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TRANSCRIPT
Major Project Report
On
“A Study on the Practices of Power Trading
and Its Prospects for Future”
Under the guidance of
Dr. R. Jayakumar
Submitted by
Rakesh Kumar Patel
MBA (Power Management)
Roll No. 44
Sector-33, Faridabad – 121003, Haryana
(Under the Ministry of Power, Govt. of India)
Affiliated to
MAHARSHI DAYANAND UNIVERSITY, ROTHAK
2
CERTIFICATE
This is to certify that Mr. Rakesh Kumar Patel, Roll No. 44 student of MBA (Power
Management), National Power Training Institute, Faridabad, has successfully completed his
Major Project. He has submitted his report on:
‘A Study on the Practices of Power Trading and Its Prospects for Future’
During the project, his conduct was good and he was sincere towards his work.
Dr. R. Jayakumar
Sr.Fellow, CAMPS,
National Power training Institute, Faridabad
Harayana-121003
3
DECLARATION
I, RAKESH KUMAR PATEL, Roll No 44, student of MBA (POWER MANAGEMENT) at
National Power Training Institute, Faridabad hereby declare that the Major Project Report
entitled – ‘A Study on the Practices of Power Trading and Its Prospects for
Future’ is an original work and the same has not been submitted to any other Institute for the
award of any other degree.
A Seminar presentation of the Project Report was made on _________________________and the
suggestions as approved by the faculty were duly incorporated.
Presentation In-charge Rakesh Kumar Patel
(Faculty) Signature of the Candidate
National Power Training Institute
Counter Signed
Director / Principal of the institute
4
ACKNOWLEGEMENT
I would like to offer my bunch of thanks to a few people who have been a great support
and helped me in the project.
Mere words would be too small to describe the brilliance and versatility of my project
guide Dr.R.Jayakumar, Sr.Fellow, Centre for Advanced Management & Power Studies
(CAMPS) , National Power Training Institute (NPTI), for his support and encouragement.
I am very much thankful to Mr. N.S.Saxena (Director General, NPTI), Mr. J.S.S.Rao (Principal
Director, NPTI), Mr. D.Lokahnde (Director, CAMPS, NPTI), Mr. S.K Chaudhary (Director), Mr. Rohit
Verma (Deputy Director, NPTI), Mrs. Indu Maheshwari (Deputy Director, NPTI), Mrs.Manju Mam
(Deputy Director, NPTI) & Mr.Anil Kumar (Sr.Fellow, NPTI) for giving me support and for providing
the necessary resources for successful completion of the project.
I would also like to thank all the faculty members of Center for Advanced
Management of Power Studies (CAMPS), NPTI, Faridabad and friends for their encouragement
and support.
5
CONTENT
1. Executive Summary…………………………………………………………...…….... 8
2. Introduction………………………………………………………………………….. 11
3. Objectives of the Project……………………………………………………….....…. 13
4. Scope of the Project……………………………………………………………….…. 13
5. Existing Literature Review…………………………………………………….…… 15
5.1 The Electricity Act, 2003 with amendments…………………………….…... 15
5.2 The National Electricity Policy, 2005………………………………….……. 19
5.3 Comparison between Central Electricity Regulatory Commission (Open Access
in Inter-state Transmission) Regulations, 2004 and Central Electricity Regulatory
Commission (Open Access in Inter-state Transmission) (With amendments) Regulations,
2008………………………………………………………………………………….…21
6. Salient Features of Central Electricity Regulatory Commission (Open Access in
Inter-state Transmission) (With amendments) Regulations, 2008…………………….…26
7. Power Trading Arrangement…………………………………………………........34
7.1 Bilateral Contract…………………………………………………………... 34
7.2 Through Intermediaries……………………………………………….......... 34
7.3 Power Exchange…………………………………………………………..... 35
8. Procedure for Scheduling of Short-Term Open Access(Bilateral Transaction)…. 41
9. Procedure for Scheduling of Short-Term Open Access(Collective Transaction).. 43
10. Operations in a Trading Company……………………………………………….. 45
10.1 Operations for inter-state bilateral transaction………………………………... 45
10.2 Operations for intra-state bilateral transaction………………………………... 55
10.3 Operations for collective transaction………………………………………….. 57
10.4 Banking………………………………………………………………………... 63
10.5 Submitting Reports to CERC as per the prescribed Formats…………………..65
11. Power exchanges for collective transaction……………………………………… 65
11.1 Products offered by Power Exchanges……………………………………..…66
11.2 Benefits provided by power exchanges………………………………………. 68
6
11.3 Concepts related to Power Exchanges………………………………………. 68
11.4 Working of day-ahead market……………………………………………….. 70
11.5 Market Splitting……………………………………………………………… 75
11.6 Clearing and Settlement……………………………………………………… 75
11.7 Power Exchanges in India- the Road Ahead……………………………….… 76
12. Instruments in Financial Markets………………………………………………… 78
12.1 Forward Contract…………………………………………………………….. 79
12.2 Future Contract……………………………………………………………….. 80
12.3 Option……………………………………………………………………….... 81
12.4 Contract for Differences…………………………………………………….... 83
13. Prospective Future of Power Trading in India…………………………….……. 83
13.1 Cross border Power trading………………………………………………...… 83
13.2 Hedging and speculation in power market…………………………………… 85
14. Trading of Green Power ………………………………………………………….. 87
15. Conclusion ……………………………………………………………………….… 90
16. Bibliography ………………………………………………………………….……. 91
7
EXECUTIVE SUMMARY
8
1. EXECUTIVE SUMMARY
One of the important aspects of Electricity Act’03 is to bring about completion in Indian Power
Market. Short term trading in electricity is an important step in this direction. While bilateral
trading is in existence for quite some years, collective transaction through power exchange has
become a reality only in 2008, with the commencement of Indian Power Exchange (IEX). The
purpose of bringing competition in the regulated Indian market is manifold. In the regulated
regimes many of the old, inefficient or obsolete plants may continue to function and recover
investments while in the competitive regimes they may be out of the market. In regulated
regimes, overcapacity causes prices to increase as consumers do pay for the stranded capacity,
whereas, in a competitive environment, excess capacity causes prices to fall. In a nutshell, in a
typical cost plus reasonable profit regulation regime, the incentives to cut cost are non-existent.
Under competition, most of the risks are borne at least initially by owners – they would be
responsible for bad decisions as also for profits from sound decision and managements practices.
Rules, regulations and procedures have been developed over the years for facilitating short term
trading in electricity, with the clear objective of:
a. Utilizing the surplus generation capacity
b. Utilizing the surplus transmission capacity
c. Benefiting the consumers, by giving them the right to choose the supplier of power
India has adopted a multiple power exchange approach for developing a competitive power
market, with an aim of reduced prices because of competition between exchanges. Currently, two
power exchanges are in operation in India, where the prices discovered are significantly higher
than the prices for power contracted through long term PPAs.
The most basic factors that influence the prices in any market are demand and supply. But in
case of electricity, the prices are essentially influenced by demand and not supply. It is because
the generating cost of the sellers in a power market either remains constant or varies over a
narrow range. Cases are seen, where the prices have increased due to increase in demand, which
in turn was increased due to other factors like weather, elections etc. Price quoted by the buyers
depends not only on their own demand but also on the prices quoted by other buyers. Prices are
also controlled by the dominant bidders in the market. The buyers may not always have to pay
the price discovered in an exchange. The price for them may differ depending upon the
9
congestion anticipated in the transmission corridor for transferring power to the regions where
the buyers are situated. Therefore, prices also depend upon the transfer capability of the
transmission corridors and the congestion anticipated, which are inversely proportional to each
other. The UI rate serves as a reference for short term electricity prices, discovered in a power
exchange. Buyers always make a trade-off between power procurement through UI and power
procurement through short term trading, and in the process UI prices affect the short term
electricity prices.
The power exchange of India limited has experienced a good growth. The totals buy bids and sell
bids in the month of May 2009 is 22.14MU and 95.85MU respectively. The market clearing
volume till 31st may 2009 is 196.52MU. The total purchase bids and sell bids in the Indian
energy exchange in the month of April 2009 is 832 MU and 487MU respectively. The volume of
short term transactions of power is 7.09% of total generation. The PTC india ltd, LANCO
electric utility ltd, NTPC Vidyut Vyapar Nigam ltd, TATA power trading company ltd, Reliance
energy trading ltd are the top five trading licenses in India which in together account for 88.80%
of share in total volume traded by licenses.
Open access is an enabling environment for competition among generators and traders to choose
their customers and vice versa. Cross border power trading is in constant evolution therefore
players on the market need to keep up to date with the latest development in regional projects
and within the regulation framework which will enable power plant operator to trade in more
efficient way.
As power trading has emerged as the biggest instrument in the India power market in facilitating
competition, hence the future of power trading in India is very bright. The Indian power trading
market is rapidly growing both in physical and financial, short and long term size and volume.
The implementation of futures, options, forwards and contracts for differences in the process of
hedging in the power market will make the power trading business as the most beneficial trading
business for the companies involved in power trading business in Indian power market.
With the present condition of huge cry for the reduction of emission and climate safety all over
the globe, the trading of green power will materialize the demand for emission reduction and
building of green environment by giving the opportunity for fostering and generating green
power in large amount.
10
INTRODUCTION
11
2. INTRODUCTION
Countries that have restructured the power system have similar goals. All of them seek to
establish competition in the electricity market to achieve economic efficiency and higher quality
services, as well as lower consumer prices for electricity. Yet, there are important differences in
the immediate objectives of restructuring between developed and developing countries. In many
developing countries, which have defective infrastructure and a chronic lack of funds, the
process is many times governed by the desire to attract foreign capital to meet growing demand.
Power exchanges or wholesale electricity markets, like all organized competitive markets, are
primarily vehicles to facilitate transparent transactions in order to contribute to price formation,
provide maximum incentives for efficient production and signal the investments needed in
additional capacity. This does not exempt the market from the need for regulation, it simply
alters the nature of regulation to enable it to cope with new problems such as market power,
which is the capacity of one or more players to raise market prices and reap the ensuing the
economic benefits. Producers are naturally tempted to wield market power since the objective of
the company is to earn profits.
Like any other product market, there is a market for trading electricity based on its
demand and supply. But it differs from other products, unlike other products, it is not possible,
under normal operating conditions, to keep it in stock, ration it or have customers queue for it.
An electricity market is a system for effecting the purchase and sale of electricity using supply
and demand to set the price. Transactions in electricity are typically cleared and settled by the
grid operator or a special independent entity charged exclusively with that function. There are
markets for electricity derivatives, such as electricity futures and options, which are actively
traded. These markets developed as a result of the deregulation of electric power systems around
the world. Electricity by its nature is difficult to store, so there is problem of meeting excess
demand immediately, demand and supply vary continuously, for this there is a controlling
agency, the transmission system operator, to coordinate the dispatch of generating units to
meet the expected demand of the system across the transmission grid. If there is a mismatch
between supply and demand the generator speed up or slow down causing the system frequency
(either 50 or 60 hertz) to increase or decrease. If the frequency falls outside a predetermined
range the system operator will act to add or remove either generation or load.
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SCOPE & OBJECTIVE
13
3. SCOPE OF THE PROJECT
Currently, there are two power exchanges in operation, the oldest being IEX, having commenced
from 27th June 2008. Therefore, data on short term electricity prices discovered through an
exchange for the past one year is available. The factors that influence the MCP and ACPs
discovered in a PX are elaborated in this report. Through these determinants or factors that affect
the prices, at least a range over which prices will fluctuate can be forecasted for the near term
future, with reasonable accuracy. While summer and rainy seasons have one year periodicity,
the elections generally have five year periodicity in general. A major festival would also have
one year periodicity. So for forecasting the prices for the period of current year, prices for
relevant period of the past year can be looked at and a reasonable approximation can be done. In
other words, past data can act as a reference to the future prices.
At this juncture, only short term forecasting is possible. For long term forecasting traditional
forecasting tools are used (regression model, econometric model etc), which require data over a
longer term, which is not available at this stage. Also through this project, the pattern of some of
the DISCOM’s power drawl during important situations like elections is also analyzed. This is
bound to affect the behavior of other DISCOMs towards their consumers.
4. OBJECTIVES OF THE PROJECT
The objective of the project was to get the detailed knowledge of the practices and methods of
power trading. To analyze the effect of demand/purchase bids on the prices and determine the
influence of external factors that affect demand, which in turn increase or decrease prices and
show the effect of dominant bids on MCP and MCV discovered in a PX The lessons and
experiences of power trading business done by the trading licenses and power exchanges all over
the world especially by the developed and the developing countries were studied. The future
prospective of power trading in India was also analyzed in detail.
With the present condition of huge cry for the reduction of emission and climate safety all over
the globe, the trading of green power will materialize the demand for emission reduction and
building of green environment by giving the opportunity for fostering and generating green
power in large amount.
14
LITERATURE REVIEW
15
5. LITERATURE REVIEW
The following acts and regulations were studied before going for the project.
1. THE Electricity Act, 2003 with amendments.
2. The National Electricity Policy, 2005.
3. Central Electricity Regulatory Commission (Open Access in Inter-state Transmission)
Regulations, 2004
4. Central Electricity Regulatory Commission (Open Access in Inter-state Transmission)
(With amendments) Regulations, 2008
5.1 THE Electricity Act, 2003 with amendments-
The Act provides a comprehensive mechanism for development of electricity market in India by
clearly defining the scope of electricity trading, stipulating the duties of different agencies
involved in electricity trading business and formulating an overall platform for bilateral and
collective transactions.
