Power Market, Power Trading

and Power Exchange

National Seminar
Challenges & Opportunities in Power
Generation, Transmission & Distribution
23-03-12

Power System Operation Corporation Ltd.

Eastern Regional Load Despatch Centre
 Market
– A mechanism through which buyers and
sellers interact to determine prices and
exchange goods and services
– Entire set of conditions surrounding
production, transport and distribution of a
product
– Size determined by geography, transport,
costs, etc.
 In a market everything has a price !!!
• Price
– is the value (not cost) of the good/service in terms
of money

– represents the terms on which voluntary exchange

of goods & services takes place

– Serves as signal to the producers and consumers

 Demand
• Need + Purchasing power = Demand
• Law of downward–sloping demand
– When price of a commodity is raised, buyers tend to buy less of
the commodity, other things remaining constant (e.g.,
purchasing power, related goods, preferences, environment,
etc.)

Price

Quantity
 Supply Curve
• The supply curve shows the relationship between its
price and the amount of that commodity that producers
are willing to produce and sell, other things held constant
(e.g., cost of production, technological advancement,
related goods, etc.)

Price

Quantity
 Equilibrium
Quantity demanded is equal to quantity supplied

Surplus

Shortage
Price of
commodity

Quantity
Shift in equilibrium
 Price elasticity of demand
Change in Quantity Demanded in response to change in Price

More Elastic
Elastic

Perfectly Inelastic
Less elastic

Perfectly elastic
 Market Design
Four Pillars of Market Design

ELECTRICITY MARKET

SCHEDULING
CONGESTION ANCILLARY
& IMBALANCES
MANAGEMENT SERVICES
DISPATCH

“Making Competition Work in Electricity”,

Sally Hunt
 Liquid Markets
• Characterstics
– Many buyers and sellers
– Accessibility of buyers and sellers to each other
– Accessibility to information about the market prices
• Price settles fast to a market price
• Defining feature
– Ability to absorb the loss or addition of a participant
(buyer or seller) without a noticeable change in the market
price
 Liquid Markets
• Law of one price
– For the same product, same time and same place,
there will be one price if the market is liquid
• UI Market – Liquid ?
 Efficient Markets
• Market is efficient if the participants cannot
predict price movements

• Arbitrageurs
– Balance prices in different markets
– Benefit from inefficient markets
Indian Electricity Market
Evolution of Power Market in India

Ancillaries,

PX
2008
Open Access
2004
Settlement
System
Grid Code 2002-03
Feb.’2000
 INDIAN ELECTRICITY MARKET
ENABLERS
Legislation
Indian Electricity Act 2003
National Electricity Policy
12-Feb-2005, Para 5.7.1(d)
Regulation
IEGC-Feb 2000
ABT Order-Jan2000
Open Access-May-2004
Power Exchange-Aug-2007
Execution
CTU/STU, RLDC/SLDC
Grid & Market Operation
Control Centres & SEMs
ABT settlement: in stages 2002-03
STRUCTURE
Balancing Mechanism
Frequency linked
Unscheduled Interchange
Intra-day STOA
Day-ahead Power Exchange
Multiple Power Exchanges
Short-term Bilateral
Day-ahead
First-come-first served
Three-month ahead
Long-term Bilateral
Shared resources (ISGS)
Own resources
 Electricity Market Segments

Short-term market Long-term market (90%)

(10%)
Central Sector State Sector
generation generation
Pvt
Sector 36 % 45 %
Generation
9%

Short-term Market

UI (30.10 %) Exchange Bilateral Market (52.32%)

(17.58 %)
Direct Trading Through Traders

13.95 38.37%
 Short Term Open Access:
Bilateral and Collective Transactions
 Open Access in Inter-State Transmission
• Implemented w.e.f. 6-May-2004
• Revised Regulations w.e.f 1st April 2008 and further amendement in May,2009
• Products –
– Monthly bilateral
• Advance
• First Come First Serve
– Day ahead bilateral
– Collective Transactions through Power Exchange
– Intra day bilateral
• Permits usage of spare transmission capacity through a transparent process
• Offers choice and freedom to buy & sell power
 Power Exchange
• July 2006: Staff Paper by CERC
• February 2007
– CERC Guidelines for establishment of Power Exchange
• August 2007
– In principle approval to the first power exchange in the country
• January 2008
– Revised Regulations for Open Access in Inter-state Transmission,
Effective 1st April 2008
• June 2008
– Procedure for Scheduling of Collective Transactions by CTU
– Commencement of operations
• October 2008
– Second Exchange begins operations
• Power Market Regulation,2010
– Day ahead Market
 Regulatory Framework for Power Exchange

