Electricity Act, 2003: Marking the era of

competition?

Rajesh K MedirattaDirector (B.D.), IEX

In this presentation

• Elements of Competition in EA 2003• Spot Power market - Status • Open access- Status • 10-year EA Score Card

Essentials of Competition EAct,2003

Key Elements COMPETITION

Objectives

1.Privatisation To create incentives for improved performancePreventers: Political will

2, Unbundling Separate competitive businesses from regulated business. Prevent cross-subsidisationCompetitive suppliers should be able to access T&D in non-discriminatory manner

3. Competitive Generation

Adequate number of generators to be competitive

4, Non-discriminatory Open Access

•No barriers to flow of power on ecoonomic principles without any regard to ownership of transmission

Essentials of Competition EAct,2003

Key Elements COMPETITION

Objective

5. Voluntary Spot Wholesale Market

•Support near real-time managing systems• Allocates scarce generation/transmission resources• Discovers price• Competitive and Transparent Trades• Facilitate economic trading opportunities among buyers and sellers

6. Independent Regulatory Framework

Technically sound with understanding physics and financial sides of power sector. Neutral and unbiased.Objectives decisionmaking.

7. Independent System Operator

SLDC Ringfencing - Separation from all market elements

8. Trading as distinct Activity

• Traders should facilitate economic transactions between generators and consumers. • Act as aggregators

Spot Wholesale market – Status

Electricity Act enabled competition in the sector

Intent of the Act was to promote competition by “freeing” all possible avenues of procurement and sale of power:

• Delicensing of generation• Promoting Captive Generation• Promoting open and non-discriminatory access to

transmission and distribution system (OPEN ACCESS)• Development of Power Market

• Section 66 of the Electricity Act 2003 gives powers to the regulatory commissions to develop the power market including trading

Transition to Wholesale Spot Market

Source: CERC MMC Monthly Reports FY 2012-13

Contribution of Exchanges vis-à-vis total generation

Key statistics: Electricity & REC Market

77%

16 States I 5 UTs

467

>3 million RECsHighest: 3,09,892 RECs

ELECTRICITY REC

97%

27 States I 5 UTs

191

>70,000 MWhHighest : 101,000 MWh

12651900+

IEX Data as on 30th June, 2013

Growth in Volumes & Participation

Increasing Consumers participation

IEX Data as on 30th June, 2013

Key milestones achieved by the exchange

2009 May:100

Participants

2009 Sep: Term-Ahead Market

Launched

2011 Mar REC Market Launched

2009 Aug: 1st

registered Industrial Consumer

2010 May: 100

Consumers

2010 Aug: 1000 MUs Monthly Vol50MU highest daily Vol

2011 May: 1000 +

Participants

2012 Oct: 2000 MU+ Monthly

Volume, 1300 participants,

90 MUs Highest daily trade

2013 June: 2000+ Consumers & 2600+ participants

Spot Market- Wish list

Non-discriminatory Open Access – Status

Status of Open Access

State-wise Open Access Consumers at IEX(As on 30th June 2013)

State-wise OA Consumers at IEXToday almost 2000 plus consumers are availing OA through IEX

State-wise Participation at IEX

OA status in India…is it really open?Northern Region

States Buy Sell

Haryana

Punjab

Rajasthan

HP

J&K

Uttaranchal

Delhi & U.P.

East & North Eastern RegionStates Buy Sell

Assam & Bihar

Manipur & Mizoram

Tripura & Sikkim

Jharkhand

Arunachal Pradesh

Meghalaya

Orissa

West Bengal

Western RegionStates Buy Sell

Madhya Pradesh

DNH & DD-UT

Gujarat

Chhattisgarh

Maharashtra

Southern Region

States Buy Sell

Andhra Pradesh

Karnataka

Tamil Nadu

Kerala

Apr 22, 2023

Barriers to Open Access: Act or its implementation?

• Restrictive Open access regulations across states: Punjab: High wheeling charges are deterrent to OA Haryana: Notification for only RTC & peak hour procurement Tamilnadu: Section 11 West Bengal: Very high OA charges; CSS not determined in consistence

with mechanism in NTP 2006 Maharashtra/UP/Jharkhand/Delhi/ East& NE: Resistance by utility

Open Access: Prevented and denied

Enablers for facilitating implementation of Open Access

•Strengthen Sec 11, 37, 108 to remove ambiguity and facilitate OA

•Sec 11: OA to generators restricted by state government by citing extraordinary circumstances•Sec 37: State governments can direct LDC to restrict power sale outside state in lieu of maintaining smooth and stable supply•Sec 108: Directions of state government will prevail where public interest is involved

•Sec 42(4) : Define uniform methodology of determination of additional surcharge

Strengthen EA 2003 by expanding, restricting and/or clarifying scope under certain statues concerning OA

Legislative Open Access Charges Operational

•Sec 42 (2) :“….Provided also that such surcharge and cross subsidies shall be progressively reduced in the manner as may be specified by the State Commission…”

•Tariff Policy 8.3.2: Tariff to be +/-20% of cost of supply by 2010-11

•NEP, 2005 Sec 5.8.3: “…..the amount of surcharge and additional surcharge levied from consumers who are permitted open access should not become so onerous that it eliminates competition…….”

