Power trading in india the road ahead

Trading has been the portion and package of the life of all time since the human being evolved on the planet. But there has been a uninterrupted development in the techniques of trading because of the betterment of engineering. Even though some of the finds have taken topographic point by accident, most of the finds are a consequence of decennaries of research and engagement. A major break-through in trading in India came after the formation of Bombay Stock Exchange ( BSE ) and National Stock Exchange ( NSE ) . Both these exchanges are globally good regarded and are amongst the largest in the universe. Now, the power is considered as a resource which can be traded. Hence, the construct of power trading has come into being.

Power Trading in India:

Historically the chief providers and consumers of electricity in India have been the assorted govt. controlled coevals and distribution companies who contracted power on a long term footing by the manner of Power Purchase Agreements ( PPAs ) with regulated duties. However in order to promote the entry of Merchant Power Plants ( MPPs ) and private sector investing in power sector, the Electricity Act, 2003 recognized power trading as a distinguishable activity. This has facilitated the development of power trading market in India by supplying the transmittal webs for unfastened entree at normative charges. The power trading is conducted through the power exchanges.

Power Exchanges in India:

It is an electricity market where electricity is traded. The market forces like demand and supply determine the monetary values. The concern of power exchange is carried out to advance, ease, help, modulate and pull off traffics in power.

The characteristics of the power exchange are as follows:

Automated online electronic platform which is countrywide.

Allows voluntary engagement of purchasers and Sellerss.

Transparent, Neutral and indifferent System.

Offers twenty-four hours in front and term in front markets.

Its clip line consistent with the clip line of Load despatch Centres.

Harmonizing to the Electricity Act, 2003, the energy investors are allowed to put up the power exchanges. So, on a power exchange, the bargainers are from a big geographical spread and they converge without their individualities being revealed. The namelessness of the bargainers is maintained so that market use is thwarted and a true market goaded power economic system is enabled.

As of today there are two power exchanges working in India. They are:

Indian Energy Exchange ( IEX ) .

Power Exchange India Ltd. ( PXIL ) .

A 3rd power exchange, the National Power Exchange ( NPEX ) , is besides presently in murdering.

India Energy Exchange ( IEX ) :

IEX is India ‘s first countrywide, machine-controlled and on-line power trading platform. It attempts to catalyse the development of electricity trade in India by showing in a impersonal and crystalline market through a engineering enabled platform. IEX received blessing from CERC on 9th June 2008 to get down its operations. It is a demutualised exchange that facilitates efficient monetary value find and monetary value hazard direction in the electricity market. It is promoted by Financial Technologies ( India ) Ltd. and PTC India Financial Services Ltd. ( PFS ) . The other interest holders of the company areA Adani Enterprises, Infrastructure Development Finance Company ( IDFC ) , Jindal Power Limited, Lanco Infratech, Reliance Energy, Rural Electrification Corporation and Tata Power Company. The uncluttering Bankss of IEX are HDFC bank, Indus Ind Bank Ltd. and State Bank of India.

Power Exchange India Ltd. ( PXIL ) :

PXIL is India ‘s first institutionally promoted power exchange. It is promoted by National Stock Exchange of India Limited ( NSE ) , and the National Commodity & A ; Derivatives Exchange Limited ( NCDEX ) . The other stakeholders of the exchange are Power Finance Corporation Limited, Gujarat Urja Vikas Nigam Limited, West Bengal State Electricity Distribution Company Limited, Madhya Pradesh Power Trading Company Limited, JSW Energy limited, GMR Energy Limited and Tata Power Trading Company Limited. It received its blessing from CERC on 30th September 2008 to get down its operations. It started its operations on 22nd October 2008 after having the concluding blessing from NLDC. The initial merchandises offered for trading are voluntarily participated electricity contracts offered on day-to-day footing. It received further blessing to present long term of office physical merchandises of hebdomadal and twenty-four hours in front eventuality merchandises.