The different sections related with electricity market development are elaborated below:
According to Section 2(Definitions), sub-section 71 of the act:
"Trading" means purchase of electricity for resale thereof and the expression "trade" shall be
construed accordingly;
According to Section 2(Definitions), sub-section 47 of the act:
“open access” means the non-discriminatory provision for the use of transmission lines or
distribution system or associated facilities with such lines or system by any licensee or consumer
or a person engaged in generation in accordance with the regulations specified by the
Appropriate Commission.
Section 12. (Authorized persons to transmit, supply, etc., electricity) of the Act stipulates
that :
16
No person shall
(a) transmit electricity; or
(b) distribute electricity; or
(c) undertake trading in electricity,
unless he is authorized to do so by a license issued under section 14, or is exempt under section
13.
Section 14. (Grant of license) of the Act stipulates that:
The Appropriate Commission may, on an application made to it under
section 15, grant a license to any person -
(a) to transmit electricity as a transmission licensee; or
(b) to distribute electricity as a distribution licensee; or
(c) to undertake trading in electricity as an electricity trader,
in any area as may be specified in the license.
In this regard, CERC has given license to 43 no of entities till date for trading in electricity.
Section 26. (National Load Dispatch Centre) of the Act stipulates that: ---
(1) The Central Government may establish a centre at the national level, to be known as the
National Load Dispatch Centre for optimum scheduling and dispatch of electricity among the
Regional Load Dispatch Centers.
(2) The constitution and functions of the National Load Dispatch Centre shall be such as may be
prescribed by the Central Government.
Provided that the National Load Dispatch Centre shall not engage in the business of
trading in electricity.
Section 27. (Constitution of Regional Load Dispatch Centre) of the Act stipulates that:
(1) The Central Government shall establish a centre for each region to be known as the Regional
Load Dispatch Centre having territorial jurisdiction as determined by the Central Government in
accordance with section 25 for the purposes of exercising the powers and discharging the
functions under this Part.
17
(2) The Regional Load Dispatch Centre shall be operated by a Government company or any
authority or corporation established or constituted by or under any Central Act, as may be
notified by the Central Government. Provided that until a Government company or authority or
corporation referred to in this sub-section is notified by the Central Government, the Central
Transmission Utility shall operate the Regional Load Dispatch Centre.
Provided further that no Regional Load Dispatch Centre shall engage in the business of
generation of electricity or trading in electricity.
Section 31. (Constitution of State Load Dispatch Centre) of the Act stipulates that: ---
(1) The State Government shall establish a Centre to be known as the State Load Dispatch
Centre for the purposes of exercising the powers and discharging the functions under this Part.
(2) The State Load Dispatch Centre shall be operated by a Government company or any
authority or corporation established or constituted by or under any State Act, as may be notified
by the State Government. Provided that until a Government company or any authority or
corporation is notified by the State Government, the State Transmission Utility shall operate the
State Load Dispatch Centre.
Provided further that no State Load Dispatch Centre shall engaged in the business of
trading in electricity.
Section 38. (Central Transmission Utility and functions) of the Act stipulates that: ----
(1) The Central Government may notify any Government company as the Central Transmission
Utility.
Provided that the Central Transmission Utility shall not engage in the business of
generation of electricity or trading in electricity.
One of the functions of Central Transmission Utility is to provide non-discriminatory open
access to its transmission system for use by-
(i) any licensee or generating company on payment of the transmission charges; or
18
(ii) any consumer as and when such open access is provided by the State Commission
under sub-section (2) of section 42, on payment of the transmission charges and a
surcharge thereon, as may be specified by the Central Commission.
Section 39. (State Transmission Utility and functions) of the Act stipulates that:
(1)The State Government may notify the Board or a Government company as the State
Transmission Utility.
Provided that the State Transmission Utility shall not engaged in the business of trading in
electricity.
One of the functions of State Transmission Utility is to provide non-discriminatory open access
to its transmission system for use by-
(i) any licensee or generating company on payment of the transmission charges ; or
(ii) any consumer as and when such open access is provided by the State Commission
under sub-section (2) of section 42, on payment of the transmission charges and a
surcharge thereon, as may be specified by the State Commission.
The Load Dispatch Centers, transmission utilities are barred from trading n power in order to
ensure non-discriminatory open access to all the generators/ consumers.
Section 52. (Provisions with respect to electricity traders) of the Act stipulates that: ---
(1) Without prejudice to the provisions contained in clause (c) of section 12, the Appropriate
Commission may, specify the technical requirement, capital adequacy requirement and credit
worthiness for being an electricity trader.
(2) Every electricity trader shall discharge such duties, in relation to supply and trading in
electricity, as may be specified by the Appropriate Commission.
Accordingly, CERC has specified the net worth requirement for three different categories of
trading license, vide Central Electricity Regulatory Commission (Procedure, Terms and
19
Conditions for grant of trading license and other related matters) Regulations, 2009. The figures
are shown in the table-4 below:
Sr.
No.
Category of trading
license
Volume of electricity proposed to be
traded
Net Worth(Rs
Crores)
1 Category I No limit 50
2 Category II Not more than 500 Million Units 25
3 Category III Not more than 100 Million Units 5
The Section 66. (Development of market) of the Act stipulates that:
The Appropriate Commission shall endeavor 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.
5.2 The National Electricity Policy, 2005.
As per Section 3 of Electricity Act, 2003, the central government has notified The National
Electricity Policy, 2005. The relevant section for development of electricity market is elaborated
below:
Section 5.7( COMPETITION AIMED AT CONSUMER BENEFITS) stipulates that-
To promote market development, a part of new generating capacities, say 15% may be sold
outside long-term PPAs . As the power markets develop, it would be feasible to finance projects
with competitive generation costs outside the long-term power purchase agreement framework.
In the coming years, a significant portion of the installed capacity of new generating stations
could participate in competitive power markets. This will increase the depth of the power
markets and provide alternatives for both generators and licensees/consumers and in long run
would lead to reduction in tariff.
For achieving this, the policy underscores the following:-
20
a. It is the function of the Central Electricity Regulatory Commission to issue license for
interstate
trading which would include authorization for trading throughout the country.
b. The ABT regime introduced by CERC at the national level has had a positive impact. It has
also enabled a credible settlement mechanism for intra-day power transfers from licenses
with surpluses to licenses experiencing deficits. SERCs are advised to introduce the ABT
regime at the State level within one year.
c. Captive generating plants should be permitted to sell electricity to licensees and consumers
when they are allowed open access by SERCs under section 42 of the Act .
d. Development of power market would need to be undertaken by the Appropriate Commission
in consultation with all concerned.
e. The Central Commission and the State Commissions are empowered to make regulations
under section 178 and section 181 of the Act respectively. These regulations will ensure
implementation of various provisions of the Act regarding encouragement to competition and
also consumer protection. The Regulatory Commissions are advised to notify various
regulations expeditiously.
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
21
5.3 Central Electricity Regulatory Commission (Open Access in Inter-state
Transmission) Regulations, 2004
Vs
Central Electricity Regulatory Commission (Open Access in Inter-state
Transmission) (With amendments) Regulations, 2008
S.
No
Features OA Regulations,2004 OA Regulations,2008
1 Definitions Long Term Customer- The
persons availing or intending
to avail access to the inter-
state transmission system for a
period of twenty five years or
more.
Short-term customers- The
transmission customers other
than the long-term customers.
The maximum duration for
which the short-term access
allowed at a time shall not
exceed one year.
Long-term customer-A person granted
long-term access for use of the inter-
State transmission system
Medium-term customer-A person
granted medium-term open access for
use of the inter-State transmission
system
Short-term customer-A person who
has availed or intends to avail short term
open access.
Short-term open access-Open access
for a period up to one (1) month at one
time.
2 Nodal
Agency
Long-term access-The
Central Transmission Utility if
it's system is used, otherwise
the nodal agency shall be
transmission licensee in whose
system the point of drawl of
electricity is situate
Short-term access-The
Regional Load Dispatch
Bilateral transactions-The Regional
Load Dispatch Centre of the region
where point of drawl of electricity is
situated
Collective transactions-The nodal
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Centre of the region where
point of drawl of electricity is
situate.
agency shall be the National Load
Dispatch Centre
3 Time Lines Advance Reservation-
Application for grant of open
access up to the fourth month
considering the month in
which application is made is
the first month, received up to
19th day of first month
First-come-first-served-
applications for grant of open
access during the first month
or Application for grant of
open access in second month
received after the 19th day of
first month
Day ahead- Application
received latest by 3 PM of the
day preceding the day on
which scheduling is sought
Intraday- In the event of
emergency, the beneficiaries/
buying utility may locate a
source of power to meet short-
term emergency requirement
on the same day and forward
request for open access to the
nodal Regional Load Dispatch
Centre through the concerned
State Load Dispatch Centre
Advance Reservation- An application
for inter-State scheduling during the:
fourth month- shall be made up to the
last day of the first month
third month- shall be made up to five
(5) days prior to the close of the first
month
second month- shall be made up to
ten(10) days prior to the close of the first
month
First-come-first-served- applications
for grant of open access during the first
month or applications for grant of open
access during the second month within
ten days prior to the close of first month,
but at least 4 days prior to the date of
scheduling.
Day ahead -All applications for bilateral
transactions received within three days
prior to the date of scheduling and up to
1500 hrs of the day immediately
preceding the date of scheduling,
processed after
processing of the applications for
collective transactions
Intraday-In the event of a contingency,
the buyer or on its behalf, a trader may
locate, and the power exchange may
23
offer its platform to locate, a source of
power to meet short term contingency
requirements even after the cut-off time
of 1500 hrs of the preceding day and
apply to the nodal agency for short-term
open access
4 Transmission
Charges for
short term
consumers
Charges were bid based, the
floor price of the bid value
(ST_RATE) was calculated as
follows:
(a)Intra-regional system
ST_RATE = 0.25 x [TSC/
Av_CAP]/ 365
(b) Inter-regional system
ST_RATE = 0.50 [ TSC/
CIR]/365
TSC-The annual transmission
charges or annual revenue
requirement on account of the
transmission system for the
previous financial year as
determined by the Appropriate
Commission
Av_CAP- Average capacity in
MW served by the
intraregional transmission
system
CIR- Transmission capacity of
the inter-regional system
The bidders were allowed to
quote price in terms of the
In case of bilateral transactions(for use
of Inter-state network):
(a) intra-regional- Rs 80/MWh*
(b) between adjacent regions-Rs
160/MWh*
(c) wheeling through one or more
intervening regions –Rs 240/MWh*
* For energy approved at the point of
injection
In case of the collective transactions(for
use of Inter-state network):
Rs.100/MWh for energy approved for
each point of injection
and for each point of drawl
The intra-State entities shall pay the
transmission charges for use of the State
network as fixed by the respective State
Commission in addition to the charges
for Inter-state network
24
floor price, reservation of
transmission capacity were
being made in decreasing
order of the price quoted
5 Operating
Charges
RLDCs- Rs 3000/day
SLDCs- Rs 1000/day
RLDCs- Rs 2000/day(for bilateral)
SLDCs- Rs 2000/day(for bilateral as
well as collective)
NLDC- Rs 5000/day(for collective)
6 Congestion
Management
Transmission service of the
short-term customers were
curtailed first followed by the
long-term customers.
Within a category, all users
had same curtailment priority
and curtailment was on pro
rata basis
Short-term transactions shall be
cancelled or curtailed first, followed by
medium-term and thereafter long term–
transactions.
In case of short-term transactions,
bilateral transactions shall be cancelled
or curtailed first followed by collective
Transactions
In case of Bilateral (Advance)
Transactions, curtailment will be
subjected to e-bidding.
In case of Collective Transactions,
curtailment is done through market
splitting.
7
Transmission
Charges for
short-term
customers in
case of
curtailment
In case of curtailment of more
than 50% of the reserved
transmission capacity, the
transmission charges for that
day was payable by the short-
term customers on pro rata
basis
Transmission charges shall be payable
pro-rata in accordance with the curtailed
schedule
8 Transmission The transmission customers The buyers and sellers of the electricity
25
Losses were required to bear average
energy losses in the
transmission system as
estimated by the RLDC and
the SLDC concerned. The
energy losses in the
transmission system were
compensated by additional
injection at the injection
point(s). Information regarding
average energy losses for the
previous 52 weeks shall be
posted on the website of the
RLDCs and the SLDCs.
shall absorb apportioned energy losses
in the transmission system as estimated
by the RLDC and the SLDC concerned.
The applicable transmission losses for
the regional transmission system as well
as for State network shall be declared in
advance and shall not be revised
retrospectively.
9 Collection
and
Disbursement
of
Transmission
Charges and
Operating
Charges
If the transmission system
belongs to the CTU or STU,
25% of the charges collected
from the short-term customer
for use of its intra-regional
transmission system and
12.5% of the charges collected
from the short-term customers
for use of its inter-regional
system shall be retained by the
CTU and STU and the
remaining part of these
charges shall be adjusted
towards reduction in the
transmission charges payable
by the long-term customer
The transmission charges collected by
the nodal agency for a bilateral
transaction shall be directly disbursed to
the long-term customers after disbursing
25% of such transmission charges to the
CTU in the following manner:
(a) In case of intra-regional bilateral
transaction: 75% of the transmission
charges to the region concerned.
(b) In case of bilateral transaction
between adjacent regions: 37.5% of the
transmission charges for each region.
(c) In case of bilateral transaction
through one or more intervening
regions: 25% of the transmission
charges for each of importing and
exporting each region and remaining
26
25% of the transmission charges to be
allocated equally among all intervening
regions.
