Power Ministry proposes reforms for short-term sale purchase of power

In future, the ministry is also looking at merging the DAMs of all power exchanges into one entity, which will oversee the trading of day-ahead bids for both renewable energy and conventional power

With long-term power purchase getting obsolete, the Union Ministry of Power has proposed a set of reforms for short-term sale purchase of power. The ministry has proposed an integrated day-ahead market (DAM) in power exchanges, which would blend trading of green and conventional energy, better the power price discovery, and improve payment to power generators.

In future, the ministry is also looking at merging the DAMs of all power exchanges into one entity, which will oversee the trading of day-ahead bids for both renewable energy (RE) and conventional power. The integrated DAM, however, has been planned to launch without this merger, for now, said officials.

In the set of proposals, the ministry said all existing DAMs should be integrated, with separate price formation for RE and conventional energy. Participants would be allowed to place bids for selling or buying both RE and conventional power.

The move comes at a time when RE in the country is facing lack of buyers. According to industry estimates, there are currently 19 gigawatt (Gw) of projects, which do not have any long-term power purchase agreements. There are 31 Gw of RE power projects under different stages of construction; 21 Gw are under bidding.

“Our nation has been witnessing remarkable transformation towards sustainable energy economy, with an increasing share of clean and green energy in its mix. With the aim of having multiple options for market participants in RE, which would be competing against each other, it has been decided to introduce integrated DAM in power exchanges, with separate price formation for RE and conventional power,” said a note by the Ministry of Power.

A senior executive with a power exchange said the power ministry wrote to the central electricity regulator, grid operator Power System Operation Corporation (POSOCO), and the two exchanges to launch the integrated DAM by the end of June this year.

The power trading market currently has two platforms in India — Power Exchange India (PXIL) and Indian Energy Exchange (IEX). IEX holds 95 per cent of the day-ahead spot power trading market. PXIL holds 40 per cent market share in the term-ahead market and renewable energy certificates. These exchanges have several power trading mechanisms — term-ahead, green-term ahead, day-ahead, intraday, and real-time market. DAM entails trading of power a day before. Sellers are power generating stations and buyers ranging from power distribution companies (discoms) to industrial and commercial consumers.

The power ministry has proposed that in the integrated DAM, buyers and sellers would indicate the amount of RE and conventional power they are placing bids for. First, all the RE bids would be cleared at once. All quantities transacted under this segment would be considered under ‘renewable purchase obligation’. In case there is any unselected quantity of RE, it would go to the conventional segment.  

The power ministry believes this would help participants identify they “have actually purchased renewable power from the exchange”.

“Integrated RE and conventional DAM will be a boon to RE generators. It’s time merchant RE capacity is created, so that they sell RE at market-determined prices. The discoms are also not required for long-term rigid contracts, and would be eligible to buy in a flexible manner. They would buy only for time blocks of next day when they really need that power and at the same time meet their renewable purchase obligation,” said Rajesh Kumar Mediratta, director (strategy and regulatory affairs), IEX.

The ministry also proposed a monitoring committee would be set up to oversee the implementation of the RE market. There are also plans to create a ‘market coupling operator’ in the near future. It would be an independent entity under which the DAM of all exchanges would be merged. The entity would receive bids from all exchanges and clear them at once. “The entity can be POSOCO, which can function as a market coupling operator. However, at present, we may go ahead without market coupling,” said the note by the power ministry.