National Power Exchange Ltd. ( NPEX ) :

NPEX will set up, run and pull off specialized machine-controlled electronic platform with modern installations. It plans to ease nation-wide trading in all types of contracts for purchasing and merchandising of all signifiers of electrical energy, accessory services and merchandises, transmittal rights etc. , including derived functions. It besides promises to hold the glade and colony procedure which is crystalline, just and unfastened with non prejudiced entree to all participants in the power market. NPEX is planned to be set up with a proposed authorized capital of Rs. 500 million. The NPEX is expected to get down operations by terminal of 2010 or early 2011. NPEX is promoted jointly by the three public sector units NHPC Ltd. , NTPC Ltd. , Power Finance Corporation Ltd. and the IT major Tata Consultancy Services Ltd.

Infrastructure theoretical account of Power Exchanges:

A modern power exchange is wholly electronic and wire-driven and consists of the undermentioned participants and systems:

Buyer

Seller

Regulator

Trading / Bidding Platform

Risk Management System

Surveillance System

Clear and Settlement System

Website / Media Interface

I ) Buyer:

One who places a petition to exchange to secure electricity is called as a Buyer. The necessary legal and conformity demands are to be completed to see purchaser as a member of exchange. In a power market the purchaser would be a power trading or power distribution company. The company foremost buys the electricity and once more sells it through the exchange. A information nexus is used by purchaser to link to the power exchange. The exchange allows the purchaser to hold the informations link through an cyberspace leased line platform secured for trading or a private leased line.

two ) Seller:

One who places a petition to interchange to sell electricity is called a Seller. As in the instance of purchaser, the marketer besides is required to finish the necessary legal and conformity demands to be considered as the member of exchange. The marketer would be a power bring forthing company such as a province public-service corporation merchandising excess power or a merchandiser power works. The connectivity and IT security norms are to be satisfied, as stipulated by the exchange to link to the power exchange.

three ) Regulator:

The function of regulator is to understand the state ‘s markets and amend the ordinances in the involvements of the users. The regulator modulate the duties, sets the criterions for grid control and continually look for the betterments in the power market operations by supervising every entity in the power market. It besides involves the grid operator which sets patterns for the stable and healthy operation of the national grid.

four ) Trading / command Platform:

This platform provides a impersonal platform to have the orders or commands from each purchaser and marketer and so fit the commands to find the best monetary value and the corresponding volume or measure at the best monetary values. The commands received would be matched based on the volume, monetary value and clip precedence of the command. The duplicate engine uses an algorithm devised to deduce the agendas to be cleared based on the state ‘s power market. The agenda glade is done by the grid operator and it is communicated to the several purchasers and Sellerss during the clip slots defined. The trades which are matched are so stored in the information base for the long term storage.

V ) Risk Management System:

This system manages the twenty-four hours to twenty-four hours fiscal hazards of the trading system. In the power exchange, the hazard direction has to be done between the purchasers and the Sellerss. This system ensures that purchasing and selling are conducted swimmingly on the exchange with no payment defaults. This system entails wage in from purchasers and pay out to Sellerss through on-line system of the glade Bankss which are authorised to run with the exchange. This system would non let a dealing unless necessary and sufficient borders are available from the bidders.

six ) Surveillance System:

This system keeps a close ticker on the minutess like commands, alterations in the commands before being cleared, the volumes cleared, and the correlativity between the cleared agendas, commands and volumes.

seven ) Clearing and Settlement System:

This system manages the reception of the financess from the purchasers, payment agendas for the Sellerss and border sedimentations. For the grosss and payments to be decently carried after cleared sale, the Sellerss and purchasers are required to open the colony accounts with the uncluttering Bankss associated with the exchange. The system besides provides the necessary regulative payments such as transmittal charges, grid operator charges and any other receivables from the Sellerss and purchasers on the power exchange.

eight ) Website / Media Interface:

A website provides all the information to all the parties interested to detect the market ‘s motions. It besides provides the studies and dealing inside informations such as cleared monetary value and volumes throughout the contract for participants. The historical information saved would be available anytime and is used or scheduling and burden anticipation.

Function of IT in Power Exchange and Trading:

An terminal user who is a member of the exchange or power bargainer can link to the exchange ‘s trading / command system utilizing IT. The bidder can be after his commands by finding the agenda required for injection or backdown of the power. The command form available can be used as a utile tool to be after the agendas efficaciously.