The transmission charges collected for
collective transaction for each point of
injection and each point of drawl shall
be disbursed by the nodal agency in the
following manner, namely-
(a) Central Transmission Utility: 25%
(b) Long-term customers of the region of
point of injection or drawl, as the
case may be, is situate: 75%
6. Salient Features of Central Electricity Regulatory Commission (Open
Access in Inter-state Transmission) (With amendments) Regulations, 2008
According to Regulation 2(Definitions),
“Bilateral transaction” means a transaction for exchange of energy (MWh) between a specified
buyer and a specified seller, directly or through a trading licensee or discovered at power
exchange through anonymous bidding, from a specified point of injection to a specified point of
drawl for a fixed or varying quantum of power (MW) for any time period during a month.
“Collective transaction” means a set of transactions discovered in power exchange through
anonymous, simultaneous competitive bidding by buyers and sellers.
“Short-term open access” means open access for a period up to one (1) month at one time.
27
“Short-term customer” means a person who has availed or intends to avail short term open
access.
According to Regulation 5(Nodal Agency),
The nodal agency for bilateral transactions shall be the Regional Load Dispatch Centre of the
region where point of drawl of electricity is situated and in case of the collective transactions, the
nodal agency shall be the National Load Dispatch Centre.
According to Regulation 8(Concurrence of State Load Dispatch Centre for bilateral and
collective transactions),
(1) Wherever the proposed bilateral transaction has a State utility or an intra-State entity as a
buyer or a seller, concurrence of the State Load Dispatch Centre shall be obtained in advance
and submitted along with the application to the nodal agency.
(2) When a State utility or an intra-State entity proposes to participate in trading through a power
exchange, it shall obtain a “no objection” or a prior standing clearance from the State Load
Dispatch Centre , specifying the MW up to which the entity may submit a buy or sell bid in a
power exchange.
(3) (a) While processing the application for concurrence or ‘no objection’ or prior standing
clearance, as the case may be, the State Load Dispatch Centre shall verify the following, namely-
(i) existence of infrastructure necessary for time-block-wise energy metering and accounting in
accordance with the provisions of the Grid Code in force, and
(ii) availability of surplus transmission capacity in the State network.
(b) Where existence of necessary infrastructure and availability of surplus transmission capacity
in the State network has been established, the State Load Dispatch Centre shall convey its
concurrence or ‘no objection’ or prior standing clearance, within three (3) working days of
receipt of the application:
Provided that when short-term open access has been applied for the first time by any person, the
buyer or the seller, the State Load Dispatch Centre shall convey to the applicant such
28
concurrence or ‘no objection’ or prior standing clearance, as the case may be, within seven (7)
working days of receipt of the application.
(c) In case the State Load Dispatch Centre finds that the application for concurrence or ‘no
objection’ or prior standing clearance, as the case may be, is incomplete or defective in any
respect, it shall communicate the deficiency or defect to the applicant, within two (2) working
days of receipt of the application:
Provided that in cases where the State Load Dispatch Centre has communicated any deficiency
or defect in the application, the date of receipt of application shall be the date on which the
application has been received duly completed, after removing the deficiency or rectifying the
defects, as the case may be.”
(4) In case the application has been found to be in order but the State Load Dispatch Centre
refuses to give concurrence or ’no objection’ or prior standing clearance as the case may be, on
the grounds of non-existence of necessary infrastructure or unavailability of surplus transmission
capacity in the State network, such refusal shall be communicated to the applicant, within the
period of three (3) working days along with reasons for such refusal:
Provided that where the State Load Dispatch Centre has not communicated any deficiency or
defect in the application within two (2) days from the date of receipt of application or refusal or
concurrence or ‘no objection’ or prior standing clearance, as the case may be, within the
specified period of three (3) working days, from the date of receipt of the application,
concurrence or ‘no objection’ or prior standing clearance, as the case may be, shall be deemed to
have been granted:
Provided further that where concurrence or ‘no objection’ or prior standing clearance, as the case
may be, is deemed to have been granted by the State Load Dispatch Centre, the applicant while
making application under clause (1) of regulation 9 shall submit to the nodal agency an affidavit
(in the format provided in the detailed procedure), duly notarized, declaring that –
29
(a) the State Load Dispatch Centre has failed to convey any deficiency or defect in the
application or its refusal or concurrence or ‘no objection’ or prior standing clearance, as the case
may be, within the specified time,
(b) necessary infrastructure for time-block-wise energy metering and accounting in accordance
with the provisions of the Grid Code in force, is in place; and enclosing with the affidavit –
(i) a copy of the complete application after removal of deficiency or rectification of defects, if
any communicated, made to the State Load Dispatch Centre for seeking concurrence or ‘no
objection’ or prior standing clearance, as the case may be, and
(ii) a copy of the acknowledgement, if any, given by the State Load Dispatch Centre, or any
other evidence in support of delivery of the application to the State Load Dispatch Centre.
(5) Unless specified otherwise by the State Commission concerned, the State Load Dispatch
Centre may charge a fee of Rupee five thousand (Rs 5000/-) for processing applications for
concurrence or “no objection” or prior standing clearance.
According to Regulation 9(Procedure for Advance Scheduling for bilateral transactions),
(1) An application for advance scheduling for a bilateral transaction may be submitted to the
nodal agency up to the fourth month, the month in which an application is made being the first
month:
Provided that separate application shall be made for each month, and for each transaction.
(2) (a) An application for inter-State scheduling during the fourth month shall be made up to the
last day of the first month.
(b) All applications received shall be taken up together for consideration.
(c) The nodal agency shall convey its acceptance or otherwise to the applicant latest by the fifth
day of the second month.
30
(3) (a) An application for inter-State scheduling during the third month shall be made up to five
(5) days prior to the close of the first month.
(b) All applications received shall be taken up together for consideration.
(c) The nodal agency shall convey its acceptance or otherwise to the applicant latest by the close
of the first month:
Provided that while accepting the application, open access granted to any person prior thereto
shall not be withdrawn.
(4) (a) An application for inter-State scheduling in the second month shall be made with the
nodal agency up to ten (10) days prior to the close of the first month.
(b) All applications shall be taken up together for consideration.
(c) The nodal agency shall convey its acceptance or otherwise to the applicant five days prior to
the last day of the first month:
Provided that while accepting the application, open access granted to any person prior thereto
shall not be withdrawn.
(5) Wherever the nodal agency rejects an application, it shall convey its reasons to the applicant
in writing.
According to Regulation 11(Procedure for scheduling of bilateral transactions on first-come-
first-served basis),
(1) The applications for grant of open access for the second month, received after the date
specified in clause (4) of Regulation 9 and the applications for grant of open access during the
first month shall be considered on first-come-first-served basis, and such transactions shall be
scheduled subject to availability of the required transmission capacity:
Provided that such applications shall reach the nodal agency at least
four (4) days in advance of the date of the bilateral transaction:
Provided further that separate application shall be made for each transaction.
(2) All these applications shall be processed and decided within three (3) days of their receipt.
31
According to Regulation 12(Procedure for scheduling for day-ahead transactions),
All applications for bilateral transactions received within three days prior to the date of
scheduling and up to 1500 hrs of the day immediately preceding the date of scheduling shall be
clubbed and treated at par, and shall be processed after processing of the applications for
collective transactions received till 1500 hrs.
According to Regulation 13(Procedure for Scheduling a Transaction in a Contingency)
In the event of a contingency, the buyer or on its behalf, a trader may locate, and the power
exchange may offer its platform to locate, a source of power to meet short term contingency
requirements even after the cut-off time of 1500 hrs of the preceding day and apply to the nodal
agency for short-term open access and scheduling and in that event, the nodal agency shall
endeavor to accommodate the request as soon as may be and to the extent practically feasible, in
accordance with the detailed procedure.
The above timelines can be shown in the form of a figure-3 as shown below:
32
The different scheduling on a particular day are done in the following order
According to Regulation 14(Revision of Schedule),
(1) The short-term open access schedules accepted by the nodal agency in advance or on first-
come-first-served basis may be cancelled or revised downwards on an application to that effect
made to the nodal agency by the short-term customer:
Provided that such cancellation or downward revision of the short-term open access schedules
shall not be effective before expiry of a minimum period of two (2) days:
Provided further that the day on which notice for cancellation or downward revision of schedule
is served on the nodal agency and the day from which such cancellation or downward revision is
to be implemented, shall be excluded for computing the period of two (2) days.
Advance Reservation
First Come First Serve
Collective/ PX
Day-Ahead
Same Day
33
(2) The person seeking cancellation or downward revision of short-term open access schedule
shall pay the transmission charges for the first two (2) days of the period for which the
cancellation or downward revision of schedule, as the case may be, has been sought, in
accordance with the schedule originally approved by the nodal agency, and thereafter in
accordance with the revised schedule prepared by the nodal agency during the period of such
cancellation or downward revision.
(3) In case of cancellation, operating charges specified under regulation 17 shall be payable for
two (2) days or the period of cancellation in days, whichever is less.
According to Regulation 15(Curtailment of transmission),
(1) The Regional Load Dispatch Centre may curtail power flow on any transmission corridor by
cancelling or re-scheduling any transaction, if in its opinion cancellation or curtailment of any
such transaction is likely to relieve the transmission constraint on the corridor or to improve grid
security:
Provided that subject to provisions of the Grid Code, while cancellation or curtailment of any
transaction, among short-term, medium-term and long-term transactions, short-term transactions
shall be cancelled or curtailed first, followed by medium -term and thereafter long term–
transactions:
Provided further that while cancelling or curtailing any short-term transaction, bilateral
transactions shall be cancelled or curtailed first followed by collective transactions.
34
7. POWER TRADING ARRANGEMENTS
Power trading arrangements can be done in following different three types of existing
Formats
7.1 Bilateral Contracts
Bilateral contract is an agreement in which each of the parties to the contract makes a promise or
promises to the other party. It is an agreement in which the parties exchange promises for each to
do something in the future. It refers to the mutual contracts where buyer and seller negotiate. A
sales contract is a bilateral contract, since the seller promises to convey a property and the buyer
agree to pay a specified sum, given certain conditions. Long term power purchase agreement
between C.G.S (Central Generating Station) in India is an example of bilateral contracts. Main
disadvantage of bilateral contracts are that there is a huge search costs, asymmetric information,
and lack of transparency.
7.2 Through Intermediaries
As Power Market is expanding rapidly, more intermediaries are emerging out as a licensed
trader. The benefit which the trader gets through intermediaries is that the search costs are
35
reduced. They had not to spend money in finding customers; intermediaries match buyer and
seller and act as a facilitator in concluding trading arrangements. Both types of arrangement
serve as a symbol of mutual bargaining process where the actual price is not disclosed.
7.3 Power Exchange
Power Exchange (PX) facilitates equitable, transparent and efficient trading of power. It
bridges the demand and supply mismatch by bringing larger players together for buying and
selling. Power Exchange overcomes all the constraints which other two arrangements have, viz,
search costs, asymmetric information, transaction costs, and counter-party risk. The development
of electricity trading and the creation of electricity power exchanges are one of the most visible
results of the liberalization of the electricity industry. Market players (generators, traders and
suppliers) come to a market place to trade electricity and make contracts. Market players have
needs and obligations to generate or consume a specific amount of electricity at a specific time in
the future. These needs and obligations are covered by contracts with committing partners.
Contract negotiations will determine the contract conditions like time, place, volume and price.
36
7.4 MAJOR POWER EXCHANGES
India has two power exchanges. Power exchange India limited and Indian energy
exchange.
INDIAN ENERGY EXCHANGE (IEX) is India’s first-ever, nationwide,
automated, and online electricity trading platform. It has been conceived to catalyse
the modernization of electricity trade in the country by ushering in a transparent and
neutral market through a technology-enabled electronic trading platform.
CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) accorded
approval on 9th June 2008, to IEX to commence its operations. IEX is a demutualised
exchange that will enable efficient price discovery and price risk management in the
electricity market.
On 6th February 2007, the CERC issued guidelines for grant of permission to set up
power exchanges in India. Financial Technologies (India) Ltd responded by proposing
then tentatively named 'Indian Power Exchange Ltd' and applied for permission to set it
up and operate it within the parameters defined by CERC and other relevant authorities.
Based on the oral hearing on July 10, the CERC accorded its approval vide its order
dated 31st August, 2007. IEX thus moved from the conceptual level to firmer grounds.
On 9th June 2008 CERC accorded approval to IEX to commence its operations and 27th
June 2008 marked its presence in the history of Indian Power Sector as Indian Energy
Exchange Ltd (IEX). IEX's technical infrastructure, systems and processes have
materialised from a synergisation of the knowledge, expertise, and experience of the
companies behind it. As a promoter of IEX, Financial Technologies has leveraged its
technical expertise with the commodity exchange domain knowledge and experience of
its subsidiary, Multi Commodity Exchange of India Ltd (MCX), as well as the industry
grasp of co-promoter PTC India Ltd and of key partners / investors including IDFC,
Adani Enterprises, Reliance Energy, Lanco Infratech, Rural Electrification Corporation
(REC), and Tata Power Company.
37
Power Exchange India Limited (PXIL) is a fully electronic, nation-wide exchange for
trading of electricity. It has been promoted by two of India's leading Exchanges, National
Stock Exchange of India Ltd (NSE) & National Commodities & Derivatives Exchange Ltd
(NCDEX).
Power Finance Corporation, Gujarat Urja Vikas Nigam, JSW Energy, GMR Energy, Jindal
Steel & Power have taken equity stakes in this venture.
NSE is the largest stock Exchange in India and amongst the top 4 Stock Exchanges in the
world in terms of number of transactions. The standards set by NSE in terms of market
practices, products, technology & service standards have become industry benchmarks and
are being replicated by other market participants. NCDEX is the only commodity exchange
in the country promoted by national level institutions. The institutional promoters and
shareholders of NCDEX are prominent players in their respective fields and bring with them
institutional building experience, trust, nationwide reach, technology and risk management
skills.
