Power Exchanges in India

Legal Framework National Electricity Policy mandates the creation of a Power Exchange -Para 5.7.1 (d) "Development of power market would need to be undertaken by the Appropriate Commission in consultation with all concerned". Electricity Act, 2003 -"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."

Cardinal Events Delicensed generation. Non-discriminatory open access in transmission mandated. Single buyer model dispensed with for the distribution utilities. Provision for open access in distribution is to be implemented in phases. Provision for multiple distribution licensees in the same area of supply has been incorporated. Electricity trading is recognized as a distinct licensed activity. Development of market (including trading) in electricity made the responsibility of the Regulatory Commission. Provision for reorganization of the State Electricity Boards.

Sequence of Events Development of the Power Market Section 66, IE Act 2003 National Electricity Policy, 12-Feb-2005, Para 5.7.1(d) Implementation of Inter-State ABT : 2002-03 Metering, Scheduling and Settlement Introduction of Open Access in Inter State Transmission : May 2004 Development of PX Staff paper by CERC : July 2006 Public hearing : December 2006 Guidelines for setting up PX : February 2007 Approval for setting up first PX : MCX, August 2007 One PX (Indian Energy exchange) started functioning Approval given for 2nd power exchange by Hon’bleCERC

Definition An Exchange is essential to a market-driven economy where prices are decided by the forces of demand and supply. These forces are contradictory: e.g., the seller wants high prices while the buyer wants low prices. These conflicting forces determine the correct price of a commodity at a given time in a market-driven economy.

What is Power Exchange ? An electronic Power Exchange Provides a level playing field for Faceless and anonymous players by discovery of price. Anonymous Buyers/Sellers from a large geographical spread converge Market manipulation is thwarted Enables true-market driven power economy Driven by the genuine market forces of demand and supply, and not by any of vested interest.

Power Exchange A Power exchange facilitates equitable, transparent and efficient trading of power. Bridges the demand supply mismatch by bringing larger players together for buying and selling in an auction based system. While maintaining complete anonymity, resolves the constraints in the earlier formats, Viz. search costs, transaction costs, and counter-party risks.

Power Exchange Presently CERC has allowed only Day ahead Market At present CERC has allowed only National level operated Power exchanges. In due course if need arises Regional level operated exchanges might come. In power exchanges, as per CERC norms the price discovery is through Double sided closed auction. Collective transaction means a set of transactions discovered in power exchange through anonymous, simultaneous competitive bidding by buyers and sellers For Power Exchange transactions the Nodal agency will be National Load Despatch Centre (NLDC).

Power Exchange Generally the ATC declaration is done by NLDC on its web site every day. Depending on the corridor availabilities the solution is found out by the power exchanges and the allowed trades will be intimated to NLDC. If there is no congestion NLDC will accept the trades and issue the schedules to the power exchange and the same will be implemented in RLDC schedules. In Power Exchange transactions both buyer and seller have to pay the Transmission and operating charges separately. The transmission losses also have to be borne by the buyer and seller separately.

Some basics Market Volume Profile Market Clearing Price    Market Clearing Volume     Unconstrained Report

Power Exchanges in India as on date Indian Energy Exchange Power Exchange India Limited (PXI)

Indian Energy Exchange 27th June 2008 promoted by Financial Technologies -Multi Commodity Exchange of India Ltd (MCX), co-promoters PTC India Ltd IDFC, Adani Enterprises, Reliance Energy, Lanco Infratech, Rural Electrification Corporation (REC), Tata Power Company.

Power Exchange India Limited (PXI), 22nd October 2008. promoted by NSE & National Commodities & Derivatives Exchange Ltd (NCDEX). co-promoters Power Finance Corporation, Gujarat Urja Vikas Nigam, JSW Energy, GMR Energy, Jindal Steel & Power

Various options for allocation b/w two Exchanges Priority, based on pre-defined rules: Lowest MCP Highest MCV Highest MCP X MCV Maximisation of social welfare, consumer surplus, etc. Pro-Rata Explicit auctioning Merging the bids obtained by each PX and then finding a fresh solution honouring the constraints declared. Merging the bids received by multiple PX and then finding a combined solution.