The information transferred between the end-user and the trading system will stay integral and anon. for any other user because of the secure Sessionss and multiple hallmark degrees for users. A system goaded attack is used to retain the namelessness of the commands.

At power exchange, the nucleus of the trading system is the electronic matching engine of commands, which determines the concluding dispatch measures for the purchasers and Sellerss by working out the probationary agendas.

Power Exchange Life Cycle:

Power Markets with power as implicit in trade good includes two types of trades:

Trade of power as trade good

Trade of derivative instruments

The related and accessory merchandises such as renewable energy certifications, energy efficiency certifications and transmittal rights can besides be traded when in the power market when the market matures. The renewable energy certifications plan is launched in India late i.e. , on November 18th, 2010.

The power market life rhythm depends on the adulthood of the market with assorted merchandises being introduced in the market at assorted points of clip. In assorted markets abroad the clip for such debuts has varied between three and eight old ages.

The adulthood of the market depends on the undermentioned factors:

No. of active trading entities in the market.

No. of new entrants.

Volume of trading in the market.

Representative topographic point market monetary values.

Demand and Supply transparence.

Influence of dominant market officeholders.

Market Matching Mechanism in India:

The market fiting mechanism presently in usage is the Uniform Price Auction Mechanism which has closed double sided command. In this mechanism, during a window of clip both the purchasers and Sellerss put in their bargain and sell trades. After the shutting of the window, all the bargain commands and sell offers are stacked such that there is an intersection of the demand and supply curves. The intersection of the curves gives a monetary value which is uniformly applied to all purchase commands at or more than the monetary value at intersection, and to all sell offers at or lower than such monetary value.

Different types of Markets in India:

Day-ahead Market:

The exchange offers a dual side closed auction for bringing on the undermentioned twenty-four hours, on a day-to-day footing. Price find is through dual side command. The purchasers and providers will pay and have a unvarying monetary value.

Term-ahead Market:

The exchange offers an chance to the power market participants to merchandise in contracts for hebdomads, Months, Quarters, Contingency and Intraday etc.

Short -term Power Market:

On Demand Side:

The fabrication sector has been entering a uninterrupted growing rate. It has recorded a growing rate of 10.8 % in 2009-10. Hence to prolong and impel such growing, run intoing the power demands of the industry in a cost-efficient and dependable mode becomes of import. Hence procuring power supply at competitory rates and at a short notice through the power trading path is fast emerging as the preferable option for several industrial consumers.

On Supply Side:

Trading volumes are increasing twelvemonth by twelvemonth because of the increased engagement of the Captive Power Plants ( CPPs ) along with other private participants. In the context of CPPs, the power trading option is profitable. First, CPPs have the chance to merchandise the excess power generated in the power market, thereby leting them to bask guaranteed off take for any excess power produced. Second, power trading allows CPPs to sell their power supplies at competitory rates, therefore leting them to concentrate on their nucleus activities.

Many industries invest in CPPs to hold uninterrupted power supply and besides to take down their costs of production. For the production of power these industries use the internal resources like the waste gases and heat from the kiln, agricultural residue etc. This makes the CPPs to bring forth power at a cost lower than that purchased from the grid. This means that such industries have an advantage in the short-run power market because they can sell the power at comparatively higher monetary values.

Facts and Figures of Short – Term Power Market:

1 ) Of the short term minutess, bilateral contracts executed through trading licensees and direct transportations comprise the bulk at 54.21 % . Trade through power exchanges constitutes 12.21 % while Unscheduled Interchange ( UI ) minutess constitute the A A A A A staying short-run minutess at 33.58 % . Therefore, excluding UI minutess, power trading A A A A A accounted for more than 66 % of the short term trade in 2009.

2 ) The short term power market is characterized by the low engagement on the licensee side. Despite of 37 registered trading licensees as of June 2010, trading is restricted to merely 16 participants. The major companies among these are Power Trading Corporation India ( PTC ) , Adani Enterprises, JSW Power Trading Company, NTPC Vidyut Vyapar Nigam Limited, A A Lanco Electric Utility, Tata Power Trading Company, Reliance Energy Trading.

