Power Market Development in India: Reflections from International Experience

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Power Market Development in IndiaReflections
from International Experience

• R.P.Singh
• Chairman Managing Director
• POWERGRID

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Evolution of the electricity market in India

• Self sufficient, contented villages
• Natural light
• Conventional energy sources
• Small towns urban dwellings
• Spread of education-migration to cities
• Increase in individual aspirations, desires
• Distributed generation local distribution

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Evolution of the electricity market in India

• Population growth, new cities
• Rapid industrialization
• Large scale production of goods
• Public investments
• Regional network and integrated grids
• Resource crunch
• Demand outstrips supply
• Fierce Competition
• Private participation
• Optimization and efficiency

4
International experience

• Competition is possible in electricity
• Competition has yielded positive results
• But
• Initial success of competition in electricity
  was primarily because
• Design margins were available in transmission
• Surplus generation capacity existed
• Newly created entities were compliant
• Consumers were Not-so-demanding

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Recent revelations in developed markets

• Inherited capacities have depreciated
• Capacity investment is inadequate
• Coordinated growth in transmission is lacking
• Competitors have become ruthless
• Exercise of market power by large utilities is
  still a major concern

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Recent revelations in developed markets

• Freeing wholesale price controls while ignoring
  retail demand inelasticity can be counter
  productive
• Bring back the cool, calm days of inefficient
  monopolies under government control
• An article in New York Times, January 11, 2001,
  after California Blackout

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Key Learning from the experience of electricity
markets in developed countries
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Invisible Hand will take care of every thing!

• This is a myth
• When the Laws of Economics and
  the Laws of Physics collide
  Physics Always Wins
• George.C.Loehr
• No economic theory, no legislation, no
  regulation can repeal the Laws of Physics

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Electricity markets need a visible
hand besides an invisible one!

• Demand supplies are temporal and stochastically
  variable
• Supply and consumption must match instantaneously
• Electricity cannot be stored economically
• Generation transmission facilities are
  immoveable
• Externalities are strong and complex
• Unpredictability of the grid

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Basic choices in market design

• Centralized or Decentralized
• Bilateral contracts or Power Exchange
• Tightly controlled or loose power pools
• Physical trade or Financial trade
• Forward or Spot contracts
• Permit financial hedges or not
• Mandatory or Optional market
• We might have to trade-off

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Any market design must not ignore

• Technical realities of the integrated electricity
  systems
• Public interests while taking care of private
  interests
• Public interests are Security Reliability
• Private interests are Stakeholders concerns
• Inseparability of goods services
• Goods-- Watts VARs
• Services-- Frequency, Voltage
  Transmission

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Introspection of the Indian market
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Regional Electricity market in India

• Long-term generation capacity market
  (Long term Open Access through Central
  Transmission Utility)
• Capacity allocations in Central Sector Generation
  by Ministry of Power, Govt. of India
• Bilateral contracts between IPPs Load serving
  utilities
• Short-term energy market (through system
  operator)
• 96 time blocks of 15 minute each
• Day-ahead scheduling of long-term bilateral
  contracts
• Day-ahead scheduling of short-term bilateral
  contracts (Non-discriminatory short-term Open
  Access)

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Regional Electricity market in India

• Intra day energy market- (Schedule revisions)
• Dispatch schedule revision
• Drawal schedule revion
• Bilateral schedule revision
• Revisions effective from six/ four time blocks of
  15 minutes
• Real-time balancing market
• Unscheduled Interchange mechanism
• Real time energy pricing

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Loose Power Pools in India
CS - 2
CS - 1
MPP
Regional Grid
RLDC Coordinates
State - C
State - A
CS Central Sector MPP Mega Power Producer RLDC
Regional Load Despatch Centre
State - B
Control Areas
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Institutional Framework

• Central Sector Companies
• Generating Utilities, NTPC, NHPC, NEEPCO, NPCIL
• Transmission Utility, POWERGRID
• RLDC
• Finance, PFC
• Rural Electrification REC

Authorities CEA, REBs,
RD CPRI, NPTI, PSTI,
Mega IPPs
Appellate Tribunal
Ministry of Power, Govt of India
Independent CERC
MOP, State Govt.
Independent SERC