PXIL, like its promoters, will not just be building a Power Exchange, but would also be
seeking to play a thought leadership role in shaping Indian power markets in the years to
come. PXIL aims to provide transparent and fair price discovery mechanism which can
signal massive potential investments into the Indian Power Sector.
The initial products offered for trading are electricity contracts offered on a day-ahead basis
with voluntary participation. New products will be introduced after taking feedback from the
market & obtaining approval from CERC. PXIL has an independent Board of Directors and
professionals who manage the day-to-day operations. The Company is run on commercial
principles as an individual business entity, separated from the business of its shareholders.
PXIL received regulatory approval from Central Electricity Regulatory Authority (CERC)
on 30th September 2008 to begin operations. After receiving the final nod from the National
Load Despatch Centre, the apex body of the country grid operator, PXIL has successfully
started its operations on 22nd October 2008.
38
7.5 Major power exchanges in the world
NORDIC POWER EXCHANGE
Brief overview:
Nord Pool ASA, the Nordic Power Exchange, is the world’s first multinational exchange
for trade in electric power contracts. It is considered as the most successful market model.
Nordel is a cooperative body made up of the transmission system operators (TSOs) in the
Nordic countries (Denmark, Finland, Norway, and Sweden). The objective of the
organization is to “create the conditions for, and to develop further, an efficient and
harmonized Nordic electricity mark.
39
PJM
Brief overview:
The PJM Interconnection is a multi-state market on the East Coast of the USA. The
market is run by the member utilities although the members of the governing board are
independent of industry interests. The market and system operators are a single entity.
The PJM dispatch software uses a sophisticated linear programming algorithm that allows
it to take account of all transmission constraints and, if necessary, calculate a separate
marginal price at each of around 2000 grid access points. This system is known as
Locational Marginal Pricing (LMP). Participants whom the dispatch algorithm deems to
have transported power between differently priced nodes are subject to a transmission
charge dependent on the price differential between the nodes and the amount of power
transmitted. It is possible to hedge against these charges by buying a Fixed Transmission
Right (FTR) for some or all of the capacity of the link between the nodes. Owners of
FTRs receive the revenue from transmission charges from a link in proportion to the
percentage of the link capacity rights that they own.
TRANSITION TO THE AUSTRALIAN ENERGY MARKET OPERATOR
(AEMO)
The Australian Energy Market Operator (AEMO) commences operations on 1 July
2009. In the lead up to its commencement, AEMO (Transitional) Ltd has been formed.
The Australian Energy Market Operator will, for the first time, deliver gas and electricity
market, operations and planning functions within the one organisation. It combines the
skills and expertise of the existing market operators:
AEMO (Australian Energy Market Operator) will incorporate all functions currently
carried out by its six founding organizations –
NEMMCO, VEN Corp, ESIPC, REMCO, GMC and GRMO – and, in addition, will take
on the new responsibility of electricity transmission planning.
NEMMCO is responsible for the administration and operation of the National Electricity
40
Market (NEM), and is recognized as one of the world’s leading power system and
electricity market operators. The NEM operates 24 hours a day, every day of the year, and
is a wholesale market with more than 100+registered participants who trade up to 180,000
giga watt hours of electrical energy each year. Up to $10 billion is traded annually in the
NEM in servicing the needs of almost eight million electricity end-users in five Eastern
Australian states and the Australian Capital Territory.
Role of the Power Exchanges
The Power Exchanges play an essential role in the new structure of the electricity industry.
All these Power Exchanges share the same goals. They aim to facilitate electricity trade,
foster competition, ensure transparency and become recognized as a marketplace. Finally,
each Power Exchange aims to develop liquidity and credibility of its price index .Power
Exchanges are considered marketplaces. The word marketplace is a third party which
facilitates transactions between sellers and buyers, they are ruled by its own trading rules and
they guarantee the payment.
Facilitate trading: Power Exchanges make easy the short term trading because it gathers all
the stakeholders of the wholesale market in one single market.
� Foster competition: By letting submit bids to generators, distributors, suppliers and
eligible consumers. Every participant specifies the desire quantity and the price they
are willing to pay/received.
� Ensure transparency: The bids are anonymously, the driver for the price is based on
matching the supply and demand curves. The market clearing prices are public.
� Price index: Price in the Power Exchange is published on a daily basis and represent
a useful tool for benchmark the bilateral transactions.
� Reduce credit risk: The counterpart for the transactions is the exchange’s clearing
house. The role of the clearing house is to guarantee the financial regularity of the
parties.
41
8.Procedure for Scheduling of Short-Term Open Access(Bilateral Transaction)- The Central
Transmission Utility(PGCIL) has notified the Procedure for Scheduling of Short-Term Open
Access (Bilateral Transaction) in accordance with the Central Electricity Regulatory commission
(Open Access in Inter-state Transmission) (With amendments) Regulations, 2008. It is
represented in the form of a diagram(fig 5) below:
Application to be made by Intra-
state entities for concurrence from
concerned SLDC
Concurrence from SLDCs in
FORMAT-II are to be enclosed
with the application in FORMAT-I
for scheduling of Bilateral
Transaction to Nodal RLDC
Applicant will submit an
Affidavit as per FORMAT-IIA
with the application as per
FORMAT-I for scheduling of
Bilateral Transaction to
Nodal RLDC
If the application is incomplete
If the application is complete
SLDC checks for the
completeness of the application
SLDC intimates the same to
the applicant within 2 days of
receiving application
SLDC checks for the necessary
infrastructure and available
transfer capability
SLDC conveys the concurrence as
per FORMAT-II within 3 days of
receiving application
SLDC communicates the refusal to
grant concurrence along with the
reasons within 3 days of receiving
application
If the application is complete,
but SLDC has not
communicated its concurrence
within 3 days
Concurrence is deemed
have been given by SLDC
Nodal RLDC obtains concurrence from other RLDCs as per FORMAT III by 12:00
Hrs of the next day of applicable last day and other RLDCs respond by 20:00 Hrs
of the same day. Then RLDC checks for congestion in the Inter-Regional link
Applicant completes the
application and sends it to
SLDC again
If the transfer capacity is available
If the transfer capacity is not available
42
PTO
RLDC communicates congestion to
the applicants as per FORMAT-IV by
12:00 Hrs of next day
The Applicants inform the nodal RLDC as per FORMAT-V,
the reduced request for Scheduling during the period of
congestion or opt for Scheduling only for the duration when
no congestion is anticipated or opt for Scheduling through
the alternate route
Transaction wise payment details are
submitted by applicants to RLDC as per
FORMAT VII
In case of no congestion
In case of congestion
In case the applicants do not want
curtailment due to congestion, then
RLDC conducts e-bidding on the 4th
day after last date of submission of
application. The higher bidders get
priority for transmission.
The nodal RLDC shall convey its acceptance or
otherwise to the Applicant in five days from the last
date of submission, as per FORMAT VI.
Transaction take place as per schedule
mentioned in FORMAT VI.
43
9.Procedure for Scheduling of Short-Term Open Access(Collective
Transaction)
The Central Transmission Utility(PGCIL) has notified the Procedure for Scheduling of Short-
Term Open Access (Collective Transaction) in accordance with the Central Electricity
Regulatory Commission (Open Access in Inter-state Transmission) (With amendments)
Regulations, 2008. It is represented in the form of a diagram below:
Application by Intra State Entities for No-
Objection or Standing Clearance from
concerned SLDC as per FORMAT-PX-1
SLDC checks for the completeness of
the application
SLDC intimates the same to the
applicant within 2 days of receiving
application
SLDC checks for the necessary
infrastructure and available
transfer capability
Concurrence is deemed have been
given by SLDC
Applicant completes the application
and sends it to SLDC again
SLDC conveys the concurrence as
per FORMAT-PX-1 within 3 days of
receiving application
SLDC communicates the refusal to
grant concurrence along with the
reasons within 3 days of receiving
application
Intra-state Entity will submit
an affidavit to the Power
Exchange as per FORMAT-PX-
1A
The National Load Dispatch Center (NLDC) shall
indicate to Power Exchange(s), by 11:00 Hrs, the list
of regional transmission interfaces on which
unconstrained flows are required to be advised by
the Power Exchange(s) to the NLDC
If the application is incomplete
If the application is complete
If the application is
complete, but SLDC has not
communicated its
concurrence within 3 days
If the transfer capacity is available If the transfer capacity is not available
44
PTO
Based on the information
furnished by Power
Exchange(s),NLDC shall check
for congestion
NLDC shall inform the Exchange(s) by 14:00
Hrs about the period of congestion and the
available limit for scheduling of collective
transaction on respective transmission
system interfaces
Power Exchanges curtails the transactions in
the congested interfaces by Market Splitting
The Application for Scheduling of Collective
Transaction shall be submitted by the Power
Exchange(s) by 15:00 Hrs each day, to the NLDC as
per Format-PX-II
The details for Scheduling Request for Collective
Transaction shall be submitted by Power Exchange (s)
to the NLDC as per Format–PX-III
NLDC shall send these details of Collective
Transaction to different RLDCs by 16:00 Hrs. After
getting acceptance from the RLDCs, NLDC shall
convey the acceptance of scheduling of Collective
Transaction to Power Exchange(s) by 17:30 Hrs
The individual transactions for intra-State Entities
shall be scheduled by the respective SLDCs. Power
Exchange(s) shall send the detailed breakup of each
point of injection and each point of drawl within
the State to respective SLDCs by 18:00 Hrs as per
FORMAT-PX-IV
If there is no congestion
If there is congestion
45
10.OPERATIONS IN A TRADING COMPANY
10.1 The operations for inter-state bilateral transaction can be shown in the form of a diagram
Transactions take place as per FORMAT PX-II &
PX-III the next day
Finding Seller having surplus
generating capacity and buyer
having requirement for short term
Power Purchase Agreements with
Buyer and Seller for mutually
agreed terms and conditions
Concurrence from Buyer and Seller
for transaction during pre-decided
period
Concurrence from SLDC as per
FORMAT-II(Bilateral) by
Buyer/Seller or by Trading
Licensee on behalf of Buyer/Seller
Application to Nodal RLDC as per
FORMAT-I(Bilateral) for
Acceptance of Schedule and
reservation of Transmission
Corridor
STEP-1
STEP-2
STEP-5
STEP-4
STEP-3
Power exchange(s) shall furnish by 13:00 Hrs, the
interchanges on various regional transmission
interfaces
46
STEP 1 - Finding Buyer and Seller
The function of Marketing Department is to find a seller having surplus generating capacity
and buyer having requirement for short term power. Then Trading Licensee signs Power
Purchase Agreements (PPA) with Buyer and Seller for a mutually agreed period such as 5-15
years. The transaction of energy depends the availability of power(surplus generation) from the
seller side and requirement of the short term power by the buyer side for various purposes.
The seller can be
1. ISGS(Inter-state Generating station)
2. Intra state Generating Station
3. CPP(Captive Power Plant)
Acceptance by Nodal RLDC and
issue of Open Access Charges as
per FORMAT-VI(Bilateral)
Physical flow of power through the
reserved transmission corridor.
Payment of Open Access Charges
to Nodal RLDC within 3 days of
issuance of Acceptance of
Schedule and issuing open access
bills of apportioned amount to
Buyer and Seller
Provisional Billing by Trading
Licensee based on implemented
schedules issued by Nodal RLDC.
Bills issued to Buyer by adding
Trading Margin to the
Final Settlement of bill by incorporating the
actual energy flow based on Regional Energy
Account (REA) issued by Regional Power
Committees(RPC)
STEP-8
STEP-7
STEP-6
STEP-9
47
4. IPP(Independent Power Plant)
5. MPP(Merchant Power Plant)
6. DISCOM having surplus power during off-peak Hrs/lean seasons
The buyer can be
1. DISCOM for meeting peaking loads
2. Any Industry
3. Consumer groups.
The Electricity Act’03 mandates that Open access be allowed to every consumer having
demand equal to or greater than 1 MW.
The purpose of short term power purchase can be:
1. To meet the increased demand due to variation of load
2. To meet the seasonal loads, which increase with rise or fall of temperature.
3. To meet the additional requirement of power for increased production by Industry.
4. To get cheaper, reliable, better quality power on mutually agreed terms.
5. To utilize the excess capacity of the power plants.
STEP-2 Signing Power Purchase Agreements/contracts
Power Purchase Agreements/contracts contain the various terms and conditions which are
mutually agreed between the Trading Licensee and the Seller or between the Trading Licensee
and the Buyer. The terms and conditions between the Trading Licensee and the Seller are made
keeping in view the terms and conditions between the Trading Licensee and the Buyer so that the
interests of the Trading Licensee are protected.
The various features included in PPA are:
1. Quantum of Power to be sold/purchased: in MW(Min 1 MW)
This indicates the quantum of power intended to be sold/purchased. The minimum quantum
should be 1 MW for any hour.
2. Supply/Take-off timings: from ….. Hrs to ….. Hrs
This indicates the period for which transaction is intended.
48
3. Type of Transaction: Firm/Day Ahead
If Power flow is on firm basis, then the transaction is intended for guaranteed supply/off-take of
power. This arrangement is made when the seller is certain to generate power and buyer wants
guaranteed power. On the other hand, if transaction is on day ahead basis, the power flow is not
guaranteed and it depends upon availability of power from the seller side.
4. Source/ Destination
It indicates the source of power or the destination of use.