2008 June -
2007 February guidelines for
2003 June – – guidelines scheduling of
enactment on setting up transactions on
of EA 2003 PX PX

2006 July – 2008 January – 2008 October –

CERC issues guidelines for instructions for
staff paper collective multi exchange
on PX transactions scenario

In transition towards a competitive market structure

Congestion Management: Bid Area
Area Region States
N1 North JK, HP, CHD,
PUN, HAR
N2 North RAJ,DEL, UP,
UTT
W1 West MP, CHTG

W2 West MAH,GUJ, GOA,

DD,DNH
S1 South AP, KAR, GOA
S2 South TN, KER, PONDY

E1 East WB, SIK, BIH,

JHAR
E2 East ORISSA
A1 North-East TRIP, MEGH,
MANI, MIZO
A2 North-East AS, AP, NAGA
Power Exchanges: Concepts
 Power Exchanges

An electricity Power Exchange provides a spot

market, mainly day-ahead, for electricity,
which like any other market matches demand
and supply for each time block, while
providing a public price index
 Role of an Exchange
• Standardized specifications - contract structure
• Standard margining system
– Eliminates credit rating
• Risk Management in a volatile market
– Robust Clearing & Settlement systems
• counter party credit risk absorbed
– Fair, Safe, orderly market
• rigorous financial standards and surveillance procedures
 Role of an Exchange
• Price Transparency
– Anonymous auction platform
– Price Discovery by matching of demand-supply
– Long term price signals
• Transparent real time, pan-geographic price
dissemination
– Benchmark reference price
– Liquidity to participants
• Risk Management
– Separation of pricing function
– Neutral, Secure and self Regulated market
 Exchange vs. OTC Contract
OTC contract
Available to limited market
participants
Bilateral/ Customized Contracts
Counter party credit risk
Is an involved participant
Opaque dealing
Bilateral dispute settlement
mechanism
Difficulty in reporting and
regulating various trades
Exchange Traded
Liquid market – wider market
participation
Standardized contracts
Counter party risk assumed by
exchange
Platform is Neutral
Transparent price discovery
mechanism
Well defined dispute
settlement mechanism
The exchange is the central
reporting and regulating
entity
 Central Electricity Regulatory
Commission
(Power Market) Regulations, 2010.
Part – 2 : Scope of Regulation and Extent of Application
 Regulation No.3
• Markets
– Over the Counter Market
– Power Exchange Market
– Other Exchange Market
• Contracts
– OTC Contracts directly between buyers and sellers
– OTC Contracts through Electricity Traders –
• Back to back deals
• Deals with Open position
• Contract to aggregate suppliers / buyers and sell / buy to a one or
more buyers / sellers
– Financially settled electricity derivatives contracts
transacted in OTC market
 Regulation No.4

– Delivery based contracts transacted on Exchange

• Intraday contract /Contingency contract
• Day Ahead contract
• Term Ahead contract
– Financially settled electricity derivative contracts
transacted on Exchange
– Any new contracts linked with electricity generated from
renewable sources, e.g. Renewable Energy Certificates
(REC), etc. transacted on Power Exchange.
– Any new contract in areas related to capacity , power price
indices, and other areas related to electricity
– Capacity Contracts
– Ancillary Services Contracts
 Regulation No.5
• Market participants including
– Grid connected entity(ies) such as but not limited to
Generating companies, Distribution Licensees,
consumers who have been granted open access.
– Electricity Traders;
– Power Exchanges and Clearing Corporations approved
by the Commission;
– Members of Power Exchanges;
– Members of Clearing Corporation;
– Other Exchanges and
– Any other transacting party
Part – 3 : Approval / Suspension of the Contracts by the
Commission
 Regulation No.6
• The Commission may, on an application made in this
behalf , permit any Exchange to introduce such
contracts as specified in Part 2 of these Regulations
for transacting on the Exchange

• An Electricity Trader is not required to obtain any

approval under these regulations but shall submit
information as specified in CERC (Procedure, Terms
and Condition of grant of Trading License and other
related matters) Regulations, 2009 and comply with
the trade reporting requirement as specified in
Regulation 59 (iii) hereof.
 Regulation No.7
• An Exchange seeking permission under Regulation 6 shall
submit to the Commission the complete and detailed
contract specifications.
• Parameters for examination of such contracts:
– Type of contract
– Price Discovery methodology and matching rules proposed
– Transaction period
– Risk Management mechanism
• Margining mechanism
• Final Price Settlement mechanism
– Delivery mechanism
– Delivery Duration
– Penalty for Contractual Deviation (for Term Ahead Market)
 Regulation No.8
– Permission not given to enter into or transact
following contracts unless the same has been
permitted to be so launched or introduced by the
Commission in terms of notification issued in this
behalf -
• Derivatives Contracts;
• Ancillary Services Contracts
• Capacity Contract
 Regulation No.9
• If the Commission is of the opinion that it is
necessary or expedient so to do, it may after
granting the concerned person the
opportunity of being heard, by order, suspend
transactions on any contract for the period
specified in the order or withdraw any
contract from the market or the Exchange, as
the case may be.
Part – 4 :Principles of Market and
Market Design
 Regulation No.10

