Design of competitive electricity market in India
NCAER
Need for reforms
Pre-reform structure
Vertical integrated utility (State Electricity Boards)
Regional Load Despatch centres, Transmission utilities (Power
grid corporation)
Problems relating to governance
Under priced supply of electricity to rural areas
Theft and losses prevalent in urban areas
Post reform structure
Electricity Act 2003 enacted
Separation of generation, transmission and retail business
Reforms with a focus on governance
Current status of power sector
Total installed capacity 1.28 lac MW
Northern region - 27%;
Western region - 28%;
Southern region - 29%;
Eastern region - 14%;
North-eastern region - 2%
• Total generation more than 600 billion
kWh - 5th largest producer worldwide
• Transmission and distribution network
6.3 million circuit kms
Hydro-thermal mix fell from 46:54 in 1966 to 25:71 as of today and
projected to fall to 21:79 in 2010.

Potential of 1.5 lac MW of hydro-electric capacity yet to be
exploited
 APDRP formulated
to make distribution utilities commercially
viable, reduce ATC losses, reduce outages and interruptions and
increase consumer satisfaction.
 Cross-subsidy in tariffs to be phased out

Difference between industrial and domestic tariffs is falling

Unbundling of integrated utilities e.g.:
Karnataka Power
Corporation
Karnataka Power
Transmission
Corporation Ltd.
Distribution Companies
Facilitating power exchange
Availability based tariff for central sector utilities
fixed charge
energy charge per kWh
Charge for Unscheduled Intercharge (UI)
UI rate schedule
600
500
400
300
200
100
frequency (Hz)
48
.7
48
.9
49
.1
49
.3
49
.5
49
.7
49
.9
50
.1
50
.3
50
.5
50
.7
0
50
.9
paise/kWh

Transfer capacities across regions
North
North-East
500 MW
950 MW
West
1650 MW
1200 MW
East
3000 MW
1000 MW
South
Project North-East to North and West - 1800 km HVDC line from
Biswanath Chariali in Assam (close to Arunachal Pradesh) to Agra
in Uttar Pradesh through 800 KV lines with capacity upto
6000MW
Open Access

Traders facilitate power transfers for a fee

Central sector shares - pseudo long-term bilateral contracts in
forward energy market
 Access
to transmission based on transmission fee and a
surcharge


Relevant regulations:
CERC regulation No.L-7/25(1-4)
In cases of congestion in corridors, bidding mechanism for
short term open access @ http://203.200.81.7/ebid
North-east #
Salakati
Legend
Bongagaon
North #
220 KV
400 KV
220 KV
Singrauli
Auraiya
Mughalsarai
HVDC back-toback link
Dehri
Allahabad
Birpara
Sasaram
East #
500 MW
HVDC bipole
220 KV
Vindhyachal
Korba
West #
Kolhapur
Balimela
Jeypore
400 KV
Chandrapur
2000 MW
New approved
scheme
Raipur
Budhipadar
Rourkela
Malanpur
Existing link
1000 MW
220 KV
Belgaum
Malda
220 KV
500 MW
Ramagundam
Gazuwaka
South #
Kolar
Upper Sileru
Electricity forward market
The forward transmission market
The spot energy market
The forward energy market (market for bilateral contracts)
The forward market for reserves
Electricity futures and options
Financial instruments for electricity market
Futures
Forwards
Without
physical
delivery
(financial)
With
physical
delivery
Without
physical
delivery
(financial)
With
physical
delivery
NZFOE (New Zealand)
EEX (Germany)
NordPool (Scandinavia)
SFE (Australia)
NYMEX (New York)
IPE (UK)
NordPool
(Scandinavia)
CalPX
(California)
Options
Zonal price futures
NordPool
(Scandinavia)
NYMEX
(New York)
Zonal Price
Marginal system price
NEMMCO in Australia operates eight separate markets for
the delivery of frequency controlled ancillary services
(FCAS) and purchases network control ancillary services
(NCAS)
NordPool
(Scandinavia)
Integrated
systems
Middle path
or ‘third way’
 Unit commitment schedules
 Economic despatch schedule
 shadow prices of system constraints
as basis for transactions
 security constrained economic
despatch as true nodal prices of energy
 Congestion in transmission relieved
by physical instructions

