A Staff Presentation Developing a Common Platform for

A Staff Presentation Developing a Common Platform for Electricity Trading RAVINDER Chief (Engineering) Central Electricity Regulatory Commission 7 th Floor, Core – 3, SCOPE COMPLEX, Lodhi Road, New Delhi- 110003, INDIA Ph. 91 11 24364960 E mail: ravinderveeksha@hotmail. com 1

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Statutory Provisions • Market Development is the responsibility of the Electricity Regulators (Sec 66, 178 IE Act, 2003). • Sec 174: The ACT is overriding • Preventing market domination is the responsibility of the Regulators (Sec 60, IE Act, 2003). • Mandate for developing a Power Exchange given to CERC in the National Electricity Policy. 4

Current Scenario • Most of the supplies are tied up in long term PPAs: Mostly, regulated two-part tariff: Ideal for investment promotion as well as price security for Discoms • • Short term trading constitutes 2 to 3% of the total supply. • Trading is essential for resource optimisation and meeting short term peak demand for disposing off surpluses which are inevitable as a utility has no direct control over consumer load. Trading essentially between surplus & deficit distribution utilities. 5

ALL INDIA POWER SUPPLY SCENARIO (April, 2005 - March, 2006) 6

Current Scenario • Open Access Regulations have facilitated power trading in an orderly manner. • Energy agreements and transmission clearance have to be arranged separately. • Open Access charges are reasonable and simple to apply. 7

Short-term Trading Volume Traded Volume in MU 16000 11029 11847 14188 FY 04 FY 05 FY 06 12000 8000 4178 1617 0 FY 02 FY 03 8 *For FY-07: 15 BU Estimated

Current Scenario • Suppliers call for bids from buyers/traders. • Traders compete to win the supply bids. • Buyers have no option but to buy from the trader having the supply contract. • Due to deficit scenario, suppliers dominate. • Prices of trades electricity have been going up. • Most of the bilateral trading is inter-regional; - ER, NER are suppliers - NR, WR are buyers 9

Price trend of traded electricity 10

Current Scenario • • • Need to curb sellers’ domination • • • Need to increase the supplies • For optimum resource management, need to simultaneously clear energy contracts & transmission paths. Need to put on end to profiteering Need to organize short term trading on a transparent, equitable and efficient platform Need to bring surplus captive generation into the grid. Need to encourage peaking power plants and merchant generation. 11

Current Scenario §Adequate Inter-state transmission system, but needs strengthening §Established scheduling, dispatch energy accounting procedures § and UI accounting system for real time deviations from schedules §Established RLDCs, SLDCs 12

Market Structure Prior to Electricity Act, 2003 (Bundled) CGS SEB Generation + Transmission + Distribution IPP Govt Consent Consumer 13

Market Structure after Electricity Act, 2003 CGS STATE GENCO Trader IPP Discom Consumer 14

Road map for market development n Forward Physical Contracts (Long-term)- Established; n Moving from Regulated Cost-Plus PPAs to Tariff-bid based PPAs for new generating capacity n Forward Physical Contracts (Short-term)Established; but non-standard contracts n Day ahead Spot Market thru’ PX? n Real Time Market (Substituted by UI mechanism) 15

International Experience n Nord Pool n PJM n UK experience n California PX n South Africa/ ESKOM 16

Appropriate PX design for India n National power exchange Vs many power exchanges n Mandatory Vs Voluntary participation n Double side bidding Vs Supply side bidding n Uniform pricing Vs Discriminatory pricing n Day-ahead exchange Vs Same day exchange n Time block for bidding (hourly/half-hourly etc) n Congestion management n Taking care of operational inflexibilities of generating stations 17

2, 4, 5 NLDC/RLDC 3, 6, 7 Clearing House Day ahead PX 8 1, 6 B: Bidders SB: Settlement Bank A/C: Pledged Account & Collaterals of Clearing House Members in SB B SB SB 9 A/C SB 9 9 A/C 1 - Bidders send their bids to PX. 2 - NLDC informs transmission capacity to PX. 3 -. Clearing House confirms adequate collaterals of clearing agents. 4 - PX obtains NLDC concurrence before releasing day ahead Trade schedules. 5 - RLDCs issues day ahead generation & dispatch schedules for PX participants. 6 - PX issues day ahead trade schedules. 7 - PX issues rolling collateral requirement. 8 - After settlement period Clearing House issues Invoice/Credit Notes. 9 - Settlement Banks debit/credit the appropriate amounts. Function Diagram 18

Expectations of a Portfolio Manager n Freedom to sell and buy at short notice through a single window n No cap at seller’s bids n Reasonable cost of purchase n Assured availability n Assured delivery/take off n Assured payments 19

Transmission and System Operation • Open Access charges for PX schedules would be socialized. • Transmission losses to be applied on PX participants as applicable. • Part inter- regional capacities would be assigned for PX. • RLDC time line and IEGC would be complied. • PX schedules would be firm. 20

PX - Organisation Chairman Governing Council CEO Advisory Council Executive Board Operations Settlement & Clearing Information & Technology Market Monitoring 21

Issues- General n Does Px need Licence n Membership to Grid connected entities only n Whether to allow membership to traders n Px- to be a profit or non profit organisation n Role of CERC 22

Issues- General n Do we really need a Day-ahead PX, now or in the near future? n What would be the right time? n How to mandate a national PX by law? n How to organize a national PX? 23

Issues- Price Discovery and Bidding n Pricing principles n Bid caps, to have them or not n Can bid caps be effective n Sale price in constrained Market n Can we curb market power/abuse n How can Run of River, Thermal, Nuclear and Windmill Generators submit hourly day-ahead bids? 24

Issues- Preventing Market Abuse n Common market abuses 1. Bidding above the marginal cost 2. Withholding Capacity 3. Avoiding a platform with lower price caps n What would it feel like if most often the marginal bids for Market Clearing Price were of liquid fuel generators? 25

Issues- Market Regulation n Defining the Rules of the Game n Enforcing the Rules and Regulations n Market Monitoring n Ensuring Anonymity of Bids 26

Issues- Congestion Management n To collect congestion revenue Or n Not by charging the Buyers of congested zone at the cost of PX purchase instead of the price offered by the Buyers? 27

THANK YOU 28