3 ) In 2009, more than 30 billion units ( BUs ) were traded in the short term market, taking a A A A A A entire size of the market to Rs. 190.2 billion.

4 ) As of June 2010, around 7.3 BUs or 11.2 % of the electricity generated was transacted A A A A A through this market.

Power Trading Volumes and Monetary values of 2009 and 2010:

Trading volumes in 2009-10 registered an addition of 37.3 % over the old financial twelvemonth. Compared to the power exchanges, dealing through trading licensees were prevailing in the short term market. Against the 26.81 BUs transacted through licensees in 2009-10, the IEX and PXIL transacted 6.17 BUs and 0.91 BUs severally.

Even though there is an addition in the trading volume, the monetary values came down below the 2008 degrees in 2009. The leaden mean monetary values of power traded through licensees were 9.5 % lower at Rs. 6.41 per unit and were approximately 24.3 % lower through power exchanges, at Rs. 5.73 per unit. Monetary values continued to gyrate downwards till March 2010. The leaden mean sale monetary value fell by about 46 % from Rs, 7.21 per unit from the beginning of financial twelvemonth 2009-10 to Rs. 4.94 per unit by the terminal.

The tendency was similar at the two power exchanges. IEX monetary values fell 81 % from Rs. 10.10 per unit in April 2009 to Rs. 5.58 per unit in March 2010. For PXIL, the diminution was approximately 57 % , from Rs. 10.18 per unit to Rs. 6.47 per unit.

The grounds for the lessening in the monetary values are

Addition of the gas based coevals capacity to run into the peak power supply.

The experience of the below mean monsoons that curtailed agricultural and

A A A A A A A industrial demand.

Power Trading Margin:

Under the Section 178 of the Electricity Act, 2003 vide presentment dated January 23, 2006 the CERC was delegated with the power to crest the trading border. But there has been a difference on this capping because of the profiteering activities carried out by power bargainers and a instance has been filed in Supreme Court.

The Supreme Court ‘s concluding opinion stated that:

CERC has the power to crest trading borders in the power sector.

Appellate Courts have no legal power to make up one’s mind on the cogency of CERC ordinances cresting trading borders.

All bing and future contracts are to be overridden harmonizing to the CERC ordinances on trading border.

CERC ordinances can be challenged by power bargainers in high tribunals.

As per the ordinances, for power sold at Rs. 3 per or less, the trading border was fixed at 4 paise per unit and for power sold at over Rs. 3, the allowed trading border was 7 paise per unit.

Electricity Act, 2003 – Rules of Trading:

As per the Electricity Act, 2003, trading is defined as buying of electricity for resale thereof. It besides recognizes trading as an independent activity. The different regulations of trading specified in Electricity Act are as follows:

1 ) No individual can set about electricity trading unless he is authorised to make so by aA licence A A A A A issued under subdivision 14, or is exempted under subdivision 13.

2 ) The Appropriate Commission may, on application made to it under subdivision 15, grant A A A A A A licence to any individual to set about electricity trading in the country specified in the licence.

3 ) A distribution licensee shall non necessitate a licence to set about trading in electricity.

4 ) The Appropriate committee can revoke the licence of licensee with at least three months A A A A A A of notice, in authorship, saying the grounds on which it is proposed to revoke the licence and A A A A A A has considered any cause shown by the licensee with in the period of that notice, against A A A A A A the proposed annulment.

5 ) The National and State Load Dispatch Centres should non prosecute in the concern of A A A A A A A A A A A A trading electricity.

6 ) The Regional Load Dispatch Centre should non prosecute in the concern of coevals of A A A A A A electricity or trading in electricity.

7 ) The Central and State Transmission Utilities should non prosecute in the concern of trading A A A A A A in electricity.

8 ) No Transmission licensee is allowed to prosecute in the concern of trading of electricity.