Features of Px Nationwide, Online and Electronic platform Voluntary participation. Neutral, Unbiased and Transparent Offer Day-Ahead Market(DAM) Exchange time-line consistent with time-line of Load Despatch Centres Activities of the Exchange will be carried out in accordance with the “CERC (Open Access in inter-State Transmission) Regulations, 2008”, dated 25.01.2008, Procedure for scheduling of collective transaction issued by the Central Transmission Utility (PGCIL) Bye-Laws, Rules and Business Rules of the Exchange.

Benefits of Px Transparency: Access a diversified portfolio: Px offers a transparent, national-level platform for trading electricity in India leading to a vibrant power market.   Access a diversified portfolio: Px offers a broader choice to generators and distribution licensees at the national-level so that they can trade in smaller quantities and smaller number of hours without additional overheads. Payment security: Px stand in as the counter-party for all trades; so participants need not be concerned about the risk-profile of the other party.      Minimal transaction overheads/charges: All charges are displayed on the Px trading terminals; so there is no room for negotiation. The cost of transactions through Px is much less than any other mode of transaction. Efficient portfolio management: Px enables participants to precisely adjust their portfolio as a function of consumption or generation. Participants, especially distribution licensees, are enabled to precisely manage their consumption and generation pattern.    Hedging UI risks: Px provides a tool to hedge against adverse movements in electricity prices. Thus, price risks are minimised. Market development: Px has plans to launch a range of products to facilitate development of power markets in India in such a way that investment in capacity enhancement is encouraged.   

Price discovery Price discovery would be through double side bidding and buyers and suppliers shall pay/receive uniform price. double side closed auction

Bid accumulation period (Bidding phase) 10. 00 AM and will end at 12 Bid accumulation period (Bidding phase) 10.00 AM and will end at 12.00 Noon During the auction sessions on each Trading Day, bids entered by Members on the IEX Trading Platform are automatically stored in the Central Order Book without giving rise to Contracts. During this phase, bids entered can be revised or cancelled. Auction period At the end of the bidding session, the IEX Trading Platform will seek to match bids for each hourly contract. After the price determination phase is concluded, the Members, whose bids have been partially or fully executed, will be provided all relevant trade information regarding each contract traded on the IEX Trading Platform. Price Determination Process (Provisional) All purchase bids and sale offers will be aggregated in the unconstrained scenario. The aggregate supply and demand curves will be drawn on Price-Quantity axes. The intersection point of the two curves will give Market Clearing Price (MCP) and Market Clearing Volume (MCV) corresponding to price and quantity of the intersection point. Results from the process will be preliminary results. Based on these results the Exchange will work out provisional obligation and provisional power flow. Funds available in the settlement account of the Members shall be checked with the Clearing Banks and also requisition for capacity allocation shall be sent to the NLDC. In case sufficient funds are not available in the settlement account of the Member then his bid (s) will be deleted from further evaluation procedure. Price Determination Process (Final) Based on the transmission capacity reserved for the Exchange by the NLDC on day ahead basis by 2.00 PM, fresh iteration shall be run at 2.30 PM and final Market Clearing Price and Volume as well as Area Clearing Price and Volume shall be determined. These Area Clearing Prices shall be used for settlement of the contracts. Settlement On receipt of final results, obligations shall be sent to Banks for Pay In from buying Members at 2.30 PM and will take confirmation of the same from the Bank. At 3.00 PM final results will be sent to NLDC / SLDCs for incorporating in final schedules. Once a transaction is scheduled it shall be considered as deemed delivery.

