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Design of competitive electricity market in India

Design of competitive electricity market in India. NCAER. Need for reforms. Pre-reform structure. Vertical integrated utility (State Electricity Boards). Regional Load Despatch centres, Transmission utilities (Power grid corporation). Problems relating to governance.

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Design of competitive electricity market in India

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  1. Design of competitive electricity market in India NCAER

  2. Need for reforms Pre-reform structure Vertical integrated utility (State Electricity Boards) Regional Load Despatch centres, Transmission utilities (Power grid corporation) Problems relating to governance Under priced supply of electricity to rural areas Theft and losses prevalent in urban areas Post reform structure Electricity Act 2003 enacted Separation of generation, transmission and retail business Reforms with a focus on governance

  3. Current status of power sector Total installed capacity 1.28 lac MW • Total generation more than 600 billion kWh - 5th largest producer worldwide Northern region - 27%; Western region - 28%; Southern region - 29%; Eastern region - 14%; North-eastern region - 2% • Transmission and distribution network 6.3 million circuit kms Hydro-thermal mix fell from 46:54 in 1966 to 25:71 as of today and projected to fall to 21:79 in 2010.

  4.  Potential of 1.5 lac MW of hydro-electric capacity yet to be exploited  APDRP formulated to make distribution utilities commercially viable, reduce ATC losses, reduce outages and interruptions and increase consumer satisfaction.  Cross-subsidy in tariffs to be phased out  Difference between industrial and domestic tariffs is falling  Unbundling of integrated utilities e.g.: Distribution Companies Karnataka Power Corporation Karnataka Power Transmission Corporation Ltd.

  5.  Facilitating power exchange Availability based tariff for central sector utilities fixed charge energy charge per kWh Charge for Unscheduled Intercharge (UI)

  6. Transfer capacities across regions North North-East 500 MW 950 MW 1200 MW West East 1650 MW 3000 MW 1000 MW South Project North-East to North and West - 1800 km HVDC line from Biswanath Chariali in Assam (close to Arunachal Pradesh) to Agra in Uttar Pradesh through 800 KV lines with capacity upto 6000MW

  7. Open Access  Traders facilitate power transfers for a fee  Central sector shares - pseudo long-term bilateral contracts in forward energy market  Access to transmission based on transmission fee and a surcharge  Relevant regulations: CERC regulation No.L-7/25(1-4)  In cases of congestion in corridors, bidding mechanism for short term open access @ http://203.200.81.7/ebid

  8. North-east # Salakati Bongagaon North # Legend 220 KV 400 KV 220 KV Singrauli Mughalsarai Dehri Auraiya Birpara Malda HVDC back-to-back link Allahabad Sasaram East # 500 MW HVDC bipole Budhipadar 220 KV Vindhyachal Korba Rourkela Balimela Malanpur Jeypore West # Existing link Raipur 400 KV Chandrapur Kolhapur New approved scheme 1000 MW 2000 MW 220 KV 220 KV 500 MW Gazuwaka Belgaum Ramagundam South # Kolar Upper Sileru

  9. Electricity forward market The forward transmission market The spot energy market The forward energy market (market for bilateral contracts) The forward market for reserves Electricity futures and options

  10. NEMMCO in Australia operates eight separate markets for the delivery of frequency controlled ancillary services (FCAS) and purchases network control ancillary services (NCAS)

  11. Integrated systems Unbundled systems Middle path or ‘third way’  Unit commitment schedules  Economic despatch schedule  shadow prices of system constraints as basis for transactions  security constrained economic despatch as true nodal prices of energy  Congestion in transmission relieved by physical instructions  Sequential and repeated markets for energy, transmission and reserves  Repetition ensures market convergence  Sequential markets to yield complete convergence  Transmission congestion relieved by setting locational nodal prices  Under the condition of complete markets, the integrated and unbundled systems will produce the analogous primal-dual equivalence of outcomes.

  12. “smart” market Decentralised operations Unit Commitment schedule  start up and shut down conditions  spinning reserve  ramp up limits  Energy markets  Transmission markets  Ancillary markets Power dispatch schedule  real power balance  reactive power balance  Voltage limits  Transmission limits Energy constraints on hydro plants

  13. Auctions  First price sealed bid auction Vs Ascending auction  If bidder’s information is independent then all auctions are equally good  Ascending auctions more profitable than standard (first price) sealed bid auctions in expectations if the information is afflicted  Designs should facilitate entry and discourage collusion

  14. Transmission utility pricing and rights  Financial transmission rights (FTRs) or flowgate rights (FGRs) in US as derivatives with values for network transmission capacity in power flow models  FTR holder gets a share of the congestion payment surplus that is received by the ISO when a transmission constraint is binding.  Flowgate rights are linked based transmission rights for hedging transmission risks - settled at the prevailing shadow prices of a security constrained economic despatch model.  Zonal prices in Europe under market splitting mechanism

  15. PE-ISO - A possible structure Power Exchange Independent System Operator Transmission Day Ahead Market Real Time Market Bids Generators Transmission Traders Distribution companies Retailers Contracts Large consumers Regulated consumers

  16.  Power exchange and ISO as co-joined entity  PE to conduct national wholesale electricity market : Day Ahead Market (DAM) and the Real Time Market (RTM)  Distinct functions of electricity markets: Physical operation of maintaining reliability and stability of the system (ISO) Economic operation of managing energy markets (PE) Commercial operation of settlement and conciliation of the obligations contracted in the market (PE)  PE runs competitive auctions on non-discriminatory basis Buyers State level retail utilities; Transmission utilities Transmission traders Sellers Central sector Units; State level utilities Merchant owned units

  17.  In event of congestion in transmission corridors, auctions will be held to determine the rights of way  Central Transmission Utility as nodal ISO along with five regional transmission utilities as associate ISOs responsible for regional balancing  Long term bulk contracts finalised by utilities using multi round auction to get the best deal from wholesale sellers.  At retail level, mostly levelised rate under regulation for core customers  Demand side bidding by load serving utilities in the RTM markets  Bundled generating units precludes any need for state level exchange  Coordination by state transco under the supervision of regional transco  Electricity futures and other derivatives can be developed in conjunction with commodities exchanges in India  Regulation through performance based incentives for generators and transmission traders and levelised tariffs with scope for profits for distribution companies

  18.  Constant monitoring of electric market imperfections and inadequacies through appropriate metrics on capacity additions, transmission congestions, etc  Hedging instruments as insurance schemes for risk management policies  Structured tolling contracts as upfront premium paid to plant owner for ability to schedule the operation of the plant  Interruptible load programs

  19. Electricity derivatives Financial contracts- Contracts for differences in UK and Australian power markets Physical contracts - Contracts with short maturity period; the PJM power pool market and the energy balancing market operated by CAISO in the US. Electricity futures were first traded on the NYMEX in March 1996 Mostly traded in traditional exchanges Electric swaps as financial contracts for fixed price Electric locational basis swaps

  20. Electricity options and swaps Plain vanilla electricity call and put options Options based on attributes like volume, delivery location and timing, quality, and fuel type Exchange traded energy futures or physical transactions at major power transmission inter ties. Spark spread options as non-standard cross-commodity electricity options with payment as the difference between the price of electricity sold by generators and the price of the fuels used to generate it Callable and putable forwards to mimic interruptible supply contracts and the dispatchable independent power producer contracts

  21. Operational details of electricity futures How will it work? How does the ebid system in the Powergrid website works?

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