Power Trade with Nepal

1
Power Trade with Nepal Regulatory Regime in
India
Presentation by S. K. DUBE Director
(Operations), PTC India Ltd. Email
dube_at_ptcindia.com on 03 November, 2006 at
POWERing Nepal-Connecting Markets organised by
NUSACCI, AMCHAM-India, US Embassy, USAID-Nepal
2
Journey of Indian Electricity Laws
Electricity Acts of 1887 1903 PRIVATE CAPITAL,
MINIMAL REGULATION
Indian Electricity Act, 1910 PRIVATE CAPITAL
Electricity Act, 2003 REGULATION, MARKET,
TRADING, PRIVATE CAPITAL, OPEN ACCESS, BILATERAL
CONTRACTS
E. Supply Act 1948, Constitution 1950, STATE
OWNERSHIP, REGULATION
Electricity (Amend.) Acts, 1991 1998 PRIVATE
CAPITAL G T
ERC Act 1998 State Reform Acts AUTONOMOUS
REGULATION, UNBUNDLE PRIVATE CAPITAL
3
INDIA Evolving Regulatory Domain ..1
4
INDIA Evolving Regulatory Domain ..2
5
EMERGING INDUSTRY STRUCTURE
GENCO
GENCO
GENCO
TRADER
OPEN ACCESS Transmission
CRITICAL ISSUE It is still Evolving.
DISCOM
DISCOM
DISCOM
OPEN ACCESS Distribution
TRADER
Customer
Customer
Customer
6
The Present State India Power Sector

• Total generation capacity 127,000 MW
• Total peak demand 95,500 MW
• (met 83,300 MW)
• Total energy demand 223,000 MUs
• (met 203,000 MUs)
• Gap to the extent of 13 and 9 respectively

7
Broad Consensus exists on Way Ahead

• Add new generation capacity quickly.
• Attract private investment to fill the gap.
• Promote development of a power market.
• Regulatory Reform improving the quality of
  regulation, institutions and processes.

8
Power Trading central to a power market

• Identification of inevitable mismatch in demand
  and supply over
• Spatial dimensions - different regions (from a
  distribution circle to a neighboring state, or to
  a different region)
• Temporal dimensions - different times within a
  time-epoch (varying from less than 24 hours to
  multi-year periods).
• Mismatches will occur both in an overall
  surplus as well as overall deficit system.

9
The Role of Power Trading

• Underlying Reasons for mismatches Diversity in
  supply and demand due to seasonal changes,
  long-term social and development trends
  (affecting usage and consumption patterns),
  random factors and unanticipated situations.
• Options available to a utility
• A Plan capacities for Peak Load (thereby
  investing in capacity that will idle most of the
  time).
• B Participate in exchanges with another utility
  (thereby going against conventional views of
  security and reliability).

10
The Role of Power Trading (Contd)

• Trading creates a market based on enforceable
  contracts for buying and selling power.
• Enables (a utility with) a smaller power system
  to become part of a large system, obviating the
  need for reserve capacity and affording increased
  reliability as well as utilization.
• Benefits
• Seller gets to operate generation capacities at
  higher utilization (which would otherwise be
  backed down) realizes efficiency and economic
  benefits.
• Buyer gets to meet critical loads in a reliable
  manner, often substituting costlier sources of
  generation realizes reliability and economic
  benefits.

11
Trading Process
REB/RLDC (S.O./Reliability Forum)
Generator/ Exporting Utility
Purchasing Utility
Trader
Transaction margin retained by trader
POWERGRID (CTU) or STU
REB-Regional Electricity Board RLDC-Regional Load
Dispatch Centre CTU-Central Transmission
Utility STU- State Transmission Utility
Contract
Power flow
Payments
Illustration shows entities that participate in
operational trades in India
12
The Role of Power Trading (contd)

• As an illustration PTCs operations in FY2005-06
  clocked 10 Billion Units in trading volume. The
  import
• Power physically delivered to and consumed in
  economic activity (end use agri., industry,
  comml. establishments, domestic units)
• Equivalent to a large (1450 MW) generation plant
  operating at high efficiency (80 utilization)
  every day of the year, for 365 days (and having
  the hypothetical flexibility to dispatch power to
  diverse, distributed loads)
• Therefore, Trading pushes the frontiers of
  efficiency management by incentivizing better
  utilization of existing assets.

13
What needs to be done?

• Encourage private sector plants through creation
  of a level playing field.
• Provide accurate pricing cues in public domain
  for incremental unit of capacity / energy.
• Promote investments based on a power market.
• Explore and develop potential cross-border
  sources to achieve synergies.

14
Developments related to PTCs trading business

• Long-term PPAs signed with projects for
  aggregate capacity
• of 6700 MW.
• PSAs for onsale of these capacities signed for
  3000 MW.
• Tariff / PPAs in various stages of regulatory
  approval
• Cross-border business PTC starts scheduling
  power from first
• unit (170 MW) of Tala HEP in Bhutan to Eastern
  Regions states
• in India. (existing operations from Chukha
  Kurichhu continue)

15
Related Regulations

• Trading License related regulations (Jan 2004).
• Open Access (May 2004, amended April 2005)
• Fixing of trading margin (January 2006)
  clarifies other than international trade, which
  is not under our domain. (therefore, no
  regulatory intervention for import from Nepal)
• Appellate Tribunal for Electiicity (ATE)s
  existence in the last 21 months provides a
  process of appeal against regulatory orders
• Several instances of CERC / SERC orders being
  set aside
• The Tribunal seems mindful of any non-adherence
  to / abuse
• of Judicial processes by the ERCs.
• Clear signs of a maturing regulatory regime good
  for an evolving market

16
Advantages of Cross-border Trade

• Vast potential for regional energy cooperation in
  South Asia by increasing the efficient use of
  energy through region-wide utilization of
  resources.
• This would
• Improve the utilization of existing resources,
• Promote efficient development of future energy
  resources and,
• Greatly improve regional energy security by
  expanding the energy supply resource portfolio of
  each country.

