1

A Staff Presentation Developing a Common Platform

for Electricity Trading

RAVINDERChief (Engineering)Central Electricity Regulatory Commission7th Floor, Core –3, SCOPE COMPLEX, Lodhi Road, New Delhi- 110003, INDIAPh. 91 11 24364960E mail: ravinderveeksha@hotmail.com

2

All INDIA INSTALLED CAPACITY(MW)

RES (Excludes captive )

5%6191 MW

Nuclear3%

3360 MW

Hydro26%

32326 MW

Thermal66%

82410 MW

Thermal Hydro Nuclear RES

(As on 31.03.06)

TOTAL - 124287 MW

3

ALL INDIA INSTALLED CAPACITY (MW) Sector Wise (As on 31-03-2006)

State 57%

70224 MWCentral

32%39924 MW

Private 11%

14139 MW

Private Central State

TOTAL - 124287 MW

4

• Market Development is the responsibility of the Electricity Regulators (Sec 66, 178 IE Act, 2003).

• Sec 174: The ACT is overriding

• Preventing market domination is the responsibility of the Regulators (Sec 60, IE Act, 2003).

• Mandate for developing a Power Exchange given to CERC in the National Electricity Policy.

Statutory Provisions

5

• Most of the supplies are tied up in long term PPAs: Mostly, regulated two-part tariff: Ideal for investment promotion as well as price security for Discoms

• Short term trading constitutes 2 to 3% of the total supply.

• Trading essentially between surplus & deficit distribution utilities.

• Trading is essential for resource optimisation and meeting short term peak demand and for disposing off surpluses which are inevitable as a utility has no direct control over consumer load .

Current Scenario

6

ALL INDIA POWER SUPPLY SCENARIO

(April, 2005 - March, 2006) ENERGY

550

560

570

580

590

600

610

620

630

640

1

BU

632 B U

579 B U

Requirement Availability8.3% Deficit

PEAK DEMAND / PEAK MET

76

78

80

82

84

86

88

90

92

94

1

GW

Peak Demand Peak Met12.3% Deficit

93 GW

82 GW

7

• Open Access Regulations have facilitated power trading in an orderly manner.

• Energy agreements and transmission clearance have to be arranged separately.

• Open Access charges are reasonable and simple to apply.

Current Scenario

8

Short-term Trading Volume

Traded Volume in MU

1617

141881184711029

4178

0

4000

8000

12000

16000

FY02 FY03 FY04 FY05 FY 06

*For FY-07: 15 BU Estimated

9

• Suppliers call for bids from buyers/traders.

• Traders compete to win the supply bids.

• Buyers have no option but to buy from the trader having the supply contract.

• Due to deficit scenario, suppliers dominate.

• Prices of trades electricity have been going up.

• Most of the bilateral trading is inter-regional;

- ER, NER are suppliers

- NR, WR are buyers

Current Scenario

10

Price trend of traded electricity

11

• Need to curb sellers’ domination

• Need to put on end to profiteering

• Need to organize short term trading on a transparent, equitable and efficient platform

• Need to increase the supplies

• Need to bring surplus captive generation into the grid.

• Need to encourage peaking power plants and merchant generation.

• For optimum resource management, need to simultaneously clear energy contracts & transmission paths.

Current Scenario

12

Adequate Inter-state transmission system, but needs strengthening

Established scheduling, dispatch and energy accounting procedures

UI accounting system for real time deviations from schedules

Established RLDCs, SLDCs

Current Scenario

13

Market Structure Prior to Electricity Act, 2003 (Bundled)

CGS IPP

Govt Consent

Generation+

Transmission+

Distribution

Consumer

SEB

14

Market Structure after Electricity Act, 2003

CGSSTATE GENCO

IPP

TraderTrader Discom

Consumer

15

Road map for market development

Forward Physical Contracts (Long-term)- Established;

Moving from Regulated Cost-Plus PPAs to Tariff-bid based PPAs for new generating capacity

Forward Physical Contracts (Short-term)- Established; but non-standard contracts

Day ahead Spot Market thru’ PX? Real Time Market (Substituted by UI

mechanism)

16

International Experience

Nord Pool PJMUK experienceCalifornia PXSouth Africa/ ESKOM

17

Appropriate PX design for India National power exchange Vs many power

exchanges Mandatory Vs Voluntary participation Double side bidding Vs Supply side bidding Uniform pricing Vs Discriminatory pricing Day-ahead exchange Vs Same day exchange Time block for bidding (hourly/half-hourly etc) Congestion management Taking care of operational inflexibilities of

generating stations

18

NLDC/RLDC Day ahead PX Clearing House

B B B SB SB SB

A/C

A/C

B: BiddersSB: Settlement BankA/C: Pledged Account & Collaterals of Clearing House Members in SB

1- Bidders send their bids to PX.2- NLDC informs transmission capacity to PX.3-. Clearing House confirms adequate collaterals of clearing agents.4- PX obtains NLDC concurrence before releasing day ahead Trade schedules.5 - RLDCs issues day ahead generation & dispatch schedules for PX participants.6 - PX issues day ahead trade schedules.7 - PX issues rolling collateral requirement.8 - After settlement period Clearing House issues Invoice/Credit Notes .9- Settlement Banks debit/credit the appropriate amounts.

2,4,53,6,7

1, 6 8

99 9

A/C

Function Diagram

19

Expectations of a Portfolio Manager

Freedom to sell and buy at short notice through a single window

No cap at seller’s bids Reasonable cost of purchase Assured availability Assured delivery/take off Assured payments

20

• Open Access charges for PX schedules would be socialized.

• Transmission losses to be applied on PX participants as applicable.

• Part inter- regional capacities would be assigned for PX.

• RLDC time line and IEGC would be complied.

• PX schedules would be firm.

Transmission and System Operation

21

Chairman

Advisory Council

Governing Council

CEO

Executive Board

Operations

Settlement & Clearing

Information & Technology

Market Monitoring

PX - Organisation

22

Does Px need Licence Membership to Grid connected entities only Whether to allow membership to traders Px- to be a profit or non profit organisation Role of CERC

Issues- General

23

Issues- General

Do we really need a Day-ahead PX, now or in the near future?

What would be the right time? How to mandate a national PX by law? How to organize a national PX?

24

Issues- Price Discovery and Bidding

Pricing principles Bid caps, to have them or not Can bid caps be effective Sale price in constrained Market Can we curb market power/abuse How can Run of River, Thermal,

Nuclear and Windmill Generators submit hourly day-ahead bids?

25

Issues- Preventing Market Abuse

Common market abuses1. Bidding above the marginal cost2. Withholding Capacity3. Avoiding a platform with lower price caps

What would it feel like if most often the marginal bids for Market Clearing Price were of liquid fuel generators?

26

Issues- Market Regulation

Defining the Rules of the Game Enforcing the Rules and Regulations Market Monitoring Ensuring Anonymity of Bids

27

Issues- Congestion Management

To collect congestion revenue Or Not by charging the Buyers of congested

zone at the cost of PX purchase instead of the price offered by the Buyers?

28

THANK YOU