Power Markets in India

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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.

SOURCE: Economic Times