5. Delivery Point
A delivery point is the point up to which the seller has to bear the transmission charges. This
point refers to the node in the transmission corridor which is contracted for scheduled flow.
For example, if the transaction is scheduled between a seller in Karnataka and a buyer in Delhi
then the contact path would be:( Fig 8)
Diagrammatically it can be shown as follows:
Seller KPTC SR Grid WR Grid NR Grid DTL Buyer
Seller Buyer
KPTCL
SR Grid
KPTCL Entry
KPTCL exit
SR Entry
SR Exit WR Grid NR Grid
DTL
NR Exit
NR Entry
WR Entry
WR Exit
DTL Exit
DTL Entry
49
Here transmission charges of 5 regions are to be borne between Seller and Buyer. These 5
regions are a) KPTCL(Karnataka Power Transmission corporation Ltd)
b) SR
c) WR
d) NR
e) DTL(Delhi Transco Ltd)
So if the delivery point is SR Exit/ WR Entry, then transmission charges for KPTCL and SR
Grid are to be borne by the Seller and transmission charges for WR grid, NR Grid and DTL are
to be borne by the Buyer.
The different delivery points possible in this case are shown below
Sl.
No.
Delivery Point Transmission
charges to be borne
by Seller
Transmission
charges to be
borne by Buyer
Operating
charges to be
borne by
Seller
Operating
charges to
be borne by
Buyer
1 Ex-Bus/
KPTCL Entry
NIL All NIL All
2 KPTCL Exit/
SR Entry
KPTCL SR, WR, NR,
DTL
Karnataka
SLDC
SRLDC,
WRLDC,
NRLDC,
Delhi
SLDC
3 SR Exit/
WR Entry
KPTCL, SR WR, NR, DTL Karnataka
SLDC,
SRLDC
WRLDC,
NRLDC,
Delhi
SLDC
4 WR Exit/
NR Entry
KPTCL, SR, WR NR, DTL Karnataka
SLDC,
SRLDC,
WRLDC
NRLDC,
Delhi
SLDC
50
5 NR Exit/
DTL Entry
KPTCL, SR, WR,
NR
DTL Karnataka
SLDC,
SRLDC,
WRLDC,
NRLDC
Delhi
SLDC
6 DTL Exit All NIL All NIL
6. Corridor
This indicates the transmission route through which power flow will take place. In this
case the corridor will be:
SR – WR – NR
7. Rates/Prices
A suitable rate is mutually agreed between seller/buyer and trading licensee. The rate
quoted in the agreement between trading licensee and buyer usually includes the trading
margin of trading licensee. In case of inter-state trading the margin can be a max of 4
paisa/unit. Rates can also be the MCP discovered in a power exchange for the day of
transaction.
8. Taxes/Duties
This clause indicates that whether the price quoted is inclusive or exclusive of any taxes
or duties.
9. Billing Cycle
Billing cycle can be daily, weekly, monthly or yearly as mutually agreed between parties.
Generally weekly cycle is followed. The entire month is generally divided to four periods
for weekly billing cycles. They are shown in table
Sl. No. Week/Period Billing is on
1 01st -8th day of the month 9th day of the month
2 09th -15h day of the month 16th day of the month
3 16th -23th day of the month 24th day of the month
4 24th -last day of the month 1st day of next month
51
This bill is the provisional bill is based on implemented schedules issued by Nodal RLDC. Bills
issued to Buyer by adding Trading Margin to the price(Rs/unit) to be paid to Seller. Then final
settlement of bill is done by incorporating the actual energy flow based on Regional Energy
Account (REA) issued by Regional Power Committees(RPC).
10. Payment terms
This clause indicates the no of days within which the purchaser has to make payment
after receipt of the bill.
11. Rebate clause
This clause indicates the percentage of rebate the purchaser is entitled to get if payment is
made within a certain no of days.
12. Surcharge for delayed payment
This indicates the surcharge the purchaser is liable to pay in case of delayed payment.
13. Conditions for Open Access Charges
It is the clause under which it is specified that up to the delivery point the open access
charges are to be borne by the seller and beyond it, charges are to be borne by buyer.
14. Force Measure Conditions
Any situation beyond the control of either party, which results in non-implementation of
scheduled power flow is called a Force Measure Condition. Under this clause such
conditions are enumerated and under these conditions, clause 16 would remain void.
15. SLDC/STU concurrence terms
Under this clause it is mentioned, whether the concurrence would be obtained by the
trading licensee or the buyer/seller itself.
16. Compensation for short supply/off take
Under this clause, compensation rates to buyer in case the seller fails to supply contracted
quantum and compensation rates to seller in case the buyer fails to off take contracted
quantum is mentioned.
Note: This clause is not present in the PPA if the power is to be sold on day-ahead basis.
STEP-3 Concurrence from Buyer/Seller for short term transaction
52
As and when the buyer wants power to purchase, the trading licensee enquires about the
availability of power from sellers. Similarly as and when a seller submits proposal to sell power,
trading licensee intimates about the availability to buyers. Concurrence from both sides is
generally obtained before application is filed for scheduling.
STEP-4 Concurrence from SLDC
Concurrence is obtained from each of the SLDCs concerned as per FORMAT-II(Bilateral) and
Procedure for Bilateral Transaction, laid down by CTU, mentioning
a. Name of Applicant
b. Application No and Date
c. Buyer/Seller Details
d. Quantum in MW(Hour-wise)
e. Period of transaction
Concurrence is accorded by SLDC either in full or in part(with reasons given in writing). SLDCs
may charge Rs 5000 for giving concurrence.
STEP-5 Application to Nodal RLDC
Application for scheduling and reservation of Transmission corridor is made to the nodal RLDC(
the RLDC of the region where the point of drawl is situate) as per FORMAT-1(Bilateral) and
Procedure for Bilateral Transaction, laid down by CTU, mentioning
a. Name of Applicant
b. Application No and Date
c. Buyer/Seller Details
d. Quantum in MW(Hour-wise)
e. Period of transaction
f. Applied route (from injection point to drawl point)
g. Rerouting in case of congestion
53
STEP-6 Acceptance by Nodal RLDC and issue of Open Access Charges as per FORMAT-
VI (Bilateral)
Nodal RLDC issues schedule of acceptance as per FORMAT-VI(Bilateral) and Procedure for
Bilateral Transaction, laid down by CTU, mentioning the quantum of power flow
scheduled(hour-wise) and the period of transaction. Scheduling is accepted either in full or in
part (with reasons given in writing).
Nodal RLDC also issues the open access charges to the trading licensee/applicant. Open access
charges comprise of a. Transmission charges
b. Operating charges
c. Application fees
Transmission charges for CTU network are notified vide Central Electricity Regulatory
Commission (Open Access in Inter-state Transmission) (amendments) Regulations, 2009 and are
shown below.
Sl. No. Type of Transaction Rate
1 Intra-regional Rs 80/Mwh
2 Between adjacent regions Rs 160/Mwh
3 Wheeling through one or more intervening regions Rs 240/Mwh
Transmission charges for STU networks are notified in RLDC websites, as shown below:
54
Operating charges are notified vide Central Electricity Regulatory Commission (Open Access in
Inter-state Transmission) (amendments) Regulations, 2009 and are shown(Table-10) below:
RLDC Rs 2000/ day or part of day for each bilateral transaction
SLDC Rs 2000/ day or part of day for each bilateral transaction
Application Fee of Rs 5000 is charged by Nodal RLDC for processing of application.
STEP-7 Payment of Open Access Charges to Nodal RLDC
Payment of Open Access Charges is made to Nodal RLDC within 3 days of issuance of
Acceptance of Schedule. Power flow takes place as per this schedule. The implemented
schedules are displayed in RLDC website. Then Trading Licensee issues open access bills of
apportioned amount to Buyer and Seller to recover the payment made to Nodal RLDC.
STEP-8 Provisional Billing by Trading Licensee
Provisional Billing is based on implemented schedules issued by Seller RLDC(displayed on its
website). The schedules displayed show the quantum of power flow (15 minute time-blocks
wise). Based on this quantum provisional Bills are issued to Buyer as per rates agreed in PPA
and by adding trading margin to it. Similarly, the seller issues provisional bills to the trading
licensee as per the quantum shown in implemented schedules.
STEP-9 Final Settlement of bill
Final settlement of bill is done by incorporating the actual energy flow based on Regional
Energy Account (REA) issued by Regional Power Committees (RPC). REA for the past month is
issued by RPCs in current month. The deviations from schedule or the actual injection and drawl
of energy are known from REA.
55
10.2 Intra-state bilateral transaction
In addition to interstate transactions, trading licensees also facilitate intra-state transactions
where the buyer and seller are located in the same state. The operations for intra-state bilateral
transaction can be shown in the form of a diagram (Figure 14).
Finding Seller having surplus
generating capacity and buyer having
requirement for short term power
Power Purchase Agreements/ contracts
with Buyer and Seller for mutually
agreed terms and conditions
Concurrence from Buyer and Seller for
transaction during pre-decided period
Application to concerned SLDC for
scheduling. SLDC grants acceptance of
scheduling and issues open access bill
Physical flow of power through the
reserved transmission corridor.
Payment of open access charges to
SLDC.
Provisional Billing by Trading
Licensee based on schedules issued by
SLDC. Final Billing is done after
incorporating any deviation as seen
from the settlement account issued by
SLDC.
STEP-1
STEP-2
STEP-3
STEP-4
STEP-5
STEP-6
56
STEP 1 & 2 Finding Buyer and Seller & Signing Power Purchase Agreements/Contracts
The function of Marketing Department is to find a seller having surplus generating capacity
and buyer having requirement for short term power. Then Trading Licensee signs Power
Purchase Agreements (PPA) with Buyer and Seller for a mutually agreed period such as 5-15
years. The transaction of energy depends the availability of power (surplus generation) from the
seller side and requirement of the short term power by the buyer side for various purposes. PPAs
are signed with buyers and sellers separately.
STEP-3 Concurrence from Buyer/Seller for short term transaction
As and when the buyer wants power to purchase, the trading licensee enquires about the
availability of power from sellers. Similarly as and when a seller submits proposal to sell power,
trading licensee intimates about the availability to buyers. Generally, concurrence from both
sides is obtained before application is filed for scheduling.
STEP-4 Application for scheduling
Application is filed by the trading licensee for scheduling to the SLDC as per the Open Access
Regulations of different states issues by SERCs. Here no RLDC is involved.
SLDC grants acceptance for scheduling after checking for congestion. It also issues the open
access bill to the trading licensee. The open access bill comprises of transmission charges,
operating charges and application fee (if any). Transmission charges up to the delivery point
borne by the seller and beyond that is bone by the buyer(Fig 15). Usually, the delivery point (as
mentioned in PPA) is the state grid entry, i.e. all the charges are usually borne by the buyer.
However, it may vary, depending upon the terms of agreement.
Seller
Buyer
State Grid
State Grid Entry
State Grid Exit
57
STEP-5 Payment of Open Access Charges to SLDC and exchange of schedules
Payment is made to SLDC within the no of days stipulated in the respective Open Access
Regulations of the state. The above charges are recovered from buyer/seller as per the agreement
signed. Power flow occurs as per schedule. The schedules are exchanged between trading
licensee, SLDC, buyer and seller through electronic means (unlike inter-state transactions, where
schedules are displayed on the website of RLDCs and there is no need of exchange of schedules)
STEP-6 Billing
Provisional billing is done as per the terms of agreement (weekly/monthly) on the quantum of
scheduled power flow. Some states issue energy settlement account (like REA issued by RPCs)
for the last month . For example, Maharashtra issues a settlement account, called IBSM
(Intrastate balancing and settlement mechanism). It reflects the actual injected energy by the
seller and the actual energy drawn by the buyer. Final billing is done on the deviations from
scheduled energy.
In some cases billing is done on the monthly meter reading statements issued by STUs (as
mentioned in the billing clause in the PPA). In that case, no provisional billing is done. The final
bill is issued to the buyer (including the trading margin) on the quantum of energy shown by
meter reading statements.
10.3 Collective Transaction-
Collective transactions are the transactions of power discovered in a power exchange. Trading
licensees facilitate the participation of members in collective transactions. The operations for
collective transaction can be shown in the form of a diagram
58
Finding Buyer/Seller having
requirement for short term
power/ surplus power to sell
Agreements with Buyer/Seller,
incorporating them as
members in power exchange,
obtaining portfolio number
for members
Obtaining consent from SLDC
as per FORMAT-PX-1 by Buyer
/Seller or by trading licensee
on behalf of Buyer/Seller
Submitting bids (Buy/Sell) on
behalf of Buyer/Seller on the
Trading Platform of Power
Exchange between 10:00 Hrs
and 12:00 Hrs
Power Exchanges issue
Provisional Result at 13:00
Hrs. Trading Licensee
forwards the Provisional
Result to the participants
Power Exchanges issue Final
Result at 15:00 Hrs. Trading
Licensee forwards the
Provisional Result to the
participants.
Power Exchanges issue daily
Obligation report to trading
licensee. Trading Licensee
issues adjustment bill and
credit note to the parties.
STEP-1
STEP-2
STEP-3
STEP-4
STEP-5
STEP-6
STEP-7
59
STEP-1 Finding Buyer/Seller
The function of Marketing Dept. is to find Buyer/Seller having requirement for short term
power/ surplus power to sell to participate as a member in power exchanges. In collective
transaction, the transaction of power is discovered in the trading platform of the power exchange.
The seller does not get to know the buyer of his power and the buyer does not get to know whose
power has been bought by him.
STEP-2 Agreements with Buyer/Seller
Agreements are made with Buyer/Seller for mutually agreed period. The buyer/seller is
incorporated as a participant/member of a power exchange. The power exchange in turn provides
a portfolio no to the participant.