Procedure for Scheduling of Collective Transaction Submission/processing of of application - Time frame for various activities Scheduling Treatment of losses Congestion management Commercial conditions Disbursal of payments

Day-Ahead Market hourly contract specifications:- Product definition 24 separate hour periods throughout the following delivery day (D). Trading system IEX /PEX (Leased Line) When to place orders 10:00 AM to 12:00 PM of previous day (D-1) Fixing times 15:00 hrs of D-1 (dispute settlement period: 30 min.) Minimum volume 10 MW (Minimum allowable quantity for buy/sell in the standing clearance, it should not be less than this quantity) Minimum volume step 0.1 MW Minimum quotation step Rs. 1 per MWh

Day-Ahead Market hourly contract specifications:- Quotation method   Closed auction (Market Clearing Price and Market Clearing Volume calculation) by linear interpolation Order wording Trader's ID, instrument, quantity/price combination Delivery point Periphery of Regional Transmission System in which the grid-connected exchange entity, is located. Settlement Daily settlement at ACP* Volume traded. Final settlement adjusted for any force majeure deviations. Transmission charges Regional Transmission System: As Per Central Electricity Regulatory Commission (Open Access in inter-State Transmission) Regulations, 2008. Transmission losses State Transmission System: As per the concerned State Electricity Regulatory Commission’s Regulations/ CERC (Open access) Regulations, 2008.

Time table IEX Day-Ahead Market Timeline for Actual Delivery of Power on Next Day   TRADING DAY Time Action 1) 10AM-12 PM Participants submit Bid to IEX for purchase /sale of electricity on next day. 2) 11:00 AM NLDC communicates to IEX the list of interfaces/control areas/regional transmission system(s) on which unconstrained flows are required to be advised by PX 3) 1:00 PM IEX communicates to NLDC the interchange on various interfaces/control areas/regional transmission systems as intimated by NLDC NLDC check for congestion. 4) 2:00 PM In case of Congestion,NLDC communicates to IEX the period of congestion & available limit for scheduling on respective interfaces/control areas/transmission system(s)

Time table IEX Day-Ahead Market Timeline for Actual Delivery of Power on Next Day   TRADING DAY Time Action 5) 3:00 PM IEX submits application for scheduling of Collective Transaction Power Exchange(s) ensure the scheduling Request is within the limit as per the Standing Clearance /No objection certificate by Utilities.Details of scheduling Request by Power Exchange(s) to NLDC (format-PX-III) by Clubbing of all Buyers /Sellers within a state for scheduling by RLDC. Details of scheduling Request by Power Exchange(s) to NLDC (format-PX-III) by Clubbing of all Buyers /Sellers within a state for scheduling by RLDC. 6) 4:00 PM NLDC sends the details(scheduling request of Collective Transaction) to all the concerned RLDCs for final checking and incorporating in Scheduling 7) 5:30 PM NLDC /RLDCs shall confirm the accepted schedule to IEX 8) 6:00 PM RLDC issues schedule

Scheduling periphery of the Regional Entities. RLDCs schedules the Collective Transaction at the respective periphery of the Regional Entities. RLDCs incorporate all buyers within a State (clubbed together as one group) and all sellers within a State (clubbed together as another group), in the schedules of the Collective Transactions. The individual transactions for State Utilities/intra-State Entities will be scheduled by the respective SLDCs. Power Exchange(s) shall send the detailed breakup of each point of injection and each point of drawal within the State to respective SLDCs by 18:00 Hrs. after receipt of acceptance from NLDC. The details for Scheduling Request for Collective Transaction shall be submitted by Power Exchange (s) to the respective SLDCs

TREATMENT OF LOSSES Inter-State transmission losses would be applied separately on Buyers as well as Sellers of Collective Transaction, for arriving at the Schedules. To compensate for losses in the inter-State transmission system, the Sellers in the Collective Transaction shall inject extra power (MW), in addition to the contracted power. To compensate for the losses in the inter-State transmission system, the Buyers in the Collective transaction shall draw less power (MW) than contracted power. The average transmission losses of the respective Region would be applied along with additional losses (if any),

