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Power Markets in India
Context:
The government has allowed trading of surplus electricity generated from “linkage coal” in power markets to meet peak demand during the summer.
More on News:
- Coal linkages are made by the government to thermal units against long-term power purchase agreements (PPAs) with distribution companies (discoms).
- However, Power markets offer a flexible, reliable, and transparent alternative to PPAs.
Coal linkages: 
Power Markets vs. Power Purchase Agreements (PPAs)
- PPAs are inflexible, long-term contracts, spanning 25 years and commit generators to supply power at fixed rates.
- This can be inflexible in adapting to dynamic market conditions
- Power Markets offer a flexible, reliable, and transparent alternative to long-term PPAs with distribution companies (discoms).
- It allows generators to sell surplus power at market prices, responding to short-term demand fluctuations.
- This is beneficial for renewable energy generators to avoid curtailment during off-peak hours.
- Working Power Markets
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- Bidding Process: Buyers place bids to purchase electricity; sellers make offers.
- Market Clearing Price: It is the price at which the electricity is traded, is determined by equilibrium of demand bids and supply offers.
- Categories of Power Market:
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- Spot Market: Includes real-time market (RTM) and intraday market for near-immediate or same-day delivery.
- Contract Market: It facilitates long term trades.
- Day-ahead market (DAM) deals with closed auctions for 15-minute time blocks for the following day
- Term-ahead market (TAM) handles trades from 3 hours to 11 days in advance.
- Renewable Energy Certificates (RECs): Allow utilities to meet renewable purchase obligations (RPOs) by buying RECs representing 1 MWh of renewable electricity.
- This system benefits states that lack sufficient renewable capacity, and enables them to purchase RECs for green energy generated elsewhere.
Power Exchanges in India
- Power market hosts power exchanges, which facilitate competitive pricing and improved resource allocation and greater market liquidity.
- First introduced in Europe (1990-91) and in India in 2008.
- Major Exchanges in India: India has 3 major exchanges regulated by Central Electricity Regulatory Commission, this includes:
- Indian Energy Exchange Ltd (IEX) with 90% market share, traded 110 billion units (BU) in FY 2023-24.
- Power Exchange India Limited (PXIL)
- Hindustan Power Exchange Ltd (HPX).
- Market Performance: IEX, growing 14% year-on-year, representing almost 7% of India’s total power demand of 1,626 BU.
- Future Prospects for Power Exchanges: Indian regulators are exploring market coupling and capacity markets as the next steps for the country’s power markets.
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- Market Coupling: Matching bids from all exchanges to discover a uniform market clearing price, enhancing price discovery and market stability.
- The concept, first introduced in Central Electricity Regulatory Commission (CERC) Power Market Regulations, 2021.
- Capacity Markets: Paying generators for available capacity and not just for the electricity they produce.
- It will ensure long-term grid reliability and incentivise investment, especially for peaking power plants.
- Market Coupling: Matching bids from all exchanges to discover a uniform market clearing price, enhancing price discovery and market stability.
- Advantages of Power Markets:
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- Flexibility: Generators can respond to short-term demand fluctuations.
- Transparency and Reliability: Market-driven approach enhances trading reliability compared to bilateral contracts.
- Efficient Use of Resources: Helps utilities meet variable power demands efficiently.
- Support for Renewable Energy: Enables trading of surplus renewable energy, aiding in grid integration.
Conclusion
- Power markets in India are evolving with regulatory support and innovative mechanisms like market coupling and capacity markets.
- These developments aim to align India’s power markets with mature international markets, fostering greater investment and competition.
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Power Sector in India
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