STEP-3 No-Objection/Standing Clearance from SLDC
No-Objection/Standing Clearance is to be obtained from the SLDC of the state in which the
participant is situated, as per FORMAT-PX-1, either by the market participant or by trading
licensee on behalf of participant. SLDC grants No-Objection/Standing Clearance by stating
a. the quantum of power to be injected or drawn by the participant
b. the period of transaction
c. the point of connection, where the participant would inject or draw power to/from the
grid
d. the percentage of transmission losses to be applicable(both for regional grid and state
grid)
e. the transmission charges applicable(both for regional grid and state grid)
STEP-4 Submitting bids on the Trading Platform of Power Exchange
Buy/Sell bids are submitted on the trading platform of power exchange by trading licensee on
behalf of the participants between 10:00 Hrs and 12:00 Hrs of the day. A typical sale bid (hour-
60
wise) and a purchase bid (hour-wise). These bids are submitted for delivery on the next day.
The quantum of sale or purchase submitted on the trading platform are the quantum arrived after
incorporating the regional and state transmission losses. The seller has to bear the transmission
losses up to the regional periphery. Similarly buyer has to bear the transmission losses from
the regional periphery up to the state grid entry for the buyer. The % of transmission losses
are to be effected are mentioned in the No-Objection/Standing Clearance issued by SLDC(Fig
17). These figures are also displayed in the website of RLDC.
If the seller is located in one state of northern region having losses of 2% and 3% for STU and
NR Grid respectively and the buyer is located in another state of western region having losses of
4% and 1% for WR Grid and STU respectively, then the seller would inject more power(105.2
MW) equivalent to the losses of state grid and NR grid. Similarly, the buyer would draw less
power(95.04MW), bearing the losses of state grid and WR grid(Figure 18).
State Grid losses are mentioned
here along with whether that will
be applicable or not to the
quantum of power mentioned in
Sl. No. 6 & 7
61
Therefore, Buyer’s drawl = Contracted power – Losses
Seller’s injection = Contracted power + Losses
STEP-5 Provisional Result
The power exchange matches the supply bids with the purchase bids for each hour. The market
clearing volume(MCV) is determined at the point where the cumulative supply bids match the
cumulative purchase bids. The price corresponding to this point is called the market clearing
price(MCP). This corresponds to the provisional result. It is sent to NLDC as well as the trading
licensee at 13:00 hrs as per Procedure for Collective Transaction, issued by CTU. The trading
licensee forwards the corresponding result for each participant to the participants.
STEP-6 Final Result
The provisional result is submitted by power exchange to NLDC. NLDC checks for congestion.
If congestion is found, NLDC informs the exchange by 14:00 Hrs about the period of congestion
and the available limit for scheduling of collective transaction on respective transmission system
interfaces. Then power exchange curtails the quantum of power discovered in provisional result
by market splitting. After market splitting, prices in the deficit region rises and in the surplus
region falls. The prices corresponding to each area are called area clearing price (ACP). Thus
the final schedule is made. The power exchange submits the same to NLDC and trading licensee
Delivery point for
Buyer: WR Periphery
Delivery point for
Seller: NR Periphery
62
at 15:00 hrs. The trading licensee in turn forwards the corresponding final result for each
participant to the participants.
STEP-7 Billing
The power exchange issues daily obligation report to the trading licensee, containing the amount
to be paid by the participant, if he is a buyer and containing the amount to be received by the
participant, if he is a seller. A margin of one paisa/unit is charged by the power exchange to the
quantum of cleared volume. In addition, it also issues the open access charges to be paid by the
participant. The open access charges comprise of
a. NLDC application fee,
b. Transmission charges for CTU and STUs.
c. And operating charges for NLDC and SLDCs.
The NLDC application fee = Rs 5000/(No of successful portfolios)
The CTU transmission charges are as per rates given in table-8 and is reproduced below:
Sl. No. Type of Transaction Rate
1 intra-regional Rs 80/Mwh
2 between adjacent regions Rs 160/Mwh
3 wheeling through one or more intervening regions Rs 240/Mwh
NLDC scheduling and operating charges =
Rs 5000 *(Regional Entity Buyers + Regional Entity Sellers)/ (No of successful portfolios)( No
of Entities)
STU transmission charges are as per rates given in standing clearance and also displayed in
websites of RLDCs.
SLDC scheduling and operating charges = Rs 2000 per day.
63
Based on the obligation report, the trading licensee issues adjustment bill and credit note to
parties. While issuing adjustment bill, the trading margin is charged to the quantum of cleared
volume of both seller and buyer. The open access charges are added to the energy charges for
buyer.
In case of seller, the open access charges are deducted from the energy charges to be paid
to the seller.
So, Amount received by seller = (Quantum of cleared volume)(ACP) - exchange margin –
trading margin – open access charges
So, Amount paid by buyer = (Quantum of cleared volume)(ACP) + exchange margin
+ tradingmargin + open access charges
The flow of funds in case of collective transaction is shown below:
10.4 Banking-
Banking is the process of supplying a given quantum of energy to another party for a particular
period and drawing the same quantum of energy in a future period from the same party. It is a
kind of arrangement where, an entity having surplus power supplies power to another entity
having requirement for short term power in a particular period of a year and draws the same
quantum of energy, when required from the same entity during another period of the year.
Usually, this is done between entities having similar conditions of surplus power during some
season of the year and deficit during other season of the year.
From Power ex to Trading Licensee on
From Trading Licensee to Power Ex on T th
(T+1)th Day
Day In case of Purchase
In case of Sale
T – Trading day
64
Advantages of Banking
An entity may have surplus power in any period of the year, but selling it may not fetch the
entity a good price, because prices of electricity in market may be down at that time. On the
other hand, the prices of electricity may become high in market may become high at the time,
when the entity is facing power deficit and will have to purchase short term power. In order to
hedge against such price fluctuations, the entities usually go for banking. Under this
arrangement, one entity having surplus power supplies power to another entity having
requirement for short term power in a particular period of a year and draws the same quantum of
power, when required from the same entity during another period of the year. Supplying energy
in this case does not involve any financial transaction, except that the trading margin is charged
by the trading licensee to the buyer.
Banking arrangement can be shown in the form of a diagram(Figure 19):
In some cases, agreement is made between two parties, in such a way that Entity A supplies
100% of the power to Entity B, and in future gets back 105% or 95% of the quantum of power
supplied. This figure depends upon mutual agreement between two parties.
Entity A Entity B
Entity A Entity B
100 MW RTC power flow in the month of April
100MW/105MW/95MW RTC power flow in the month of June
In one
period
In another
period
65
The procedure for arranging transaction from A to B and again from B to A, is same as that of
bilateral transaction.
10.5 Submitting Reports to CERC as per the prescribed Formats-
Reports are sent to CERC by every Trading Licensee as per prescribed formats (Format –III and
Format- IV) every quarter.
11. Power exchanges for collective transaction
Exchange is a platform on which buyers and sellers gather to trade in a commodity. The buyer
does not come to know who the seller is and the seller does not come to know who the buyer is.
In this way, an exchange functions as a facilitator to the participants or a host to the market.
A power exchange is an exchange dedicated to electricity trading, where electricity is considered
as a commodity. So power exchange provides a platform on which power is traded. i.e. bought
and sold, either at spot or as derivatives, where the underlying asset is power. An exchange
represents a market-driven economy where prices of electricity 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 act against each other, which leads to a point of
equilibrium. This equilibrium point determines the correct price of electricity at a given time.
These conflicting forces are represented by bids, i.e. Sale bids and purchase bids. While in a sale
bid the seller shows his intention to produce and sell more as the price of electricity increases,
the buyer in a purchase bid wants to purchase more at lower prices and less at higher prices.
The buyers and sellers remain anonymous to each other, so that the bigger players will not
be in a position to influence the smaller players. In this a there will a level playing field for
all the participants.
In India, there are two power exchanges in operation, namely Indian Energy Exchange (IEX) and
Power Exchange of India (PXI).
66
Currently, the exchanges function in accordance with the “Central Electricity Regulatory
Commission (Open Access in inter-State Transmission) Regulations, 2008”, dated 25.01.2008,
the “Central Electricity Regulatory Commission (Open Access in inter-State Transmission)
(amendments) Regulations, 2009”, dated 20.05.2009, Procedure for scheduling of collective
transaction issued by the Central Transmission Utility (PGCIL) and the Bye-Laws, Rules and
Business Rules of the Exchange.
Currently Indian power exchanges offer a day-ahead market, where the delivery is made on the
next day of scheduling. It is a kind of spot market, where the scheduling for the next day is done
on the basis of matched bids and delivery (physical power flow from seller to buyer) is done on
the next day based on schedules. The power exchange does not own any transmission
infrastructure. It is the place where the successful buyers and sellers (who get the opportunity to
buy or sell, based on their bid) are discovered. Physical power flow takes place through the
transmission infrastructure of STUs and CTU. The NLDC and SLDCs schedule the flow, based
on the transactions discovered in the electronic trading platform of the power exchange.
11.1 Products offered by Power Exchanges-
Worldwide, the power exchanges offer a variety of products in addition to day-ahead market.
These are: a. real-time balancing market (hour-ahead) market
b. week-ahead market
c. month-ahead market
d. quarter-ahead market
e. capacity market
f. ancillary market
In addition, there are financial derivative markets being offered in the form of forward and future
contracts, options and contracts of difference.
In a balancing market, the deviations (actual from schedules) in the day-ahead market are
adjusted and settled between participants. Typically, real time balancing market should exist with
a day-ahead market (In NORDPOOL, the day-ahead market is called ELSPOT, and the
67
balancing market is called ELBAS). In India, there is no balancing market and the deviations are
settled through UI.
In term-ahead (weekly, monthly and quarterly) markets, contracts are offered for the terms in
advance. The process of finding MCV and MCP in day-ahead market and term-ahead markets is
same.
A capacity market is the market in which generation capacities can be acquired by the
participants. PJM (Pennsylvania, New Jersey, and Maryland ) of US offers a capacity market. In
PJM, an LSE (Load Serving Entity) has the obligation to own or acquire capacity resources
greater than or equal to the peak load that it serves plus a reserve margin of about 18% [5]. LSEs
have the flexibility to acquire capacity in a variety of ways. Capacity can be obtained by building
units, by entering into bilateral arrangements or by participating in the capacity credit markets
operated by PJM.
Ancillary services are defined as all those required for the reliable delivery of electricity. In
electricity industry, these services are complimentary services that compliment the production of
energy. Specifically, ancillary services are those functions performed by power systems with
regards to generation, transmission and distribution of electricity to facilitate technical and
commercial transactions. These services are provided by the same equipment that generate and
transmit electricity. In power markets, the availability of sufficient ancillary services makes
power systems reliable and transactions deliverable. In the power market PJM, the system
operator procures the losses from the ancillary market and the buyer is charged for the same. In
India, an ancillary market is not developed yet. The transmission losses are paid by the
participants in kind.
Derivative contracts are used for price hedging and risk management in electricity trading.
NORDPOOL offers derivative instruments in the form of standardized forward and future
contracts. The forward contracts are short term contracts (days, weeks) whereas the future
contracts are for longer term (months, quarters and years). Unlike futures in options buyer does
not have any obligation to exercise the contract. Options can also be used to hedge the risk of
68
price fluctuations. The only difference being that an upfront payment of premium has to be
made in case of an option whereas a trader does not need any upfront payment in case of futures.
11.2 Benefits provided by power exchanges:
1. No need to search for buyers and sellers, thus eliminates search cost.
2. No need to book the transmission corridor as well as to deal with the system operators
like NLDC, RLDCs, SLDCs in India.
3. Sell / Buy all across the nation.
4. No need to negotiate for the prices unlike in Bilateral Contracts.
5. Power exchanges act as counterparty, thus a participant need not to assess the risk profile
of the other participant.
11.3 Concepts related to Power Exchanges-
Double side bidding Vs only Supply side bidding -
In some electricity markets, only supply side bidding is permitted. In Supply side bidding, only
suppliers submit their offer to supply various quantities of electricity with corresponding prices.
This type of design is usually adopted where centralized dispatch is in vogue. The central
dispatcher or the integrated system operator (ISO) matches the forecasted demand with the sale
bids starting from the lowest sale price.
On the other hand, in case of Double side bidding, buyers also submit their demand at various
prices. This means that in double side bidding, buyer's demand is sensitive to prices. Double side
bidding is more suited for markets where decentralized dispatch (like in India) is in vogue.
Ex-ante Vs Ex-post price Settlement-
In Ex-ante price Settlement, the price settlement is done before delivery, on the basis of the
market/area clearing price and cleared volume discovered in exchange. But in Ex-post price
Settlement, settlement is done after the delivery of power.
69
Deviations from schedule are settled again using different mechanisms. In India, it is done
through UI price mechanism, where the deviations are charged according to the frequency based
UI charge at the time of power flow. But advanced electricity markets have real time balancing
market or ancillary markets for this purpose.
Zonal Pricing Vs Nodal Pricing-
In zonal pricing, the entire market is divided into a no of zones and all
participants(buyers/sellers) belonging to a single zone pay or receive a uniform price,
irrespective of the congestion occurring in the transmission line inside the zone. Zonal prices
differ from one zone to another depending on congestion in transmission lines between the
zones. On the other hand, in nodal prices, the participants pay or receive a price, which depends
on the node or the point of connection in the transmission grid, through which the participant
injects or draws power. Price at each node depends on congestion in the transmission lines. In
India, zonal pricing system is followed and the entire country is divided into 10 zones or areas.
Time block for contracts-
Most of the electricity exchanges offer hourly contract, i.e. there will be 24 contracts in one day.
