Case Study: Powering India
Short-Term Price Trends Short-term power prices are showing a declining trend
particularly from the later part of 2009 as observed in average monthly prices. Demand was particularly high in the initial period last year due to the general and state elections as state discoms were under instruction from the government not avoid load shedding at any cost. Day-ahead prices on the power exchange have a higher volatility than the electricity trader operated OTC market as day-ahead market prices better reflect the demand/supply situation in short-term. However, the average yearly prices in power exchange have been lower than the electricity trader operated OTC market in 2009 compared to 2008.
It can be expected that as more new capacity addition
take place short-term prices will fall further. The need for a forward market which reflects the markets perception of future prices through a forward curve is much needed. It would be fair to assume that a forward curve for baseload prices will go down as most capacity additions are coal-based but the peak load prices will continue to show an uptrend clearly reflecting the need for investment in peakload plants.
Transmission Utility (CTU) to focus on inter-regional bulk power transfer leading to the optimisation of power resources at the national level and the supply of power from surplus regions in the east and north east to deficit regions in the north and west. The CERC has been approached by the CTU for approval of a
capital expenditure of Rs 50,000 Crore for further expansion of the interstate transmission grid for 42,000 MW of new capacity. Generators are signing up to the Bulk Power Transmission Agreement (BPTA). These are corridors from generation concentrated in small pockets in coal belts (fuel surplus regions with pithead plants) and hydo sites, or costal ports where imported coal based generation is coming up to load centres in the north and west of the country. Another regulatory initiative has been in the area of
Transmission pricing. Transmission charges and losses are being made sensitive to electricity quantities, distance and direction. The pricing mechanism is being changed from regional ‘postage stamp’ to a new hybrid model (a combination of average participation and marginal participation – average participation for selection of slack bus and power tracing and marginal participation for calculating the utilisation of the system due to injection or withdrawal of power). With this the total transmission cost shared between transmission system users will be proportional to their respective utilisation of the transmission system. Users will pay a Point of Connection (POC) tariff based on whether they are connected at a generator node or a demand node, which is calculated as per AC load flow studies conducted for each node. This will remove the ‘pancaking’ of transmission charges across regional boundaries and encourage short-term power
128 Source: CERC
trading, especially in the context of numerous IPPs coming up in the near future. Since transmission charges are locationally differentiated it will also provide generator location siting signals with a considered view of power transmission costs vis-a-vis fuel transportation costs. Hence, pithead and hydro location plants will get a fair and equal opportunity to compete under a competitive bidding mechanism. Presently these become non-competitive if they are situated at a far-off distance due to pancaking of transmission charges. With respect to the rollout of the new mechanism it will be a
complex process and will be executed progressively with proper infrastructure change management in place. Since the method is a complex one, all the data will be available for simulation exercises and analysis to transmission system users.
2. Power Trading & Short-Term Markets Short-term power trading has helped in resource optimisation
by facilitating the transfer of surplus power to deficit regions in the country and full optimisation of generation assets in meeting short-term peak demand. Short-term prices have also provided signals for investment in both generation and transmission lines. Presently, both OTC markets and power exchanges are functioning, each playing an important role. The two important institutions in the short-term market are electricity traders and power exchanges. Electricity Trading: Trading in electricity is a licensed activity.
The Central and State Electricity Regulatory Commissions have powers to grant inter-state and intra-state trading licenses, respectively. CERC has granted 43 inter-state trading licenses. However, more than 80% of the OTC market share is presently with the top 5 electricity traders. Electricity traders are currently playing various roles. They help to bring discoms and gencos together to trade through negotiated contracts in the short-
worldPower 2010
Figure 3: Short-Term Electricity Transaction Prices
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