Price (Rs. /k. Wh) 0 1 1. 1 2 2. 1 2. 5 3 3. 1 20 20 0 40 40 40 -60 -80 Portfolio A, MW 20 Portfolio B, MW 60 60 Portfolio C, MW 40 20 0 0 SUM, Purchase 120 100 80 80 SUM, Sale 0 0 Net transaction 120 100 80 80 40 60 40 20 -120 -81 -120 20 -21 -80 -100 0 Sale 40 120 3 Rs/k. Wh 2 MW MCV (Market clearing volume): 40 20 -40 -60 Purchase 80 60 MW 0 -81 -120 40 20 60 MCP: 2. 5 4. 1 60 Price 4 4 20 20

Advantage PX • Promotes trade and competition • Reliable price discovery • Reference for Advantage PX • Promotes trade and competition • Reliable price discovery • Reference for bilateral contracts • PX recognizes value of commodity (electricity) • Does not guarantee lower prices • Optimal utilization of sparse resources • Generation • Transmission • Credit risks covered by the PX • Congestion Management • Facilitates trading short term surpluses arising on account of uncertainty in demand forecasting

Implementation in India Implementation in India

The Milestones • July 2006: Staff Paper by CERC • February 2007 – CERC The Milestones • July 2006: Staff Paper by CERC • February 2007 – CERC Guidelines for establishment of Power Exchange • August 2007 – In principle approval to the first power exchange in the country • January 2008 – Revised Regulations for Open Access in Inter-state Transmission, Effective 1 st April 2008 • June 2008 – Procedure for Scheduling of Collective Transactions by CTU – Commencement of operations of first exchange • October 2008 – Second Exchange begins operations

Open Access Regulations, 2008 • Categories of Transactions – Bilateral – Collective Transactions discovered Open Access Regulations, 2008 • Categories of Transactions – Bilateral – Collective Transactions discovered on a Power Exchange • Nodal Agency – Bilateral: RLDCs – Collective: NLDC • Transmission Charges – Shift from “Contract Path” to “Point of Connection” – Both buyers and sellers to pay • Transmission Losses – Applicable on both buyers and sellers • Thrust on empowerment of SLDCs • Groups of buyers and groups of sellers

Regulator’s Approach CERC Guidelines for setting up of a Power Exchange: “The general approach Regulator’s Approach CERC Guidelines for setting up of a Power Exchange: “The general approach of the Commission is to allow operational freedom to the PX within an overall framework. The regulation would be minimal and restricted to requirements essential for preventing derailment/accidents and collusion. Private entrepreneurship would be allowed to play its role. The Commission shall keep away from governance of PX, which would be required to add value and provide quality service to the customers”

Eligibility Conditions • Entities scheduled by RLDCs – Deemed Regional Entity • Entities whose Eligibility Conditions • Entities scheduled by RLDCs – Deemed Regional Entity • Entities whose metering and energy accounting done by RLDCs • Entities scheduled by SLDCs – SLDCs to assess TTC/ATC for their State system – Prior Consent from respective SLDCs – Standing Clearance / NOC • New Entities – To Satisfy conditions as laid down in CERC Order 58/2008 dated 07. 05. 2008 – Obtain Prior Approval from RLDCs/SLDCs as per jurisdiction

Salient Features of PX Implementation • • • Voluntary participation Day ahead Energy only Salient Features of PX Implementation • • • Voluntary participation Day ahead Energy only Physical delivery only Double sided bidding Hourly bids Uniform pricing Multiple exchanges Congestion Management using ‘Market Splitting’

Information Exchange SLDCs Acceptance by NLDC Request for Scheduling Information exchanged over leased line Information Exchange SLDCs Acceptance by NLDC Request for Scheduling Information exchanged over leased line between NLDC and PX Constraints, if any Provisional Solution Power Exchange Final Trade Results for State Utilities & Intra State Entities to be sent by PX directly to SLDCs Constituent s Over WAN Schedules Trades NERLDC Schedules Constituent s Trades Schedules Constituent s NRLDC Constituent s Over Internet (RLDC Constituent s WRLDC Schedules SRLDC Trades Schedules N L D C