Unbundled
systems
 Sequential and repeated markets for
energy, transmission and reserves
 Repetition ensures market
convergence
 Sequential markets to yield complete
convergence
 Transmission congestion relieved by
setting locational nodal prices
Under the condition of complete markets, the integrated and
unbundled systems will produce the analogous primal-dual
equivalence of outcomes.
“smart” market
Unit Commitment schedule
 start up and shut down conditions
 spinning reserve
 ramp up limits
Power dispatch schedule
 real power balance
 reactive power balance
 Voltage limits
 Transmission limits
Energy constraints on hydro
plants
Decentralised operations
 Energy markets
 Transmission markets
 Ancillary markets
Auctions
 First price sealed bid auction Vs Ascending auction
 If bidder’s information is independent then all auctions
are equally good
 Ascending auctions more profitable than standard (first
price) sealed bid auctions in expectations if the information
is afflicted
 Designs should facilitate entry and discourage collusion
Transmission utility pricing and rights

Financial transmission rights (FTRs) or flowgate rights (FGRs) in
US as derivatives with values for network transmission capacity in
power flow models

FTR holder gets a share of the congestion payment surplus that
is received by the ISO when a transmission constraint is binding.

Flowgate rights are linked based transmission rights for hedging
transmission risks - settled at the prevailing shadow prices of a
security constrained economic despatch model.

Zonal prices in Europe under market splitting mechanism
PE-ISO - A possible structure
Independent
System
Operator
Power
Exchange
Day Ahead
Market
Generators
Transmission
Real Time
Market
Transmission
Traders
Bids
Retailers
Contracts
Large
consumers
Regulated
consumers
Distribution
companies
 Power exchange and ISO as co-joined entity
 PE to conduct national wholesale electricity market : Day Ahead Market (DAM) and
the Real Time Market (RTM)
 Distinct functions of electricity markets:
Physical operation of maintaining reliability and stability of the system (ISO)
Economic operation of managing energy markets (PE)
Commercial operation of settlement and conciliation of the obligations contracted in the
market (PE)
 PE runs competitive auctions on non-discriminatory basis
Sellers
Buyers
Central sector Units; State level utilities
State level retail utilities;
Merchant owned units
Transmission utilities
Transmission traders
 In event of congestion in transmission corridors, auctions will be held to determine
the rights of way
 Central Transmission Utility as nodal ISO along with five regional transmission
utilities as associate ISOs responsible for regional balancing
 Long term bulk contracts finalised by utilities using multi round auction to get the
best deal from wholesale sellers.
 At retail level, mostly levelised rate under regulation for core customers
 Demand side bidding by load serving utilities in the RTM markets
 Bundled generating units precludes any need for state level exchange
 Coordination by state transco under the supervision of regional transco
 Electricity futures and other derivatives can be developed in conjunction with
commodities exchanges in India
 Regulation through performance based incentives for generators and transmission
traders and levelised tariffs with scope for profits for distribution companies
 Constant monitoring of electric market imperfections and
inadequacies through appropriate metrics on capacity additions,
transmission congestions, etc
 Hedging instruments as insurance schemes for risk
management policies
 Structured tolling contracts as upfront premium paid to plant
owner for ability to schedule the operation of the plant
 Interruptible load programs
Electricity derivatives
Financial contracts- Contracts for differences in UK and
Australian power markets
Physical contracts - Contracts with short maturity period; the
PJM power pool market and the energy balancing market
operated by CAISO in the US.
Electricity futures were first traded on the NYMEX in March 1996
Mostly traded in traditional exchanges
Electric swaps as financial contracts for fixed price
Electric locational basis swaps
Electricity options and swaps
Plain vanilla electricity call and put options
Options based on attributes like volume, delivery location and
timing, quality, and fuel type
Exchange traded energy futures or physical transactions at
major power transmission inter ties.
Spark spread options as non-standard cross-commodity
electricity options with payment as the difference between the
price of electricity sold by generators and the price of the fuels
used to generate it
Callable and putable forwards to mimic interruptible supply
contracts and the dispatchable independent power producer
contracts
Operational details of electricity futures How will it work?
How does the ebid system in the Powergrid website works?