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Context:

• To address the unusually high-power demand during a scorching summer, the government has taken a significant step by permitting the trading of surplus electricity generated from "linkage coal" in the country's power markets.
• This decision comes as a strategic response to ensure adequate power supply amidst soaring temperatures, where traditional methods may fall short.

Coal Linkages and Power Purchase Agreements (PPAs)

• Coal Linkages: Typically established by the government, coal linkages tie thermal units to long-term PPAs with distribution companies (discoms).
• PPAs: These agreements, spanning around 25 years, commit generators to supply power at fixed rates, posing challenges in adapting to dynamic market conditions.

Emergence of Power Markets

• Flexibility Over PPAs: Power markets offer a flexible, transparent alternative to PPAs, enabling generators to respond swiftly to demand fluctuations.
• Market-Driven Pricing: Surplus power can be traded independently of PPAs at market-determined prices, optimizing revenue for generators.

Functioning of Power Markets

• Market Dynamics: Buyers and sellers participate in bidding and offering electricity, with the market clearing price determined by demand and supply equilibrium.
• Market Categories: Spot markets facilitate immediate trades, while contract markets enable longer-term transactions such as day-ahead and term-ahead markets.
• Role of RECs: Renewable Energy Certificates (RECs) allow utilities to fulfil renewable purchase obligations, contributing to the green energy ecosystem.

Power Exchanges in India

• Establishment and Regulation: Power exchanges operate under the framework established by the Electricity Act of 2003, regulated by CERC.
• Market Dominance: Indian Energy Exchange Ltd (IEX) holds a significant market share, followed by Power Exchange India Limited (PXIL) and Hindustan Power Exchange Ltd (HPX).

Growth and Importance of Power Exchanges

• Trading Volume: IEX traded about 110 billion units (BU) of electricity in FY 2023-24, representing a substantial portion of India's total power demand.
• Regulatory Support: Recent amendments aim to encourage participation in power exchanges, recognizing their growing significance in India's energy market.

Future Developments

• Market Coupling: Proposed to enhance price discovery and stability by matching bids across exchanges.
• Capacity Markets: Aimed at incentivizing investment in generation capacity for long-term grid reliability, aligning India's market practices with international standards.

This strategic move by the government not only addresses immediate energy needs but also sets the stage for a more resilient and adaptable energy infrastructure in the face of future challenges.

PRACTICE QUESTION Q.  Which legislative act established the framework for the operation of power exchanges in India, and which regulatory body oversees their functioning? a) The Energy Conservation Act of 2001, regulated by the Ministry of Power b) The Electricity Act of 2003, regulated by the Central Electricity Regulatory Commission (CERC) c) The Renewable Energy Act of 2005, regulated by the Ministry of New and Renewable Energy d) The Power Sector Reform Act of 2008, regulated by the National Power Exchange Commission Answer b)

SOURCE: Economic Times