• A Power Exchange shall function with the

following objectives:-
– Ensure fair, neutral, efficient and robust price discovery
– Provide extensive and quick price dissemination
– Design standardised contracts and work towards
increasing liquidity in such contracts
 Regulation No.11
• A Power Exchange shall adopt the following market
design in case of day ahead markets:-
– Price Discovery
• The economic principle of social welfare maximisation and to
create buyer and seller surplus simultaneously during price
discovery.
• The bidding mechanism shall be double sided closed bid auction
on a day ahead basis.
• The price discovered for the unconstrained market shall be a
uniform market clearing price for all buyers and sellers who are
cleared
• In case of congestion in transmission corridor, market splitting
mechanism shall be adopted.
• The delivery / drawl of power shall be considered at the regional
periphery.
– Delivery Procedure
• Participants in Power Exchange shall take “Concurrence
,Prior Standing Clearance, or No objection” from their
respective State Load Despatch Centres if applicable before
participating in the Power Exchange

• Transmission charges and transmission losses shall be

handled as per Procedure for scheduling (Open access) of
Collective Transactions issued in accordance with CERC
(Open access in Inter State Transmission) Regulations, 2008
and as amended from time to time.

• Contracts in day ahead market are necessarily for physical

delivery and shall be binding on the participant executing
the transaction
• The scheduling and delivery of contracts on Power
Exchange shall be in coordination with the system
operator and in accordance with CERC (Open access in
Inter State Transmission) Regulations, 2008 as amended
from time to time, The operational details shall be as
per the Procedure for scheduling (Open access) of
Collective Transactions issued in accordance with CERC
(Open access in Inter State Transmission) Regulations,
2008 and as amended from time to time.

• The allotment of transmission corridor to Power

Exchanges shall be done by National Load Despatch
Centre as per directions of the Commission.
 Regulation No.12
• OTC Markets – The following principles of
transaction shall be observed:
– OTC market shall provide customized solution to sector
participants and endeavour to bring innovation in the
market place.
– Contracts to be sold to client shall be based on the
suitability, appropriateness and full material disclosure of
contract pricing, its risks and implications to the parties
entering into the contract.
 Regulation No.13
• The Physical Market Design should
complement security and reliability of power
system and under no circumstances should
market mechanisms compromise grid security
Regional Grid Operation: Philosophy as
per IEGC
• Operated as loose power pools
• States have full operational autonomy
• State power system treated as notional (flexible)
control area
• Very tight control of actual interchange by state
utilities & Inter State Generating Stations not
mandated
• Deviations from net drawal schedules appropriately
priced
 GRID MANAGEMENT FUNCTIONS

• Ex-ante functions
– Scheduling
• Real-time functions
– Supervision & control of system parameters
– Facilitating Open Access transactions
• Post-facto functions
– Settlement system operation
• Interaction with stakeholders
 Settlement System – ABT & UI
• ABT is a scientific settlement system for contracted sale &
purchase of power
• Has three components
– Fixed Charges or capacity charge
• Linked to day-ahead declared availability/subscription
– Variable Charges or fuel charges
• Linked to before the fact energy schedules
– Charges for deviation from commitments
• Frequency actuated signal
– Signal transmitted at the speed of dynamics to be controlled
• Real time pricing stretched to its physical limits
– Merit order
– Economic load management
• Incentives for helping the grid
• Opportunities for a diligent player
• Simple, dispute-free weekly settlement system
 DECENTRALIZED SCHEDULING

Time
Availability
09:00
Declaration
10:00 Entitlements
Collective
15:00 Transactions (PX) Requisition &
Bilateral Agreements
S
I Injection Schedule R Drawal Schedule
18:00 L
S L
D
G D
22:00 Revision in DC Revision in Requisition
C
S C

23:00 Final Final

Injection Schedule Drawal Schedule

0 to 24 Revisions during Revisions during

hours Current day Current day
23-Mar-12 47
 A Typical Dispatch
Surpluses/Deficits - Balance supply and demand

36 Forecast Contingency Real-time

34 Day Ahead, UI
PX
32 Buy Buy
‘00 MW

30 Sell Sell

28
26
ADVANCE SHORT TERM BILATERAL CONTRACTS
24
22 FIRM SHARES IN ISGS

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hours
 Sharp Price Movements
PRICE

