Electricity Act, 2003: Marking the era of competition?

1. Electricity Act, 2003: Marking the era of competition? Rajesh K Mediratta Director (B.D.), IEX

2. In this presentation • Elements of Competition in EA 2003 • Spot Power market - Status • Open access- Status • 10-year EA Score Card

3. Essentials of Competition EAct,2003

4. Essentials of Competition EAct,2003

5. Spot Wholesale market – Status

6. 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

7. Transition to Wholesale Spot Market

8. Contribution of Exchanges vis-à-vis total generation Source: CERC MMC Monthly Reports FY 2012-13

9. Key statistics: Electricity & REC Market ELECTRICITY REC 97% 77% 27 States I 5 UTs 16 States I 5 UTs 191 467 1900+ 1265 >70,000 MWh Highest : 101,000 MWh >3 million RECs Highest: 3,09,892 RECs IEX Data as on 30th June, 2013

10. Growth in Volumes & Participation

11. Increasing Consumers participation IEX Data as on 30th June, 2013

12. Key milestones achieved by the exchange 2011 Mar REC Market Launched 2012 Oct: 2000 MU+ Monthly Volume, 1300 participants, 90 MUs Highest daily trade 2009 May: 100 Participants 2010 May: 100 Consumers 2011 May: 1000 + Participants 2009 Aug: 1st registered Industrial Consumer 2009 Sep: Term-Ahead Market Launched 2013 June: 2000+ Consumers & 2600+ participants 2010 Aug: 1000 MUs Monthly Vol 50MU highest daily Vol

13. Spot Market- Wish list

14. Non-discriminatory Open Access – Status

15. Status of Open Access

16. State-wise Open Access Consumers at IEX (As on 30th June 2013) State-wise OA Consumers at IEX Today almost 2000 plus consumers are availing OA through IEX

17. State-wise Participation at IEX

18. OA status in India…is it really open? 6-Aug-14

19. Barriers to Open Access: Act or its implementation?

20. Open Access: Prevented and denied • 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

21. Enablers for facilitating implementation of Open Access Legislative Open Access Charges Operational • 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

22. Enablers for facilitating implementation of Open Access 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

23. Enablers for facilitating implementation of Open Access Legislative Open Access Charges Operational • 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

24. Open Access Wish list

25. 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.

26. Competition Score CardEAct,2003

27. Competition Score CardEAct,2003

28. THANK YOU

29. Suggestions to realize full Open Access • 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.

30. IEX Market Segments Delivery-based Contracts… CERC regulated Day-Ahead Market since June,08 Closed , Double-sided Auction 10-12 am bidding Each 15-min block , 0.1 MW min NOC required 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 Term-Ahead Market since Sep,09 Green Attributes as Certificates Sellers : RE generators not under feed in tariffs Buyers: Obligated entities 1MWh equivalent to 1 REC Renewable Energy Certificates since Feb,11 Next… Energy Saving Certificates Auction Continuous

31. 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.

32. 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 Status of Open Access

33. 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. Electricity Act 2003

34. Changing Structure: Emerging Structure - Post EA 03 Generating Companies Captive Generation Facilities Own Generation Transmission Network (Immediate Open Access) Distribution Licensee 1 Distribution Licensee 2 Distribution Network (Gradual Open Access) Own Distribution System Licence Area Power Traders would also be involved in some of the transactions Consumers Competitive, Flexible Structure enabling Choice to Consumer

35. 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 Scene prior to introduction of Power Trading

36. 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

37. 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

38. 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 ….

39. 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

40. 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

41. 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 Impact of Electricity Trading

42. 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 Market Trends

43. 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”