Congestion management Market-splitting methodology adopted for congestion management. Grid bottlenecks are relieved by comparison of the calculated contractual flow with the transmission capacity available for spot trading, and if the flow exceeds the capacity, the prices are adjusted on both sides of the bottleneck so that the flow equals the capacity. If the flow does not exceed the capacity, a common price is established for the whole area. If the flow exceeds the capacity at the common price for the whole market area, it is split in a surplus part and a deficit part. The price is reduced in the surplus area (sale > purchase) and increased in the deficit area (purchase > sale). This will reduce the sale and increase the purchase in the surplus area. In the same way, it will reduce the purchase and increase the sale in the deficit area. Thus, the needed flow is reduced to match the available transfer capability. This method of managing congestion is also known as market-splitting. Initially, the electrical regions are defined as bid areas since inter-regional links are most likely to be congested, however, each electrical region of the country has been divided in two bid-areas so as to accommodate any exigencies of congestion in intra-regional transmission system.

Treatment of Congestion Revenue The area prices shall differ in each region after splitting the market. The Members in different bid areas shall pay different area prices. The funds collected due to differential in area prices shall be kept in separate fund. These funds will be utilized as directed by CERC.

Typical Auction data for 15-12-08 Hours Delivery Date : 15/12/2008 Buy Bid (MWh) Sell Bid MCP (INR/MWh) MCV (MWh) 00:00-01:00 150 3750.00 01:00-02:00 02:00-03:00 03:00-04:00 04:00-05:00 50 4500.00 05:00-06:00 100 167 06:00-07:00 6500.00 07:00-08:00 08:00-09:00 09:00-10:00 10:00-11:00 11:00-12:00 12:00-13:00 13:00-14:00 14:00-15:00 15:00-16:00 5000.00 16:00-17:00 17:00-18:00 7000.00 18:00-19:00 19:00-20:00 20:00-21:00 7050.00 21:00-22:00 22:00-23:00 23:00-00:00 0.00 Total 1000 1200 -- Typical Auction data for 15-12-08 in PXI

Regulation 2008 of CERC Regulations on Collective Transactions (From 01.04.2008) NLDC Charges Collective Transactions: Application fee – Rs. 5000/- Transmission charges -Rs 30/MWh for each point of injection and drawal c. Scheduling Charges – Rs. 5000/day to NLDC for each entity involved ; -NLDC to Share with RLDCs d. All buyers within a state :clubbed into one group All sellers within a state :clubbed into one group Payment of Tr and op charges by PX to NLDC by next working day Tr and op charges for SLDCs shall be directly settled by PX with respective SLDC Congestion Management Collective: - NLDC in coordination with Px

REAL TIME CONGESTION MANAGEMENT In case of transmission constraint or threat to grid security, the scheduled transactions may be curtailed in the manner as decided by the NLDC /RLDCs / SLDCs to relieve the transmission constraint/ to improve grid security. Collective Transaction through Power Exchange(s) would normally be curtailed subsequent to the Short-Term Bilateral Transaction(s).

…contd RLDCs would curtail a Transaction at the periphery of the Regional Entities. SLDC(s) shall further incorporate the inter-se curtailment of intra-State Entities to implement the curtailment. In case of curtailment of a Transaction caused by transmission constraints / threat to grid security, the Transmission Charges in respect of such Transaction shall be payable on pro-rata basis in accordance with the finally Implemented Schedules. Operating Charges shall not be revised in case of curtailment. Power Exchange (s) shall be responsible for the settlement on account of curtailment, directly with its participants. NLDC/RLDCs/SLDCs shall interact only with the respective Power Exchange(s), for the same

MCP FOR 300109

MCV FOR 300109

Intra/Inter-Regional exchanges through IEX.

Intra/Inter-Regional exchanges through IEX. - SR

Toal Energy Exchange – SR

ALL INDIA LEVEL Energy Traded through PX: June 08 :0.4 MU July 08 :75 MU August 08 :290 MU Sept 08 :278 MU

Future Proposal to offer products for different time horizons institution. Proposal to add variety in terms of products offered and method of bid-matching process Evolve corresponding rules, bye-laws for clearing, settlement, margins, deposits, market surveillance etc.