17
Advantages of Cross-border Trade (contd.)

• Regional cooperation among contiguous countries
  possible.
• However, power planning development in
  countries usually from a purely domestic point of
  view
• Overlooks opportunities in neighbouring countries
  that may be more economically exploited for
  mutual benefit.
• For Example
• Bhutan and Nepal have large hydro potential and
  Bangladesh has large natural gas resources.
• Pakistan has an adverse hydro-thermal mix (plus
  seasonal nature of hydro availability). Also has
  a short-term surplus position.
• These resources are beyond the respective medium
  term domestic needs.
• India offers the largest potential market for
  trading energy also suffers from an adverse
  hydro-thermal mix.

18
Rationale for Long-Term Regional Co-operation
Indias Perspective

• Growing Demand can be met through cross-border
  hydro power gas based sources.
• Potential for Economies of Scale if large
  cross-border projects are set up primarily to
  address the economic opportunity provided by
  Indias shortage situation.
• Environmental conservation benefits through
  use of cross-border renewable sources.
• Emergency Assistance treat India as the energy
  hub, because of its intervening geography.

19
Present Exchanges Indo-Nepal

• Indo-Nepal Power Exchange
• Commenced in 1971
• Quantum of exchange moderate up to 100 MW
• Present Inter-connections mostly at LV/MV
  besides few 132 kV links
• May not support higher exchange
• Reliability issues
• Transmission interconnection needs to be enhanced
• Better prospects for interconnection with
  Northern Region
• 750 MW West Seti HEP being set-up to cater wholly
  to the Indian power market
• However, deal yet to fructify owing to financial
  closure issues

20
The Potential

• Nepal has hydro-potential of 43,000 MW techno-
  economically viable but only 1.5 of it has been
  developed
• Development of competitive hydro projects in
  Nepal to cater to Indian demand, particularly in
  Northern region seems promising
• Nepal plans to develop a number of hydro projects
  either jointly with India (Pancheswar, Karnali,
  Saptkoshi ) or through private participation
  (West Seti, Upper Karnali, Arun -III)
• India and Nepal have signed Mahakali treaty in
  Feb1996 for joint development of above projects

21
Issues In Indo-Nepal Power Trading(Overarching
Consideration)

• Objectives of Nepals reform program
• Reducing Electricity costs?
• Attracting private investment?
• Maximize public revenues?
• Creating energy security in an environmentally
  stable manner ?
• Where does cross-border power trade fit into the
  objectives?

22
Issues In Indo-Nepal Power Trading (contd)

• Physical Constraints
• Transmission Infrastructure
• Interconnection / common operating parameters
• Cost and financing issues
• Information obligations and data collection
  issues
• Commercial Issues
• (Overarching Concern balanced benefits)
• Guaranteed Offtake Levels
• Performance standards and efficiency based
  Incentives
• Energy Pricing Issue
• Peak versus Base load tariff differential
• Market-based prices vs. negotiated prices
• Transmission / Wheeling Charges

23
Issues In Indo-Nepal Power Trading(Contd)

• OTHER CRITICAL ISSUES
• Varying ownership structures of the energy
  industries
• Dissimilar governmental relationships within the
  energy industries
• Diverse pricing structures because of subsidies
  and cross subsidies
• Differences in regulation of the electricity
  sectors
• Impact of energy being considered a strategic
  resource

24
REGULATORY ISSUES

• Permission for entities to participate
• Scheduling and dispatching mechanism, energy
  accounting and settlement processes
• Performance standards and information obligations
• Priority of power flows criterion to be adopted
• Adopting a Capacity, Energy and Transmission
  pricing structure based on a consistent
  understanding
• Risk mitigation covering market and financial
  risks (demand, counterparty credit etc.)
• Dispute Resolution mechanisms
• Structure of the Regulatory body (a regional
  regulator?)

25
Way Ahead suggested steps

• Possible to extend the concept from power regions
  in India to power systems of neighboring
  countries to realize the same synergies.
• Step I
• Start with the Short-Term Market, as it will
• Provide better utilization of existing capacities
  and resources
• Inculcate confidence in market participants
  through successful demonstration
• Require only incremental investments and enabling
  regulatory / settlement forums over a short time
  period
• Alongside that, develop export oriented Power
  Projects with adequate transmission
  infrastructure for power sale to India (PTC and
  ILFS are taking first steps towards this
  objective)

26
Way Ahead suggested steps

• Step II
• Develop on the platform established through
  short-term transactions by planning for Long-Term
  commitments
• Addressing complementarities in demand / supply
  and resource patterns
• Will require multi-year investment plans
• However, start small by planning one or two
  demonstration projects, and then scale up
• Step III
• Develop matching organizational capacity in all
  participants to participate in the Very
  Short-Term market

27
THANK YOU! Visit us at www.ptcindia.com