Time Line for scheduling of Collective Transaction NLDC to 16: 00 10: 00 12: Time Line for scheduling of Collective Transaction NLDC to 16: 00 10: 00 12: 0013: 00 14: 00 15: 00 Market Participants to place their Bid PX to send provisional unconstrained solution to NLDC and flow on TS as informed by NLDC to check for congestion. In case of congestion shall intimate PX regarding to the period for congestion and available margins 17: 00 18: 00 17: 30 send details to RLDCs for scheduling RLDC to confirm to NLDC to confirm acceptance. PX to send files to SLDCs for scheduling PX to send Scheduling Request to NLDC based on margin specified by NLDC/SLDCs RLDCs/SLDCs to incorporate Collective Transactions in the Daily Schedule

Application from PX • Application for scheduling : – Summary of Collective Transaction – Application from PX • Application for scheduling : – Summary of Collective Transaction – Declarations • Scheduling Request: – Each Region – Inter-Regional corridor – At Regional entity Periphery – Other Bid Area, Sub-Bid Area – if required.

Treatment Of Losses • Average transmission losses of the respective region to be applied, Treatment Of Losses • Average transmission losses of the respective region to be applied, both on Buyers and Sellers – Sellers to inject extra power (MW) in addition to contracted power (Contracted Power + Losses) – Buyers to draw less power (MW) than contracted power (Contracted Power – Losses) • Applicable losses to be declared in advance • Intra-State losses to be taken care of by the respective SLDCs • Additional losses for wheeling, if necessary – To be notified in advance by NLDC – Applicable only for Injection

Treatment of Losses… for buyer • NR (Regional) Loss: 6% • S 1 (State) Treatment of Losses… for buyer • NR (Regional) Loss: 6% • S 1 (State) loss: 4. 85 % • Buyer X bids for 100 mw at its respective regional periphery Scheduled Drawal <= SLDC Clearance Bid Volume NR 100 MW at NR periphery Loss 6% X S 1 94 MW at S 1 periphery Loss 89. 441 MW at Buyer End (Buyer) 4. 85% Maximum Bid= Volume in standing clearance + Regional & State losses

Treatment of Losses… for seller • SR (Regional) Loss: 6% • A 1 (State) Treatment of Losses… for seller • SR (Regional) Loss: 6% • A 1 (State) loss: 4. 85% • Seller Y bids for 100 mw at its respective regional periphery Scheduled Generation <= SLDC Clearance Bid Volume SR 100 MW at regional periphery A 1 Loss 6% 106 MW at state periphery 4. 85% 111. 14 MW Injected by seller at its end Y (Seller) Maximum Bid= Volume in standing clearance – Regional & State losses

Commercial Conditions (1) • Charges for Collective Transactions payable to NLDC • Application Fee Commercial Conditions (1) • Charges for Collective Transactions payable to NLDC • Application Fee – @ Rs. 5, 000/-, payable by PX to NLDC at the time of application • Transmission Charges – Applicable for each point of injection and drawl – Charges for use of ISTS @ Rs. 100 per MWh • Operating Charges – @ Rs. 5, 000/- per day per entity involved – Buyers and Sellers in a State to be clubbed into separate groups – Each group to be counted as a single entity by NLDC • Payment by PX to NLDC – Transmission and Operating Charges: By next working day – Preferred Mode: Electronic Fund Transfer • Default in Payment by PX to NLDC – PX to pay a simple interest @ 0. 04% for each day of default from the due date of payment

Commercial Conditions (2) • Charges for Collective Transactions payable to SLDCs – Transmission Charges: Commercial Conditions (2) • Charges for Collective Transactions payable to SLDCs – Transmission Charges: As per SERC, if notified or else Rs. 100/MWh – Operating Charges: Rs. 2, 000 per day for each point of transaction – Each point of injection and drawl to be counted separately by SLDCs – PX to settle SLDC charges directly with respective SLDC

Congestion Management Congestion Management

Congestion visible to the market • “Congestion” means a situation where the demand for Congestion visible to the market • “Congestion” means a situation where the demand for transmission capacity exceeds the Available Transfer Capability (ATC) Ø Note: Here ATC = Total Transfer Capability (TTC) – Reliability Margin (RM) § Congestion does not necessarily mean that • Load is not being met • Generation is not being evacuated § Congestion implies that an entity willing to pay is not able to access cheapest source of power § Existing transmission system was not planned with short-term open access in mind § Congestion • Sign of growth and vibrant market • Natural corollary to Open Access 3/19/2018 ERLDC: POSOCO 71

When Congestion will take place ? Scenario Congestion N W E, NE 4 S When Congestion will take place ? Scenario Congestion N W E, NE 4 S 1 S 3 D 2 S 2 D 3 S 1 D 4 D X X X/ X S= Surplus D= Deficit S