Each contract specifies the amount of power to be traded (either to be sold or to be purchased by
the participant), and the price for each hourly contract is discovered in the trading platform. In
India, hourly contract system is followed. Time block can be of half-hour duration (as offered in
NEMMCO- Australia) or of more than one hour duration (as offered in EEEX-Germany).
Congestion Management-
When the schedule of power flow in a particular transmission corridor discovered in power
exchange is more than the transfer capacity of that corridor, then congestion is said to occur. The
entire power scheduled cannot flow in the line, as it would endanger the entire transmission
system. In order handle congestion, the quantum of power flow is reduced by using suitable
mechanism in different electricity markets. One of the methods is called, market splitting,
which is used in India.
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Auction Type-
Most of the power exchanges across the world work on the principle of uniform pricing. In this
method, the clearing price and clearing volume of electricity corresponds to the point of
intersection of the Aggregate Demand curve and Aggregate Supply curve. All the suppliers are
paid based on the clearing price, irrespective of their offer. This means that price is set by the last
accepted offer of supply. In the alternative approach, referred as discriminatory pricing or "pay-
as-bid" method, each supplier is paid as per its bid. Each buyer pays a price, which is the
weighted average of the price for all suppliers cleared by the PX (as used by BETTA, UK).
OMEL (Spain) uses a different kind of pricing mechanism in which the buyer of the highest bid
gets the electricity at the second highest bid price (Vickery auction).
11.4 Working of day-ahead market-
The scheduling of power flow starts with bidding (sale or purchase). Typical sale and purchase
bids were shown in. Bids are allowed to be submitted in Indian Power Exchanges between 10:00
Hrs to 12:00 hrs of the day(as per Procedure for Scheduling of Short-Term Open
Access(Collective Transaction) issued by CTU,
In the sale bid, the seller can ensure that no quantum out of 10 MW power will be cleared for
sale as soon as the price falls below Rs 2000/MWh between 00:00 hrs to 06:00 hrs. Similarly, no
quantum out of 15 MW power will be cleared as soon as the price falls below Rs 5000/MWh
between 06:00 hrs to 12:00 hrs.
In the same way, in purchase bid, the seller can ensure that no quantum of power will be cleared
for purchase as soon as the price rises above Rs 2000/MWh between 00:00 hrs to 06:00 hrs.
Similarly, no quantum of power will be cleared as soon as the price rises above Rs 5000/MWh
between 06:00 hrs to 12:00 hrs.
All the sale bids of a particular hour are aggregated, i.e. are arranged in the increasing order of
price. This forms the aggregated supply curve( between price on Y-axis and quantity on X-axis)
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which is a typically upward sloping curve(which means that suppliers are generally willing to
supply higher quantities at higher prices).
Similarly, all the purchase bids of a particular hour are aggregated, i.e. are arranged in the
decreasing order of price. This forms the aggregated demand curve (between price on Y-axis and
quantity on X-axis) which is a typically downward sloping curve (which means that purchasers
are inclined to buy more power at lower prices).
These curves will appear in the form as shown below(Figure 20)
The intersection of the two curves shows the market clearing price (MCP), i.e. the price at which
buyers and sellers will purchase and sell electricity and the market clearing volume (MCV), i.e.
the total volume of transaction discovered.
All the sale bids with quoted price less than or equal to the MCP will be cleared for sale.
These bidders will be called the successful bidders. Similarly all the purchase bids with
quoted price greater than or equal to the MCP will be cleared for purchase. Corresponding
bidders will be called the successful bidders. In this way, both the sides pay or receive a
uniform price which is equal to or better than their bid price.
MCV
MCP
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This can be explained in the following figure
The sellers and sale bids are(Table 14):
Sl No Seller Sale Bid
1 S1 50 MW at Rs 5,500
2 S2 10 MW at Rs 6,000
3 S3 40 MW at Rs 7,000
4 S4 50 MW at Rs 8000
5 S5 50 MW at Rs 9,000
6 S6 50 MW at Rs 10,000
10 MW at Rs 10,000
50 MW at Rs 5,500
40 MW at Rs 9,000
50 MW at Rs 6000
25 MW at Rs 7000
50 MW at Rs 8,000
25 MW at Rs 8,000
50 MW at Rs 5,500
10 MW at Rs 6,000
40 MW at Rs 7,000
50 MW at Rs 8000
50 MW at Rs 9,000
50 MW at Rs 10,000
Quantity(MWh)
Sale Bid
Purchase Bid MCV-125 MW
MCP-Rs 8000
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The buyers and buy bids are
Sl No Buyer Purchase Bid
1 B1 10 MW at Rs 10,000
2 B2 40 MW at Rs 9,000
3 B3 50 MW at Rs 8,000
4 B4 25 MW at Rs 8,000
5 B5 25 MW at Rs 7000
6 B6 50 MW at Rs 6000
7 B7 50 MW at Rs 5,500
The MCP discovered here is Rs 8000 and the MCV discovered here is 125 MW.
The successful sale bids:
The successful purchase bids are(Table 17):
Sl No Buyer Cleared quantum
1 B1 10 MW at Rs 8,000
2 B2 40 MW at Rs 8,000
3 B3 50 MW at Rs 8,000
4 B4 25 MW at Rs 8,000
Here the successful buyers are required to pay Rs 8,000/MWh, which is better than or equal to
the prices (more than or equal to Rs 8,000) quoted by them. Similarly the successful sellers
Sl No Seller Cleared quantum
1 S1 50 MW at Rs 8,000
2 S2 10 MW at Rs 8,000
3 S3 40 MW at Rs 8,000
4 S4 25 MW at Rs 8,000
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receive Rs 8,000/MWh, which is better than or equal to the prices (less than or equal to Rs
8,000) quoted by them.
The MCPs(hour-wise) and MCVs(hour-wise) of a particular day of India Energy Exchange are
shown below(Figure 22):
Source-IEX.
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11.5 Market Splitting-
At this stage, MCP and MCV are discovered without taking the system constraints (transfer
capacity of transmission lines through which power is intended to flow) into consideration, i.e. in
unconstrained situation. The respective cleared quantum for sale or purchase is sent to NLDC
and the trading licensees/participants at 13:00 hrs of the day(as per Procedure for Scheduling of
Short-Term Open Access(Collective Transaction) issued by CTU, Refer Fig 4).
The anticipated congestion (in a transmission corridor-hour wise), if any, is intimated by NLDC
to power exchanges by 14:00 Hrs(as per Procedure for Scheduling of Short-Term Open
Access(Collective Transaction) issued by CTU, Refer Fig 4).
The power exchanges then curtail the total power flow in the congested corridor, by a method
called market splitting. It is an implicit auction mechanism, wherein transmission capacity and
energy are auctioned and traded simultaneously, ensuring that transmission capacity is allocated
according to buy or sale bids. Here, the entire market is divided into two areas, one the net deficit
area(downstream area of the congested corridor) and second the net surplus area(upstream area
of the congested corridor). The area clearing prices(ACP) of these areas are determined
separately, unlike the MCP where the price for the whole market is determined. The ACPs are
adjusted in such a way that the flow across the congested corridor is same as the available
transfer capacity. This is done by curtailing the volume of relatively expensive sellers in
surplus(upstream) area and by curtailing the volume of relatively cheaper buyers in
deficit(Downstream) area.
11.6 Clearing and Settlement- Clearing is the process of determining financial as well as
physical obligations. Settlement is the process of discharging obligations through transfer of
funds between various accounts and meeting the obligation of delivery.
Two key terms involved in the process of clearing and settlement are:
Pay-in: funds paid by the buyer for buying power
Pay-out: funds paid to the seller for selling of power
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Every power exchange will have a clearing house for clearing and settlement of the contracts that
are traded on the exchange. The clearing house effects pay-in and pay-out and monitors clearing
and settlement process. Based on the cleared volumes and the ACPs, clearing houses issue daily
obligation report to the trading licensee/participants. The obligation report contains the energy
charges(to be paid by the buyer-pay in/to be received by the seller-payout) as well as the open
access charges.
Amount received by seller = (Quantum of cleared volume)(ACP) - exchange margin
– Open access charges
So, Amount paid by buyer = (Quantum of cleared volume)(ACP) + exchange margin
+ Open access charges
An exchange member opens a settlement account with a clearing bank, approved by the power
exchange. The exchange reserves the right to withdraw funds from the account by debit
instruction to the bank. All pay-ins, charges, margins payable to the exchange are debited from
the settlement account of the participant by issuing debit instructions to the bank. Similarly, the
exchange credits the pay-out, refund of margins(if any) to the account directly.
The flow of funds between buyers, sellers and power exchanges is shown below:
10.7 Power Exchanges in India- the Road Ahead:
At present, power exchanges in India offer hourly contracts in Day-ahead contracts. In future,
hourly contracts in Term-ahead contracts can be offered. A Term Ahead Market provides the
platform to trade in contracts with various underlying such as Weeks, Months, Quarters, Intraday
etc. Here hourly bids are invited for the term in which power is to be scheduled and demand-
supply matching is done like in the case of day-ahead market. IEX is currently in the process of
From Buyer to Power Ex on -
(T+1)th Day From Power Ex to seller on -
T th Day
T – Trading day
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offering the term-ahead contracts to the market participants. The trading dates for the week and
month-ahead contracts offered by IEX are given below(Table 18):
Trading Dates Delivery Underlying (Month and Weeks)
L-15 of Month 1 Month 2
L-10 of Month 1 Month 3
L-5 of Month 1 Month 4
L= Last date of Month 1,
Source-IEX.
The bid matching process offered for day-ahead market is called the closed-auction method,
because matching is done after the bids have been submitted. The time-line for bid submission
for day-ahead market is 10:00 Hrs to 12:00 Hrs. However, another type of bid matching is
through continuous trading.
Continuous trading is based on Price-Time priority, i.e. the best buy bid and the best sale bid are
matched first. The best buy bid is the bid with highest buy price. Similarly, the best sale bid is
the bid with lowest sale price. The bids are matched on a continuous basis and in real time basis.
If the prices are same then priority is given to the time of the order received.
The time lines for closed-auction trading and continuous trading offered by IEX are(Table 19):
Trading Type Time lines-Delivery Underlying (Month and Weeks)
Closed-auction trading 03:00 PM-04:00 PM of the trading day
Continuous trading 04:05 PM- 05:00 PM of the trading day
Source-IEX.
The above contracts offered as discussed above come under collective transaction. Power
exchanges can also offer contracts under bilateral transaction. As per CERC Order dated 20th
May, 09 on Open Access in inter-State Transmission (Amendment) Regulations:
2.“(b) “bilateral transaction” means a transaction for exchange of energy (MWh) between a
specified buyer and a specified seller, directly or through a trading licensee or discovered at
power exchange through anonymous bidding, from a specified point.
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IEX offers regional contracts under bilateral transaction. The timelines for week and month-
ahead contracts offered by IEX are given below(Table 20):
Trading Dates Application For
Scheduling Delivery Underlying (Month and Weeks)
L-15 of Month 1 L-10 of Month 1 Month 2
L-10 of Month 1 L-5 of Month 1 Month 3
L-5 of Month 1 L of Month 1 Month 4
L= Last day of Month 1, Source-IEX.
The delivery point in case of regional contracts shall be the state/regional entities periphery to
which the seller belongs. In case the Seller is a Regional Entity, delivery point shall be the
regional periphery of that region. Therefore, the delivery point here is fixed unlike bilateral
transaction (direct or through trader), where delivery point can vary from one contact to another,
depending upon the agreement between parties.
Suitable C & S mechanism has also been developed by IEX, for physical flow of power and
financial settlement.
12. Instruments in Financial Markets
In the financial markets, there will be various derivative products based on electricity supply
contracts. Similar to the normal commodity markets the duration can be 7 days to 1 year.
Similarly, the expiry date can also be fixed for some particular day e.g., last Thursday of the
month. In all the instruments the traders will have the option of cash settlement only. There will
be no delivery settlement option for the participants. For the participants who want the delivery
of electricity, they can deal in the forward market. The lot size of the contracts should be
decided by keeping in mind the liquidity constraints and operational ease of trading for the
participants.
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Two tools will be available for participants to hedge against price fluctuations.
These are as follows:
1. Forward Contract
2. Contract for Differences
Financial electricity contracts to be traded at the Power Exchange are standardized products that
are financially settled. There is no physical delivery of electric power. Settlement is conducted
between Clearing’s service and individual members.
All financial power contracts are cash-settled.
� Generators, retailers and end-users that use the products as risk management tools.
� Traders who profit from volatility in the power market, and contribute to high liquidity
and trade activity.
12.1 Forward Contract
It is a tool which is used to hedge against system price. This can be better understood by taking
an
example:
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In the example, an Exchange Member/Clearing Member has purchased a forward at a price of Rs
260/MWh. At the due date, the value has increased to Rs 285/MWh. During final settlement for
the hour specified in the figure, the member receives Rs (288-260)/MWh =Rs 28/MWh. This
amount is the total of the accumulated value Rs (285-260)/MWh from the trading period (the
pending settlement) and Rs (288-285)/MWh from the Spot Reference Cash Settlement. The
pending settlement will be realized in the delivery period.
Purchasing the contract’s volume in the spot market costs Rs288/MWh. The total cost of hedging
the power purchase through a forward contract followed by a spot market purchase is equal to
the hedging price, Rs 260/MWh.
In the trading period prior to the due date, there is no mark-to-market settlement. The mark to-
market amount is accumulated as daily loss or profit, but not realized, throughout the trading
period. So from buyer’s point of view, whatever the system price in there, or how the price is
fluctuating he doesn’t have to bother. For him, the system price will be the price at which he has
made contract.
