IEX increases accessibility and transparency of the power market

Rajesh Kumar Mediratta, Director Business Development, IEX Ltd.

“Price signals from Exchange are truly reflecting the ground realities. In 2009-10, high prices reflected shortage in generating capacities; divergent regional prices in 2012-15 reflected transmission network constraints and the current price hike reflects fuel supply constraints. It has always helped the planners to act in the right direction”

Rajesh Kumar Mediratta, Director Business Development, IEX Ltd, discusses his mission to operate energy market places that are transparent and reliable providing benefit to all its stakeholders with transparency and neutrality.

Optimum utilisation of all available resources of electricity
Electricity is one of the most critical resources that affect economy of the country, thus a competitive and efficient market in electricity helps optimise the most critical resource, thereby making the system more efficient, economic, adding to overall economic growth.

Indian Energy Exchange (IEX) has provided the marketplace for electricity in most transparent, neutral manner, which has added efficiency in generation and distribution of electricity from all parts and all segments in the power sector. The exchange brings all available resources being produced, from hydro, coal, gas and other renewable sources, and based on demand from different user segments, DISCOMs, industries etc. allocates on economic merit. Exchange discovers prices for each day and each 15 minutes based on very robust algorithm.

Also, these prices signal reality of the power sector, namely generating capacity availability, fuel availability, and transmission constraints. Demand-supply dynamics gets reflected in the prices alongside the transmission constraints through area prices. And, these prices discovered in power exchange are so robust that it is considered as benchmark for complete value chain and for all short-, medium-, and long-term transactions.

IEX’s vision and mission
The vision of IEX is to create an efficient, competitive and automated marketplace to promote efficient use of available energy resources and our mission is to operate energy market places that are transparent and reliable providing benefit to all its stakeholders with transparency and neutrality. IEX diversified shareholding without any market participants’ shareholding, keeps the operations very neutral and trustworthy. Having more than 93 per cent market share reflects the trust from the sector participants.

The exchange provides an automated platform for the physical delivery of electricity besides trading in RECs and ESCerts. The exchange is respected for efficient price discovery while offering participants the opportunity to trade a variety of energy products in the most efficient, transparent and competitive manner. IEX has increased the accessibility and transparency of the power market in India through liquidity, wide participation and efficiency in trade execution.

Day-ahead power prices saw an upward trend in September 2018
The average market clearing price in DAM also followed the volume trend and touched 4.69 per unit in September.

September saw the highest peak demand in history of about 175 GW. The increase in demand was due to various reasons including government’s effort to provide round the clock electricity to each and every household on mandatory basis. The situation was further catalysed by a decrease in availability of domestic coal and increase in imported coal prices to about $55/tonne compared to ~$30/tonne about two years back. Also, September is a month of low wind and decreasing hydro, which also contributed to decrease on the sell side in the market.

The real game changer initiatives:
As said, there have been many efforts by government to breathe life into the sector, and many of the initiatives have some or the other way helped the sector grow. Major such initiatives are:
Saubhagya scheme and 24×7 electricity for all: With mandate to electrify every household of the country, the government has done a lot, and the result can be seen in the demand growth of various states. Most DISCOMs are avoiding load shedding and are trying their best to supply power even at higher price.

MERIT website: This showed the day-wise marginal cost of each DISCOM. It has made DISCOMs follow merit order dispatch and the system has become more transparent. Now, many DISCOMs back down their own costlier generation and buy from the exchange, leading to savings ranging from 10-20 per cent.

UDAY scheme: It has helped DISCOMs to buy more power to serve more customers, thereby increasing the demand. Overall demand has increased this year by 8.7 per cent.

Augmentation and reinforcement of the inter-state transmission network: This along with associated downstream network in the last few years also has helped the power sector grow a lot. With increased ability to freely transport power across the regions, we have been able to see uniform power price in the exchange market, which was not the case prior to 2017.

Our day-ahead platform realised One Nation, One Grid, One price on 268 days in FY18. This seamless flow of electricity from power surplus states to power deficit states have been a real game-changer in the Indian electricity sector. Eventually, growth in demand for electricity, evolution of electric mobility and development of green energy will set the tone for the growth in networks. This is an ongoing process and demands regular review, planning and construction of new networks

Achieving ambitions
To increase the pace of achieving above ambitions, the government needs to focus on the following aspects specifically from the power market perspective:

Streamlining coal production and supply: Currently, we have enough generating capacity, but we are short of main fuel i.e. coal. Increased coal production and supply to all merchant generators without any requirement of long-term and medium term PPA are two essential drivers, which will help lower the prices and increase supplies to power deficit DISCOMs.

Revival of financial health of DISCOMs: More effective implementation of schemes such as Ujwal Discom Assurance Yojana (UDAY) would ensure better financial health of DISCOMs. Focus should be on to develop more merchant capacities based on renewable, as this would give developers a wider market to help achieve targets.

Scheduling green energy: Majority of renewable energy transactions in the country are happening intra state, and focus must be on to increase inter-state transactions, as it would provide wider market. Better implementation of Forecasting and Scheduling (F&S) regulations, which mandate renewable generators to forecast their generation in advance and adhere to it in scheduling would help the market grow.

Separation of distribution and supply of electricity: Separation of content and carriage if followed in spirit would lead to more competition in the market, resulting in enhancing the efficiency of distribution and retail supply business, reduction in AT&C losses and low cost of power to the consumers.

Regulations that would further develop the power market
More robust regulations on Cross Border Trade with proper grid connection with neighbouring countries such as Bhutan, Nepal and Bangladesh to trade power would help in maintaining the grid with more intermittent sources, as countries such as Bhutan and Nepal are hydro rich which could be used for balancing the grid.

Further, with more renewables in grid, the need for robust mechanisms to manage the grid will be needed. Many regulations such as re-designing of real time market, ancillary services regulations and linking of DSM prices with Exchanges prices have been proposed and when implemented these regulations would help in absorbing more renewables in the grid.

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