Implement existing statutes in EA 2003 and NTP 2006

Legislative Open Access Charges Operational

Enablers for facilitating implementation of Open Access

• Equip SLDCs• Use revenue accrued to SLDC from OA consumers for Infrastructure

development, automation, capacity and capability building. 100 OA consumers imply a yearly revenue of appx Rs 9 crores to SLDC• Leverage technology solutions and automate processes for NOC issuance,

energy scheduling and energy settlement• IEX has introduced SLDC interface to help manage NOCs of customers in the

state of Punjab and Tamil Nadu. The same can be adopted for other states

• Open Access Registry (OAR) • OAR will bring in transparency and facilitate faster transactions using automatic

rule-based open access clearance while removing manual discretions

Legislative Open Access Charges Operational

Enablers for facilitating implementation of Open Access

Open Access Wish list

Implementing open access in its true spirit:Promoting retail competition

The concept of Open Access rests on the premise that electric energy as a product can be separated from transmission as a service

• Separate ‘content’ and ‘carriage’ business– SERC to segregate charges in terms of energy charge, network

charge (including wheeling, transmission and regional transmission charges, as applicable) and surcharges and insist Discoms to reflect these charges in their consumer bills.

Competition Score CardEAct,2003

Key Elements COMPETITION SCORE (/10)

Way Forward

1.Privatisation 2 Implement Delhi Model of privatisation through PPP with corrections

2, Unbundling 3 Separate transmission from two competitive elements

3. Competitive Generation 8 Competitive Bidding has brought competitive generation. Cautious approach for SBD.

4, Non-discriminatory Open Access

5 •Achieved Partial open access to some extent•Full open access can only come with separation of carriage/content

Competition Score CardEAct,2003

Key Elements COMPETITION SCORE (/10)

Way Forward

5. Voluntary Spot Wholesale Market

8 • Better intra-day markets- Reduce time from trade to delivery• Forward Market- delivery based

6. Independent Regulatory Framework

8 Broader role beyond tariff setting

7. Independent System Operation

4 SLDC ringfencing to be achieved.

8. Trading identified activity 6 • Fair large no. of traders. But still most of the trading back-to-back. • Retailer model to develop

THANK YOU

Suggestions to realize full Open Access

1. Bundled ‘supply’ and ‘wires’ in Electricity Supply

– Licensee has a natural monopoly of the infrastructure i.e. ‘wires’. He discourages

consumer to switch and also does not provide better quality power i.e. ‘content’.

– Consumer apprehends poor network availability when he switches to third

party. This double whammy seriously affects the ability of the consumer to avail

alternative supply.

Solution: Separation of ‘supply’ from ‘wires’ business of a distribution licensee. Initially

‘accounting separation’ followed by ‘financial separation’ may be specified.

• Additionally, minimum service conditions of distribution licensee may be defined by

State Commission for open access consumer and serious penalties be specified for

non-compliance.

IEX Market SegmentsDelivery-based Contracts… CERC regulated

Day-Ahead Marketsince June,08

Closed , Double-sided Auction 10-12 am biddingEach 15-min block , 0.1 MW min NOC required

Term-Ahead Marketsince Sep,09

Day-Ahead Contingency – Another window 3-5pm

Intra-Day - for rolling evening peak hours

Daily- for rolling seven days (delivery starting after 4 days)

Weekly- for Next 2 weeks

Renewable Energy Certificatessince Feb,11

Next… Energy Saving Certificates

Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC

Auction Continuous

Wish List• Default Supplier

– Consumers should have a way of getting supply in case remote supplier fails. – Every consumer can be assigned a default supplier.– Ceiling tariff may be fixed by State commission for supply with provision of negotiation.

• Ceiling tariff for OA consumer category– Most serious apprehension observed from large consumer is threat of ‘high tariff’ by incumbent

supplier. – This concern can be managed by providing in the Regulations, a provision to this effect.

• Service condition of Distribution Licensee– Minimum service conditions of distribution licensee for open access consumer can be defined by

SERC and serious penalties be specified for non-compliance. • Separation of ‘retail’ and ‘wires’ function

– The process of first separating ‘retail’ from ‘wires’ business of a distribution licensee must start immediately. Initially ‘accounting separation’ followed by ‘financial separation’ may be specified.

• Method for cross Subsidy surcharge– Uniform methodology as per TP.