And from seller’s point of view, whatever the system price in there, or how the price is
fluctuating he doesn’t have to bother. For him also, the system price will be the price at which he
has made contract.
12.2 Futures Contract
Future contact in the power exchange would mean that the participant can hedge their risk in the
fluctuation of electricity prices for longer terms. For example, a generating company expecting a
decrease in the electricity prices can sell the futures now to be able to ensure higher prices at the
time of delivery in future. Various kinds of contracts under this type of instrument can be of
varying time horizon starting from 7 days to 1 year. These contracts can be for different spot
market products for various durations like one day, one week, one month, three months, etc. e.g.
a future contract for Round the clock electricity supply from Jan 1 to next 30 days OR a future
contract for Evening Peak electricity supply from 25th Feb to next 7 days.
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12.3 Options
Unlike futures in options buyer does not have any obligation to exercise the contract. Options
can also be used to hedge the risk of price fluctuations. The only difference being that an upfront
payment of premium has to be made in case of an option whereas a trader does not need any
upfront payment in case of futures.
Fundamental option positions
Calls and puts
There are two basic types of options: buy (call) options and sell (put) options. A call option
entitles, but does not obligate, the holder to purchase the underlying product at a price that has
been agreed to in advance (the exercise price) -- no later than at the agreed-to date (the exercise
date).
A put option entitles the holder to sell the underlying product on corresponding terms. The
decision to invest in a call or put option is made according to the investor's expectations about
the price movement of the underlying instrument.
12.4 Contract for Differences
Actual physical-delivery purchase costs are determined by actual area prices. An area price
differs from the System Price when there are constraints in the transmission grid; CfDs allow
participants to hedge against this area price risk. So this helps to provide a perfect hedge.
A CfD is a forward contract with reference to the difference between the Area Price and the
System Price. The market price of a CfD during the trading period reflects the market’s
prediction of the price difference during the delivery period.
To create a perfect hedge that includes the basis risk when area prices are not equal to the System
Price, a three-step process using CfDs must be followed:
1. Hedge the required volume using forward contracts.
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2. Hedge any price difference – for the same period and volume – through CfDs.
3. Accomplish physical procurement by trade in the spot market area of the member’s location.
The market price of a CfD can be positive or negative or zero. CfDs trade at positive prices when
the market expects a specific area price to be higher than the System Price, (that is, the selected
market area is in a net import situation). CfDs will trade at negative prices if the market
anticipates an area price below the System Price (the market area is in a net export situation).
It can be better understood by taking an example:
Here, the Exchange Member has carried out the two steps required to make a perfect hedge of
area prices. He has purchased a forward contract (at a cost of Rs 260/MWh) to hedge the Nordic
Power Exchange spot market price, and a CfD (at a cost of Rs 10/MWh) to hedge any area price
differential. Total hedging costs are Rs 270/MWh.
In the chart above, the area price for the selected hour is Rs 290/MWh. The System Price is Rs
285/MWh. In the forward settlement during the delivery period, the member receives Rs
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15/MWh, and in the CfD settlement, Rs 5/MWh. Net procurement cost is Rs 270, which equals
the initial hedging costs of the forward, plus the CfD.
In this way, if a buyer has done a forward contract & Cfd , he doesn’t have to bother what the
system price and the area price is. He can get the power at a price equal to his total hedging cost.
Similarly, if a generator has done a forward contract & Cfd , he doesn’t have to bother what the
system price and the area price is. He will get the price equal to his total hedged cost.
13. Prospective future of power trading in India
13.1 Cross border power trading
Cross border power trading sector is in constant evolution therefore players on the market
need to keep up-to-date with the latest development in regional projects and within the regulation
framework which will enable power plant operator to trade in a more efficient way. As the
market develops and new business opportunities arise, trading across borders is becoming a key
interest to more and more companies. Trading across different borders still implies trading with
different rules and regulations. Cross border trade and investment are both the end and the means
by which South Asia can achieve energy security. Through investment and cooperation, South
Asia will be able to both close its burgeoning supply/demand gap and stimulate further reform,
which will in turn open markets for further investment. It will now be possible for Indian
companies to import power from across the border and sell it in the domestic market. The
Central Electricity Regulatory Commission (CERC) announced significant changes in the power-
trading policy, including a regulatory framework for cross-border trading of power. The
regulator has made a change in the definition of ‘inter-state trading” that will enable trade of
power between India and its neighbouring countries like Nepal and Bhutan. Cross-border trading
forms a part of inter-state trading. There have been very few instances of power import from
across the border in the recent past. One of them is the Tala transmission project, which brings
power from Bhutan to Delhi. This is being developed by Tata Power for Power Grid Corporation
of India Ltd (PGCIL), the country's largest power transmission company. Tata Power has also
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recently signed a Power Purchase Agreement (PPA) for trading of power through the Dagachu
power project in Bhutan. This had to be accommodated through policy changes.
Cross border power trading by PTC
Bhutan
Long term agreements in place for purchase of power from Bhutan
� Chukha: 336 MW
� Kurichhu: 60 MW and
� Tala: 1,020 MW
From the above mentioned three active projects in Bhutan, PTC purchased 5,228 MUs in FY
2008 5,579 MUs for 9 month period ended Dec 31, 2008
Nepal
Long term agreement initialled for purchase of entire power from 750 MW West Seti hydro-
electric power project in Nepal. The purchase of power has not started as yet. Active engagement
in the development of Indo – Nepal transmission interconnection for enhancement of power
trade.PTC is also a member of Indo-Nepal Power Exchange Committee. With the recent
development, PTC is focusing on cross-border power trading and looking at opportunities mainly
in the power-surplus Nepal, Bhutan and Bangladesh.
13.2 Hedging and speculation in power market.
Price volatility introduces new risks for generators, consumers, and marketers. In a
competitive environment, some generators will sell their power in potentially volatile spot
markets and will be at risk if spot prices are insufficient to cover generation costs. Consumers
will face greater seasonal, daily, and hourly price variability and, for commercial businesses, this
uncertainty could make it more difficult to assess their long-term financial position. Power
marketers sell electricity to both wholesale and retail consumers, often at fixed prices.
Marketers who buy on the spot market face the risk that the spot market price could substantially
exceed fixed prices specified in contracts.
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Electricity futures and other electric rate derivatives help electricity generators, consumers, and
marketers manage, or hedge, price risks in a competitive electricity market the futures contract is
closed by buying or selling a futures contract on or near the delivery date. Other electric rate
derivatives include options, price swaps, basis swaps, and forward contracts. Futures and options
are traded on an exchange where participants are required to post margins to cover potential
losses. Other hedging instruments are traded bilaterally in the “over-the-counter” (OTC) market.
Futures are not the only way to hedge electricity price risk electricity options contracts also.
Futures and derivatives should not be regulated simply because they can produce losses. Not
using futures in volatile commodity markets can also produce losses
A “short hedger” sells futures to hedge a long position in the underlying commodity (electricity),
while a “long hedger” buys futures to hedge a short position in the underlying commodity. A
generator is long in electric power and will use a short hedge. A marketer who has sold power to
a utility is short that power because he cannot produce it. A marketer will buy futures to hedge
its short position in the power market. There is, however, no reason that the amount of short
hedging will necessarily equal the amount of long hedging. For this reason, speculators are
useful. If there is an imbalance of hedgers, then speculators can make money by shouldering the
risk of hedgers.
A price swap is a negotiated agreement between two parties to exchange or “swap” specific price
risk exposures over a predetermined period of time.
A basis swap allows an individual to lock in a fixed price at a location other than the delivery
point of the futures contract.
13.2.1 Options
An option can be defined as a right to buy or sell a commodity at a fixed price before or
on a future date. An option is an "asymmetric risk" contract; that is, different conditions apply to
each party to the contract. An investor, who trades in options, purchases or sells the right to an
underlying instrument (for example, a forward contract). As is the case with Financial Market
(futures and forward contracts), the parties make the trade and set the price of the trade
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simultaneously. Settlement and delivery also take place at a fixed time in the future, according to
the terms of the product specification. There is a key distinction between forward and futures
contracts for electric power and options: in options trading, one of the parties -- the buyer --
obtains the right to decide whether to use (exercise) the option and complete the transaction. The
buyer (holder) of the option pays the seller (writer) an option premium for this right. The option
writer's obligation is to complete the transaction if the holder so demands (exercises the option).
The option writer has received a premium for taking on the obligation. If the option holder fails
to exercise this right and the option lapses, the option writer's profit is the premium payment, and
the holder's loss is limited to the premium.
There are two types of options: a put option and a call option. The buyer of an electricity put
option (also called “floors”) pays a premium for the right, but not the obligation, to sell
electricity at a specified price, the strike or exercise price, at a specified point in time.
End users use call options (also called “caps”) to place a maximum ceiling price (relative to an
indexed price) that they will pay for the commodity at a specified point in time. Generators and
end users can use combinations of calls and puts to ensure a particular price range.
13.2.2 Future
A future is a standardized contract where all terms associated with the transaction have
been defined in advance, leaving price as the only remaining point of negotiation.
Standardization helps make the price transparent because no correction for quality is needed to
compare different contracts. willing to buy (the bid price) or sell (the offer price) of a particular
month’s contract By far, the most common form of liquidation occurs when a party with a long
position (someone who previously bought a futures contract) decides to sell, and a party with a
short position (someone who previously sold a futures contract) decides to buy a futures contract.
More than 98% of all futures positions are closed prior to delivery. The holder of a short position
must deliver the commodity while the holder of a long position must receive the quantity.
The futures price converges at the time of maturity to the spot price of the underlying
commodity.
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A futures contract can be settled either by delivery of the physical commodity or by a cash
settlement. In either case, the settlement price should be identical to the spot market price for the
same product at the same place.
13.2.3 Forward Contracts
Under a forward contract, one party is obligated to buy and the other to sell, a specified
quantity of a specified commodity at a fixed price on a given date in the future. At the maturity
of a forward contract, the seller will deliver the commodity and the buyer will pay the purchase
price If, at that time, the market price of the commodity is higher than the price specified in the
contract, then the buyer will make a profit. Conversely, if the market price is lower than the
contract price, then the buyer will suffer a loss. The difference between a forward and a futures
contract is that the terms and conditions of forward contracts are not standardized. Rather, they
are negotiated to meet the particular business, financial or risk management needs of the parties
to the contract.
14. Trading of Green Power
Electricity generated from renewable energy sources is called renewable electricity or
‘green’ power. Renewable energy resources are naturally occurring, non-depletable sources of
energy, such as solar, wind, biomass and hydro. Green power is becoming a readily tradable
commodity worldwide.
Market research shows that most consumers don’t know where their power comes from and
think that electricity generation is cleaner than it actually is. However, when consumers are
informed and educated about the environmental differences among generation sources, they are
willing to pay more for cleaner energy sources. Business customers also value clean energy
choices and will be willing to make green power purchases either as a competitive business
advantage or as a way of reinforcing the company’s own environmental ethic.
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Using renewable energy can be an attractive emissions reduction strategy for corporate facilities
regulated under mandatory CO2 cap-and-trade systems.
For the green power market to be successful, consumers must understand that electricity
generation has important environmental consequences and that, through their power purchase
decisions, they can make positive changes in the generation resource mix, which today is heavily
weighted toward fossil fuels and nuclear. It is also important to assure customers who choose to
purchase green power that their purchases will lead to the use of cleaner energy sources. The
availability of “green power” products empowers consumers to purchase electricity generated
from renewable energy sources that are less damaging to the environment. Typically, consumers
must pay a premium on their electric bills to receive green power.
APX operates a week ahead, hourly market that matches buyers and sellers of 100% renewable
power at any time based on the “brown-market” price of power plus a green premium that is
determined by supply and demand in the green power market. The virtues of the APX Green
Power Market include a diversified portfolio of sellers and buyers, ease of use without
complicated auction rules, and prices that reflect market valuation of renewable. The market
moving to a wholesale green ticket system in which green power is split into two components—
energy delivered in real-time and a green ticket representing the actual greenness of the power.
This will allow the green premium to be traded over longer periods than hourly and provide
additional opportunities for generators of intermittent renewable power supplies.
For the green power market to be successful, consumers must understand that electricity
generation has important environmental consequences and that, through their power purchase
decisions, they can make positive changes in the generation resource mix, which today is heavily
weighted toward fossil fuels and nuclear. It is also important to assure customers who choose to
purchase green power that their purchases will lead to the use of cleaner energy sources.
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CONCLUSION
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15. Conclusion
The Indian power sector is in the path of reaching its adolescence state. When the developed
countries have undergone various modern and up-to-date systems to operate and function power
sector along with various instruments and products of power trading, India follows them and
trying to be one of the leaders in the power market operation. The journey of Indian power sector
is definitely a credit worth. The Indian power sector now is growing in the same pace as was the
development of the information technology sector in India.
Power trading is the biggest instrument of Indian power sector which will unveil the growth
opportunity of the power sector and optimize the natural resources of that lies in India. The
growth of Indian power trading will invite many players to come into the operation of power
trading and increase the competition in power market thereby achieving the economic efficiency,
higher quality services as well as lower consumer prices for electricity
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16. BIBLIOGRAPHY
� www.powermin.nic.in
� www.cercind.gov.in
� www.cea.nic.in
� www.iexindia.com
� www.powerexindia.com
� www.ptcindia.com
� www.infraline.com
� www.nldc.in
� www.erldc.com
� www.nerldc.com
� www.srldc.com
� www.nrldc.com
� www.wrldc.com
� www.powergridindia.com
� www.jindalpower.com/power-trading.html
� www.google.com