India’s power regulator seeks discussion on market coupling, floats staff paper

market coupling

The Central Electricity Regulatory Commission (CERC) has floated a staff paper on market coupling and sought comments from stakeholders on it by September 30.

This development is significant as the Union Ministry of Power, on June 2, asked the CERC to initiate the process of market coupling across the country's power exchanges.

‘Market Coupling’ means the process in which collected bids from all the power exchanges are matched, after taking into account all bid types, to discover a uniform market clearing price (MCP) for the Day Ahead Market (DAM) or Real-time Market (RTM) or any other market as notified by the CERC, subject to market splitting.

India has three power exchanges – Indian Energy Exchange (IEX), Power Exchange India Limited (PXIL) and Hindustan Power Exchange Limited (HPX). These are voluntary markets and each of them collects buy bids and sell bids on their own, and thus, come up with their own MCPs. In simple terms, currently, each power exchange has a different cost of electricity, even though it is usually higher or lower than each other only by a few paise.

The staff paper floated on August 21, stated that the idea of a multi-exchange model in India’s power sector was originally conceived with a view to encouraging competition amongst the exchanges and catering to the growing and varying requirements of market participants.

But the competition is far from being seen in the power exchanges, it suggested. “While the present market structure has been designed to maximize efficiency gains, the power exchanges with lower volumes often point to the intrinsic nature of the collective transactions segment (DAM and RTM), which leads to a concentration of liquidity in one power exchange, due to which the benefits of competitive efficiency do not percolate to the market participants,” read the staff paper.

As for the points of discussion, the paper asks pertinent questions such as whether the current Indian power market scenario presents a “compelling” case for coupling, its impact on tech innovation as well as competition and whether there is a need for a third party market coupling operator (MCO).

“Would it be advisable to select a suitable algorithm out of the three existing algorithms, or should a new algorithm be designed jointly by the exchanges/by the market coupling operator, like the PCR EUPHEMIA (acronym of Pan-European Hybrid Electricity Market Integration Algorithm) being used to calculate day-ahead electricity prices across Europe,” read the paper.

Market coupling was also mentioned in the report of the group on the Development of the Electricity Market in India 2023, which was headed by former secretary for power Alok Kumar.

The report said that to ensure social welfare maximisation, bids and offers in the power exchanges across all the bidding areas or zones are combined through the price coupling of projects. "Price coupling ensures that bids and offers are combined to discover a single uniform market clearing price for a zone/bidding area," it stated.