DAYS

HOUR
3/23/2012 POSOCO 52
 The End Result ….
• Frequency is
– collectively controlled
– democratically stabilized
• Wholesale market is workably competitive
– allocative efficiency
– productive efficiency
• Economic signal available for
– optimum utilization of resource
– investments in generation capacity
• Settlement is
– streamlined
– dispute-free
 Approved Energy (MUs)--->

1000
2000
3000
4000
5000
6000
7000
8000
9000

MAY '04
AUG'04
NOV'04
FEB'05
MAY'05
AUG'05
NOV'05
FEB'06
MAY'06
AUG'06
NOV'06
FEB'07
MAY'07
AUG'07
NOV'07
FEB'08
MAY,08
AUG'08
Nov'08
Feb'09
May'09
Aug'09
Nov'09
Feb'10
May'10
Aug'10
Nov'10
Feb'11
Increasing trend of STOA - Approved Energy (MUs)

May'11
Aug'11
Nov'11
 NO. OF TRANSACTIONS

1000
1500
2000
2500

500

0
MAY'…
AUG'…
NOV'…
FEB'05
MAY'…
AUG'…
NOV'…
FEB'06
MAY'…
AUG'…
NOV'…
FEB'06
MAY'…
AUG'…
NOV'…
FEB'08
MAY,…
AUG'…
Nov'08
FEB'09
MAY'…
AUG'…
Nov'09
feb'10
<--Introduction of Day-Ahead Product from April,2005

May'10
Aug'10
Open Access- TOTAL TRANSACTIONS ( 2004-12)

Nov'10
Feb'11
May'11
Aug'11
Nov'11
 Trade under Short-Term Open Access

Volume of trade (BUs) No. of transactions

60 25000
19883
17337

Number of Transactions ---->

50
18128 20000
55
Energy (BUs) ----->

15414
40
52
39 15000
9560
30
5933 31
3938
10000
20 778 30

5000
10 24
17
23
0 0
2008-

2009-

2010-

2011-
2007-08
2004-05

2005-06

2006-07

11*
09*

10*

12*
*Includes Bilateral + Collective transactions
 Number of Trading Licencee approved by CERC
Approved Licencee Traders Active Traders
50
45 44
40 41
40
40
35
Number of Traders

30 28

25 21
20 19
16 17
15 13
14 15
10 12
9
5 7
4
0
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Fiscal Year ------
As on 30.10.2011
 All India UI Billing
(w.e.f. 28-Mar-11 to 11-Dec-11)
600 8,000

7,000
500

Rs. In Crores :-->

6,000
Rs. In Crores :-->

400
5,000

300 4,000

3,000
200

2,000

100
1,000

0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Series1 Week No. ---> Series3

 Annual UI Volume (Regionwise)
16000

14289
2002-03 2003-04 2004-05 2005-06 2006-07
2007-08 2008-09 2009-10 2010-11 2011-12
14000

12987
12000

10685

10357
10000
Rs in Crores-->

8000

6950
6814
5170
6000
4652

4627
4358
4156
3784

4224
3409

3204
4000

2976

2846
2851

2805
2561

2544
2362

2818
1991
1846

1816

1747

1541
2112
1393
1348

1326
1162

1120

2000
1040

997
942

892
821

730
644

978
583

554
551

542

509

513
503
249
219
216
202

170
145
107

225

70
0

0
0
Western Region Northern Region Southern Region Eastern Region North Eastern All India
Region
 UI Volume over the Years
16000

14000

12000

10000
Rs in Crores

8000

6000

4000

2000

0
2011-12
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 (Upto 11th
Dec'11)
All India 892 2846 4627 5170 6814 10685 14289 12987 10357 6950
 Region wise Cumulative UI Volume
in Rs. Crores (Till 11th Dec-11)
75000

70000

65000

60000

55000

50000
Rs. in Crores

45000

40000
75617
35000

30000

25000

20000

15000
27972
10000 19134
15962
5000 10237
0 2311
Western Region Northern Region Southern Region Eastern Region North Eastern All India
Region
 Regionwise Cumulative UI share
(Till 11th Dec'11)

North Eastern Region

4%

Eastern Region
21% Western Region
25%

Southern Region
14%

Northern Region
37%

Western Region Northern Region Southern Region Eastern Region North Eastern Region
 All India UI Billing
(w.e.f. 28-Mar-11 to 11-Dec-11)
600 8,000

7,000
500

Rs. In Crores :-->

6,000
Rs. In Crores :-->

400
5,000

300 4,000

3,000
200

2,000

100
1,000

0 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Series1 Week No. ---> Series3