High-price power trading to begin on IEX in March as regulator gives the go-ahead

According to the International Energy Agency, Asia will use half of the world's electricity by 2025.

The Central Electricity Regulatory Commission (CERC) has given its nod to a high price-day ahead market (HP-DAM) segment at power exchanges, giving states and central as well as private utilities another avenue to meet demand in times of shortages.

The decision comes ahead of the onset of summer when power demand peaks and states scour for electricity. HP-DAM market segment will allow them to buy power even if costlier.

The power regulator’s February 16 order was on a petition filed by the Indian Energy Exchange (IEX) Ltd, the country’s largest power-trading company.

“We are surely going to launch HP-DAM next month. The CERC in its order has made a minor tweak, so we have to slightly recalibrate our systems according to that,” IEX's business development head Rohit Bajaj told Moneycontrol on February 17.

CERC has capped the maximum price in this “expensive power” segment at Rs 50 a unit. The other two power bourses – Power Exchange India Limited and Hindustan Power Exchange Ltd (HPX) –  were unlikely to start the HP-DAM contract as of now, sources told Moneycontrol.

“We welcome the move as it will help those with high cost power to now participate in the exchanges and with this we also hope our trade volumes will get a boost,” Bajaj said.

On February 15, Moneycontrol was the first to report that CERC’s order approving the HP-DAM market was expected anytime and IEX would launch HP-DAM the next month.

The day ahead market (DAM) is a physical electricity trading place for deliveries for any/some/all 15-minute time blocks in 24 hours of the next day starting midnight. The prices and the quantum of electricity to be traded are determined through a double-sided closed bidding process.

India has three power exchanges where electricity is bought and sold electronically. Power exchanges offer spot electricity and hence help utilities meet the short-term demand-supply gap in times of emergencies.

In 2002, when demand soared in mid-March due to a sudden heatwave, the price of spot electricity on these bourses climbed to Rs 20 a unit.

So in April, CERC introduced a price cap of Rs 12 a unit across all market segments in the power exchanges. While the cap ensured that the spot prices remained within Rs 12 a unit, but the power generators having a high variable cost were left out of the market.

The rates keep fluctuating. At present, they average around Rs 6 a unit.

Once the high-price market segment opens up, gas-based power generators, imported coal-based plants and even battery-energy storage systems will get to trade electricity.

The power ministry and CERC were keen to roll out HP-DAM at the earliest to meet the expected spurt in demand in summer months, officials said.

The government is preparing to meet a projected peak demand of 230.144 gigawatts (GW) in FY 2024.

In April-May 2022, many states faced hours of outages because of the surge in demand due to unexpectedly high temperatures, rapid economic recovery following the easing of COVID curbs and shortage of coal.