Congestion Management: Bid Area Region States N 1 North JK, HP, CHD, PUN, HAR Congestion Management: Bid Area Region States N 1 North JK, HP, CHD, PUN, HAR N 2 North RAJ, DEL, UP, UTT W 1 West MP, CHTG W 2 West MAH, GUJ, GOA, DD, DNH S 1 South AP, KAR, GOA S 2 South TN, KER, PONDY E 1 East WB, SIK, BIH, JHAR E 2 East ORISSA A 1 North-East TRIP, MEGH, MANI, MIZO A 2 North-East AS, AP, NAGA

NLDC Report on Congestion to PX • Interconnections – North, West, East and North-East NLDC Report on Congestion to PX • Interconnections – North, West, East and North-East synchronously connected – South connected asynchronously. • Power flows – For synchronously connected systems, allocated notionally whereas the actual flows follow the laws of physics – For asynchronously connected system, the HVDC set points may be changed but this would also have an impact on the flows in the synchronously connected system. • Congestion – May occur simultaneously in multiple corridors – May shift from one corridor to another while reworking solution. • Iterative process – Difficult to implement (time line has to be met) • In order to avoid back and forth, if congestion is detected, then all the limits are communicated to the exchange (all corridors, all regional imports & exports) • Automated without any manual intervention

Discovery of Multiple Prices & Interplay • Prices discovered in Power Exchange – Reflection Discovery of Multiple Prices & Interplay • Prices discovered in Power Exchange – Reflection of anticipated demand-supply position for the next day • Multiple Prices – Collective Transactions: • Two prices – one for each exchange – Two Grids – two UI Prices – In case of congestion, market split • Area prices • Multiple exchanges

Multiple Power Exchange Operation • First Power Exchange : 27 th June 2008 – Multiple Power Exchange Operation • First Power Exchange : 27 th June 2008 – Indian Energy Exchange • Promoters – Financial Technologies (India) Ltd. , MCX, PTC. • Key partners/investors – IDFC, Adani Enterprises, Reliance Energy, Lanco Infratech, REC, and Tata Power Company • Second Power Exchange : 22 nd October 2008 – Power Exchange of India (PXI): • Promoters – NSE, NCDEX • Equity Partners : Power Finance Corporation, Gujarat Urja Vikas Nigam, JSW Energy, GMR Energy, Jindal Steel & Power • Third Power Exchange in the offing – Promoted by NTPC, NHPC, TCS

Experience Gained Experience Gained

*Includes Bilateral + Collective transactions *Includes Bilateral + Collective transactions

3/19/2018 ERLDC: POSOCO 97 3/19/2018 ERLDC: POSOCO 97

3/19/2018 ERLDC: POSOCO 98 3/19/2018 ERLDC: POSOCO 98

3/19/2018 ERLDC: POSOCO 99 3/19/2018 ERLDC: POSOCO 99

Volume Change During Congestion (1) Volume Change During Congestion (1)

Volume Change During Congestion (3) Volume Change During Congestion (3)

Volume Change During Congestion (4) Volume Change During Congestion (4)

Volume Change During Congestion (6) Volume Change During Congestion (6)

Volume Change During Congestion (7) Volume Change During Congestion (7)

Market Clearing Price (MCP) - Volatility Source: Website of Indian Energy Exchange (IEX) Market Clearing Price (MCP) - Volatility Source: Website of Indian Energy Exchange (IEX)

Price Vs Volume (IEX) Price Vs Volume (IEX)

Price Duration Curve (IEX) Price Duration Curve (IEX)

Volume Cleared at Different Prices (IEX) Volume Cleared at Different Prices (IEX)

Correlation – Price and Shortage/Surplus Correlation – Price and Shortage/Surplus

 • Landmarks – Both PX Maximum Volume Cleared (Region-wise) – Buy (MW) • • Landmarks – Both PX Maximum Volume Cleared (Region-wise) – Buy (MW) • AR – 150, NR – 1223, WR – 650, SR – 1968, ER – 200 – Sell (MW) • AR – 165, NR – 1131, WR – 907, SR – 597, ER – 765 • Maximum Volume Cleared – IEX • 1968 MW on 22 - Nov-08 • 26. 44 MU on 27 -Jun-09 – PXI • 384 MW on 26 -Jun-09 • 7. 07 MU on 1 -Mar-09 – Combined (IEX + PXI) • 31. 98 MU on 27 -Jun-09 • Total Energy Transacted through PX Between 27 th June 2008 and 7 th July 2009 – IEX – 3. 92 BU – PXI – 0. 25 BU – Total – 4. 17 BU • Highest Buying Region on any day (IEX) – NR – 24. 75 MU on 27 th June 2009 • Highest Selling Region on any day (IEX) – WR - 16. 38 MU on 27 th June 2009 Data taken for the period 28 -June-08 to 7 -July-09