Status of Open Access• Before Electricity Act

– Transmission planning based on Generating capacity addition– Central Sector shared plants added generating capacities and

CTU(POWERGRID) added transmission network (SUPERGrid)– At State-level, Vertically integrated utility added generating and

transmission capacities based on load growth.– CPPs could access grid by paying transmission charges– For usage of transmission grid by third parties, mutually agrees

charges payable. – Very few trading transactions

• Transmission rights exercised by Utilities having long-term BPTA with POWERGRID

Electricity Act 2003• Generation de-licensed. Multiple dist. Licenses.• Transmission utility at central level to continue with

responsibility of coordinated planning of trans network.• Private companies can take up transmission• Open access: Any Genco/Discom/Consumer can access

transmission system without discrimination, subject to transmission availability. Pay regulated transmission charges to Transco (wheeling charge and surcharge)

• Open access to distribution in phases. • Power trading recognized as activity.• Transco cannot undertake trading.• Captive generation encouraged. No regulated charge except

wheeling and surcharge.

Changing Structure: Emerging Structure - Post EA 03

Competitive, Flexible Structure enabling Choice to Consumer

DistributionLicensee 1

GeneratingCompanies

OwnGeneration

DistributionLicensee 2

Captive GenerationFacilities

Power Traders would also be involved in some of the transactions

Distribution Network (Gradual Open Access)

Own Distribution System

Transmission Network (Immediate Open Access)

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Scene prior to introduction of Power Trading

• Monopoly Suppliers (SEBs, Private Licensees)

• Generators (CGSs, IPPs and SEBs) with capacity fully tied up

• Each SEB had an allocated share in a Central/ Jointly owned station

• Price setting by Central/ State Governments – SEBs hardly having any say

• Entire sector developed on fixed rate return

• Interplay of market forces remained non-existent

• Utilities would back-down in case of low demand and resort to load shedding in

case of excess demand

• Power as a resource for earning revenue did not exist in this cost based regime

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Scene prior to introduction of Power Trading (2)

• Prior to power trading as a business concept: power transfers between the States/vertically integrated utilities were characterized by: – Small , Intermittent volumes– Mostly in the nature of emergency support– Without any commercial arrangements– Non-payment or payment delays with resultant disputes

• The exchanges were further limited due to lack of transmission inter-connections

• Sustained shortages, both in energy and peak demand, discouraged initiatives

• Skepticism about success of trading was widespread

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Genesis of power trading in India

• PTC was formed in 1999 as a Government of India initiative for development of power market and incentivising market based investments to the Power Sector, specially from the private sector:

• Electricity Act,2003 recognised TRADING as licensed activity.

Facilitate development of Power Projects particularly through private investment Promote Power Trading to optimally utilize the existing resources Develop power market for market based investments into the Indian Power Sector Promote exchange of power with neighbouring countries

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• Short & Medium Term transactions for peak/off-peak load balancing:

• Duration of Transactions (Few hours to 3 years)

• Hours of Supply

• Round the Clock

• Evening Peak / Morning Peak

• Night Off Peak / After Noon Off Peak

• “As and When Available” Power for balancing Scheduled Interchanges

• “Weekend / Holiday Power”

• Banking of Power

Typical Market Transactions ….

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Power Trader – Key Success Determinants

• Credible intermediary • Payment Security Mechanism• Weekly billing to reduce credit risks• Right to divert in case of default• Relationship of trust, transparency

• Comfort to developer of power projects –by addressing market risks• Comfort to lender – by addressing credit risks• A catalyst for private investment in the sector

Strengthening the Act

• Consumer, according to the Electricity Act, 2003 can be supplied electricity for his own use by a licensee or the Government or any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force.

• Further Section 12 authorises any person to transmit, supply, etc. electricity only if he procures a license under Section 14. Therefore, either a trader can act as a retail supplier by combining its role as a franchisee, as defined in Section 2(27) as “person authorized by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply”.

• Such arrangement, however, can at best be an interim arrangement. • The Act needs to be amended to create “Retail Electricity Supplier” as a

separate licensee

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Impact of Electricity Trading

• Optimization of existing energy resources

• Encouraging commercial outlook in the sector

• Encouraging cross-border exchange of power

• Catalyzing investment into the Power sector, mainly from the private sector

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Market Trends

• A new category of Trading Licensee introduced/net worth criteria eased

– Entry barrier reduced, may lead to more players/competition

– Strict market monitoring to ensure against market abuse

• Industrial segment is increasingly using PX to procure power

– More than 875 participants

• Volumes and depth increasing slowly

• Higher liquidity will give right pricing signals

• New longer duration contracts on PX on the anvil, weekly term ahead picking up

• PX showing rapid growth, bi-lateral through trader on decline

• Regulations simplified to enable intermittent RE power such as wind

• Renewable Energy Certificates being introduced-will help in meeting RPO

– Thrust on RE, particularly Solar power

• Transmission pricing based on point of connection tariff- expected to help in growth of power market

• The Electricity Act defines Open Access as “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 regulation specified by the Appropriate Commission”