DEVELOPMENT OF OTC MARKET IN INDIA Working title/topic of research Development of OTC market in India.

This talks about the various new methodologies to be used in the current system in order to improve its health. Rationale/purpose/importance of research Indian short term market has been ruled by OTC/Bilateral markets, most preferred mode of trading with its benefits. To develop more lucid and lucrative platforms for trading keeping in view the international markets. The motive is to improve the health of traders and to work out something on the congestion. This topic has been a subject of interest to me. After working for CERC, realizing what Indian Short term power market is facing and seeing it sailing through the hard times, I personally want to find out best possible ways for its betterment. The project will help the OTC market develop in the country. Open, transparent and connected market that will ensure best market practices and liquidity. This eventually will heal the traders health. This will also help in getting the investment in the transmission which eventually will lower the chances of congestion on the lines. The prices for the electricity will go down to a certain extent.

Review of Literature OTC (Over the Counter) or bilateral market, a part of the short term market in India. It is basically an agreement carried out by the trader with two parties i.e. producer & consumer. The OTC market is most prevalent in India. Of the total electricity procured in India in 2011-12, the short-term power market comprised 11 per cent. The balance 89 percent of generation was procured mainly by distribution companies through long-term contracts and short-term intra-state transactions.

In volume terms, the size of the short-term market in India was about 94.51 billion kWh (units) in the year 2011-12. As compared to the volume of electricity transacted through short-term market in the year 2010-11 (81.56 billion units), this was about 16 percent higher. Majority of this growth in volume of 12.95 billion units was accounted for by growth in bilateral transactions through the interstate trading licensees (62.8%), followed by growth in direct bilateral transactions between the DISCOMs (about 39.5%). Transactions through power exchanges accounted for only about 0.2% of this growth.

Volume of Electricity Transacted through Trading Licensees was 35.84BU (2011-12) which is 69.75% of the total transactions through PX and traders which is 5% more as compared to the previous year which was 64%.

These figures depict a very strong potential of OTC/ bilateral markets to grow and become a transparent, liquid platform and be at par with the foreign OTC markets. The OTC market offers electricity at very high spot prices, which in comparison to PX are relatively high.

The bilateral market in 2011-2012 was at Rs. 14979 Crores & weighted average unit price of Rs. 4.18 whereas the exchange stood at Rs.5553 crores & weighted average price of Rs. 3.57.

A major setback for the bilateral market is the high price of electricity being traded and the inability of the traders to payback the amount to the counterparties. To get the prices to a level an OTC market needs to have a platform where the trades can be settled and cleared. The platform has the banks which fund the traders in case of payment risks and also they manage the various risks encountered by the traders.

The second issue with the market is the congestion, which causes the decrease in the actual quantity to be traded or in some cases the electricity is not traded because of the inability of the infrastructure to let the energy flow on the line. This issue calls for a development in transmission infrastructure which by its virtue is economies of scale, it is difficult to expect a major investment. As the foreign countries like USA, Europe which offers the physical as well as financial transmission rights which guarantees the user an amount in the case where no trade takes place. These issues have to be taken into account and mulled over for a solution which can help OTC market grow.

Statement of research objectives/questions/hypotheses

To identify the need and importance of an efficient OTC market. To analyze OTC market development in India. To understand the development process of various developed power market and identify various successful market tools that can be implemented in India. To understand the various risk associated with Short term power market for various stakeholders. The study will be confined to Bilateral market only. The study will be carried out on the reports laid down by CERC, CEA, various LDCs as the data is kept confidential by the traders.

Research design, tools and methodology Observational Decision

 Statistical Decision

Primary Data Primary data are those which are collected afresh and for the first time and thus happen to be original in character. The primary data will be collected through well designed and structured research techniques. Questionnaire has to be drafted and to be forwarded to different traders. Secondary Data Secondary data are those which are collected by someone already and passed through statistical process. The secondary data required will be collected through various newspapers, websites etc.

Limitations and Delimitations of the study Gathering of data from traders will be a limitation and vision of only a bit of various kinds of methodologies used around the world.

Time Schedule/Plan The project timeline is from August to December. Study of different markets: 1st September to 15th September Study of Indian Power Market: 16th September to 30th September Comparison of markets: 1st October to 5th October. Different types of Congestion Management Techniques: 16th October to 31st October Study of FTRs in various markets: 1st November to 15th November Study of Over the Counter trading techniques followed in European Countries: 16th November to 30th November Compiling and analyzing the various data collected and final results:1st December to 15th December.