• Trading Co.
• PTC India
• NVVNL

• State Sector
• Generation
• Transmission
• Distribution

Pvt. DISCOM
State IPPs
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Bedrocks of our electricity market

• Availability Based Tariff mechanism
• Elegant, simple efficient real-time balancing
  market (UI mechanism)
• Everything should be made as simple as possible
  but not simpler.
• Albert Einstein
• Unified Load Despatch Communication
• Robust metering settlement system
• Weekly settlement for UI reactive energy
• Monthly settlement for bilateral contracts

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Neutral Transmission Provider

• Unbundling completed at Regional level
• Non-discriminatory Open Access Interstate
• Long term Short-term users
• Information sharing of
• Real-time power flows
• Open Access capacity reservations
• Charges incentives
• Linked to line availability
• Immune to quantum of power flow
• Neutral to buyers/sellers/trader

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Thus the Indian market has

• Positives
• Strong Institutional framework
• Well defined rules procedures
• Neutral transmission system operator
• Cleary demarcated control areas
• Not so positives
• Huge gap between the capacity supply demand
• Private investments not forthcoming
• Poor participation from Captive Power Plants

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Way ahead

• Innovative commercial initiatives
• Demand Side Management
• Demand side responsiveness
• Differential pricing-
  Seasonal, Time-of-the day etc.
• Winning through technology
• Robust Flexible transmission system
• Generation mix
• Strengthening distribution system

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Way ahead

• Remove bottlenecks in implementation of reform
  initiatives
• Increase institutional efficiency
• ABT Open Access to intra-state level
• Improve consumer redressal
• Retain and attract talent in the sector
• Have self-belief commitment to reforms

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Equip the grid operator!

• Charles Concordia
• In the absence of a mature physical system
  operators fight an endless losing battle.
• Market forces yield results only when the
  operator is equipped
• Strengthen operators sensory nerves
• SCADA EMS
• Communication facilities

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Conclusions

• Demand supply match is to be ensured
• Long-term bilateral contracts should form the
  backbone of our market
• Energy trade through Short-term open access
  should be restricted to 15 of total trade volume
  
• Excessive reliance on last-minute market to be
  avoided to prevent volatility in prices
• Consumers must be heard and taken into confidence
• Gradual approach is better than Big Bang
  approach

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Albert EinsteinSince the mathematicians got
hold of Theory of Relativity even I dont
understand it

• Thank you!

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Payment to Inter State Generating Stations (ISGS)
from beneficiaries under Availability Based
Tariff (ABT)

• Capacity charges
• Energy charges
• Unscheduled Interchange (UI)

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CAPACITY CHARGE

• Capacity charge will be related to availability
  of the generating station and the percentage
  capacity allocated to the state. Availability
  for this purpose means the readiness of the
  generating station to deliver ex-bus output
  expressed as a percentage of its rated ex-bus
  output capability.

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ENERGY CHARGE

• Energy charges shall be worked out on the basis
  of a paise per kwh rate on ex-bus energy
  scheduled to be sent out from the generating
  station as per the following formula
• Energy charges Rate of energy charges
  (paise/kwh) x Scheduled Generation (ex-bus MWh)

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UNSCHEDULED INTERCHANGE (U I)

• Variation in actual generation / drawal with
  respect to scheduled generation / drawal shall be
  accounted for through Unscheduled Interchange
  (UI).
• UI for generating station shall be equal to its
  total actual generation minus its scheduled
  generation.
• UI for beneficiary shall be equal to its total
  actual drawal minus its total scheduled drawal.

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UNSCHEDULED INTERCHANGES (UI)I.E. DEVIATIONS
FROM SCHEDULES

• Makes all the players in the grid self-responsive
  and enhances merit order.
• Good UI helps in improving frequency and enables
  one constituent to help the other (for meeting
  more consumer demand i.e reducing load shedding)
• UI provides the mechanism for on-line
  displacement of costlier generation by cheaper
  generation ultimate optimisation.

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REACTIVE ENERGY CHARGES

• Under ABT, a reactive energy charge in paise/kwh
  is applicable.
• The charges would be _at_ 4.86 paise/kVARh upto 31st
  March 2001 and escalated _at_ 5 per annum.
• This would be applicable for reactive power
  exchanges outside the 97-103 voltage band.