9 ) A No member of authorization shall hold any portion or involvement, whether on his name or A A A A A A A A A A A otherwise in a house engaged in the concern of trading of electricity.

10 ) It shall be responsibility of every licensee to supply information associating to trading such as A A A A A A A statistics, returns or other information, as and when required and in the signifier and mode A A A A A A A specified by the writer.

11 ) The CERC can repair the border of trading in the inter-state trading of electricity.

12 ) The SERC can repair the border of trading in the intra-state trading of electricity.

Benefits of Power Trading:

The power public-service corporations can utilize the power trading as a beginning for gaining their gross.

The province power public-service corporations can better their Plant Load Factor ( PLF ) .

As it is an unfastened market the power public-service corporations need non back down because of the power demand in different countries.

As the power will be available continuously there is a decrease in burden sloughing.

Because of the high industrial duties, the industrial consumers prefer to travel for the short term market which created the ‘Value ‘ for power. Because of this short term market has a distinguishable displacement towards gaining high grosss.

Power is now recognised as a ‘resource ‘ by the province authoritiess of Chhattisgarh, Jharkhand, Orissa, Himachal Pradesh, Jammu & A ; Kashmir, and Uttaranchal etc.

The policies are devised for the rapid capacity add-ons of power.

The Independent Power Producers are encouraged to put in bring forthing assets through competitory duties.

Simply Power Trading can be considered as a paradigm displacement to ‘Market determined returns ‘ from ‘Cost plus return government ‘ .

Issues of Power Trading:

Profiteering:

Power Trading is done on the footing of energy flow from power-surplus provinces to power-deficit 1s. This is how the provinces like Himachal Pradesh, which put up the power workss, earn the money. But some provinces are taking an undue advantage by purchasing power at a low-priced power from cardinal power workss and exporting this at a immense net income to power shortage provinces. The pan-Indian market is besides being destroyed because the power is being sold at one monetary value locally and at a immense premium outside the province. This job has been solved by cresting the trade borders.

2. Open Entree:

A key policy step facilitated by the Electricity Act 2003, Open Access, is non yet to the full operational at the distribution degree. This is because of the continued reluctance of the province distribution public-service corporations because of their fright of losing high value industrial consumers. With the province public-service corporations taking the monopolistic place, deficiency of proper unfastened entree is a major hurdle for power manufacturers in capitalizing on the power trading chances.

3. Inadequate Power Transmission Capacity:

The growing of the power markets is shortened because of the unequal power A A transmittal capacity. In the past decennary there has been merely 6-7 % growing in the A transmittal web ( at 220 kilovolts and above electromotive forces ) . Due to the transmittal A restraints, power can non be to the full transported from power excess to power shortage countries and besides unfastened entree minutess can non be facilitated efficaciously. As per the CERC A A estimates at that place would hold been 17 % higher dealing volumes if there had been no congestion in the transmittal system.

4. Non-availability of Surplus Power:

The growing of the power markets ie, power trading will finally depend on the A excess power handiness. The power shortage in India continues to remain at really high evels because of the gross under accomplishment of capacity add-on programs in the yesteryear. The power trading minutess can be increased with the addition in the handiness of excess power because in the shortage market the participants face both monetary value and measure hazards.

5. Undependable and deficient grid supply:

The limited engagement of the industrial consumers in trade because of the undependable and deficient grid supply because of the jobs like frequence fluctuations, electromotive force fluctuations, coevals spikes, rushs and droops. These jobs non merely take to downtime and production losingss but besides lead to damage of the capital equipment. Because of these grounds industrial consumers prefer to purchase power from the short-run power market.

Decision:

Despite of its rapid growing in the past few old ages the power trading market is still in the baby phase because, the volumes of electricity traded are really less when compared to the entire power generated. The ground for the little portion is the limited engagement of the industrial consumers. As more industrial consumers begin engagement, the no. of participants on the purchasers ‘ and Sellerss ‘ side will besides increase. Along with this, when the issues like profiteering, unfastened entree, deficiency of transmittal capacity, non handiness of excess power and undependable and deficient grid supply are solved the Power Trading in India will take at a really high gait doing it the route in front for the power sector.