The government has given its approval to introduce market coupling in the electricity sector, which will result in uniform prices for power across multiple exchanges.
The Union Ministry of Power has written to the Central Electricity Regulatory Commission (CERC) asking it to initiate the process of market coupling across the country's power exchanges.
Under market coupling, buy and sell bids from all power exchanges in the country will be aggregated and matched to discover a uniform market clearing price (MCP). In the long-term, the measure is likely to also help in keeping power tariffs affordable in the country, apart from ensuring quick access.
"I am directed to say that several stakeholders have approached the Ministry of Power on the subject of market coupling in the context of multiple power exchanges. The Ministry of Power has decided to go ahead with the process with the approval of the Minister of Power and New and Renewable Energy. Therefore, the process for implementation of market needs to be initiated," read the letter sent by the Power Ministry to the CERC on June 2. Moneycontrol has a copy of the letter.
The CERC will now create a paper on the matter, which will be followed by stakeholder consultations.
At present, power prices or MCPs are different in the three power exchanges that India has - Indian Energy Exchange Limited (IEX), Power Exchange India Limited (PXIL) and Hindustan Power Exchange Limited (HPX).
The development is seen as a setback to IEX, which currently enjoys a monopoly status with a 90 percent share in the electricity market.
Following the development, shares of IEX tumbled more than 8 percent in the last 30 minutes of trade on June 8 as the news of market coupling spread. This is because once market coupling is implemented, it will ensure liquidity across all power bourses. At present,
IEX has significantly higher liquidity compared to PXIL and HPX because of which the latter two are less opted for.
The move is a step towards the government's intention to shift India's electricity trading from long-term (25 years) power purchase agreements (PPAs) to electricity markets (exchanges) and shorter PPAs of up to 12-15 years.
A senior Power Ministry official said that market coupling is also a step towards implementing the Market-Based Economic Dispatch (MBED) mechanism. The MBED mechanism envisages centralised scheduling for dispatching the entire yearly consumption of electricity of around 1,400 billion units.
It proposes centralized scheduling of power dispatches both at the inter-state and intra-state levels. Besides, market coupling will also pave the way for the implementation of electricity derivatives in the market.
Some states have objected to the MBED mechanism as they feel it will infringe on their autonomy over the electricity sector, which as per the Constitution is a concurrent subject.
CERC in February 2021 had issued the Power Market Regulations 2021, whose Part-5, Regulation 37 contains enabling regulations for the implementation of market coupling in power markets in India.
Prabhajit Sarkar, former managing director and CEO of PXIL said market coupling would require designating an agency as the Market Coupling Operator (MCO), which in all likelihood is going to be Grid-India. He said the entire process, including any market-wide consultation, should not take more than six months.
“The MCO will put in place all processes and formats such that power exchanges (PX) obtain bids/orders from clients in similar formats and pass them to the MCO with client-specific information masked, procedure for MCO to declare results and formats and procedures for inter-PX information exchange for scheduling of power and clearing and settlement of financial dues,” Sarkar said.
The MCO will also have to ensure that deposits and payment securities kept with any one exchange be granted fungibility, such that they can be used as collateral for placing bids/orders on any other exchange with due emphasis on superior risk management practices.
“The participants now no longer need to be beholden to only one exchange, which hitherto due to the market structure issue had the benefit of getting all the liquidity. With greater competition amongst exchanges and market platforms, the levels of service, access and most importantly cost of access in the form of transaction fees should come down making the market efficient. The true benefit of competition would finally be available to all market participants,” Sarkar said.
Naveen Singh, head, business development, HPX said the move is going to help reduce power tariffs in the long-run. "We are confident that the CERC would soon come up with the necessary regulatory framework to ensure its implementation at the earliest. This will give a fillip to the service levels in the power market, ensure better transparency and uniform price discovery across exchanges. It is also expected to bring down the power tariff in the country significantly," he said.
IEX and PXIL did not comment on the matter.
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