Landmarks – IEX Data taken for the period 28 -June-08 to 7 -July-09 Landmarks – IEX Data taken for the period 28 -June-08 to 7 -July-09

Landmarks – PXI Data taken for the period 28 -June-08 to 7 -July-09 Landmarks – PXI Data taken for the period 28 -June-08 to 7 -July-09

Total revenue Retained by POWERGRID (upto 31. 03. 2009) § Application fee + Operating Total revenue Retained by POWERGRID (upto 31. 03. 2009) § Application fee + Operating Charge: 2. 02 Crores § 25% of Transmission Charges: 4. 15 Crores §Total : 6. 17 Crores

Power Exchange share in short term trading Source : CERC June 09 report Power Exchange share in short term trading Source : CERC June 09 report

Exchange day ahead trade as % UI trading Source : CERC June 09 report Exchange day ahead trade as % UI trading Source : CERC June 09 report

IEX monthly Average Price IEX Monthly Average Spot Price 7. 91 8 7. 29 IEX monthly Average Price IEX Monthly Average Spot Price 7. 91 8 7. 29 7 5. 76 6 5 4. 08 4. 54 4. 52 4 3. 14 3 2. 78 3. 43 3. 37 3. 18 3. 24 3. 90 3. 41 2. 66 2. 34 1. 99 3. 39 2. 36 2 1 11 ar ch '1 1 b' 11 M Fe 10 Ja n- ec - 0 D ov -1 0 -1 N ct O -1 0 0 Se p ug -1 0 A l-1 Ju 10 n- 10 Ju ay - M A pr -1 0 10 ar - M 10 10 Fe b- 09 Ja n- ec - 9 D -0 9 ov N ct -0 O -0 9 Se p ug -0 9 0 A Average Price in Rs/k. Wh 9 Months Monthly spot prices

n. Ju 08 A l-08 ug Se -08 p O -08 ct N -08 n. Ju 08 A l-08 ug Se -08 p O -08 ct N -08 ov D -08 ec Ja -08 n Fe -09 b M -09 ar A -09 pr M -09 ay Ju -09 n. Ju 09 A l-09 ug Se -09 p O -09 ct N -09 ov D -09 ec Ja -09 n Fe -10 b M -10 ar A -10 pr M -10 ay Ju -10 n. Ju 10 A l-10 ug Se -10 p O -10 ct N -10 ov D -10 ec Ja -10 n Fe -11 M b' ar 11 ch '1 1 Ju Monthly Volume(MUs) IEX Monthly Volume IEX Monthly Cleared Volume 1400 1205 1181 1163 1128 1089 1121 1000 888 800 723 638 600 400 376 233 200 0. 42 279 450 355 377379 478 291 434 425 Months 472 536 541 656 Total Monthly Volume (MUs) 1211 873 748 563563 591 323 180 75 0

Cost of Transmission (paisa/unit) – Comparison during 2008 -09 • Avg. Cost of transmission Cost of Transmission (paisa/unit) – Comparison during 2008 -09 • Avg. Cost of transmission during congestion : 219 • Avg. Cost of Transmission : 15 • Avg. Cost of Short-term open access : 6 • Avg. trans. Charge retained by CTU : 2

Market Development Exchanges OTC Markets Market Maturity Spot/ Auction Mkt Individual B&S Time Market Development Exchanges OTC Markets Market Maturity Spot/ Auction Mkt Individual B&S Time

PXs Worldwide • India • • www. iexindia. com , www. powerexindia. com Nord PXs Worldwide • India • • www. iexindia. com , www. powerexindia. com Nord Pool www. nordpool. com Amsterdam www. apx. nl UK PX www. ukpx. co. uk IESO, Ontario www. theimo. com PJM www. pjm. com/index. jsp California ISO www. caiso. com Australia www. nemmco. com. au

Electricity Markets worldwide Courtesy: NORD POOL Consultants Power Market implemented Power Market planned/under implementation Electricity Markets worldwide Courtesy: NORD POOL Consultants Power Market implemented Power Market planned/under implementation

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