High price market likely to be launched in power exchanges next month

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The much awaited high price market segment is likely to be rolled out in the power exchanges next month (March, 2023), two senior officials privy to the development told Moneycontrol on February 15.

India has three power exchanges where buying and selling of electricity takes places electronically. When power demand soared last year from mid-March due to a sudden heatwave, the price of spot electricity in these bourses went up to Rs 20 per unit. So, in April, 2022, the Central Electricity Regulatory Commission (CERC) introduced a price cap of Rs 12 per unit across all market segments in the power exchanges.

While the price cap has ensured that the spot prices in the power exchanges remain within Rs 12 per unit, the fallout of this has been that the power generators having a high variable cost are unable to participate in the market.

Now once the high price market segment opens up gas-based power generators, imported coal based power plants and even renewable energy with storage will get to trade electricity in this contract.

“All formalities have been cleared. Hearings have been conducted. The framework is also ready. The order from CERC is expected anytime now,” said a senior power ministry official.

Meanwhile, power exchanges are gearing up for the launch of the new segment. “We are all set to launch HP-DAM (high price day ahead market) and are just waiting for the CERC order. The launch could be as early as March 1. But let’s see. We are hopeful that the supply-side constraints which we are facing today, will be sorted out because, after the introduction of the HP-DAM contract, costlier power will also come to the market. This will help us in converting more buy bid into trading volume,” Rohit Bajaj, head of business development, Indian Energy Exchange Ltd (IEX) told Moneycontrol in an interview. Of the three power exchanges, 90% of all the power trading, as per January, 2023 data, happened in IEX.

An official from the Grid Controller of India Ltd (formerly POSOCO) said the power ministry and the CERC intend to roll out HP-DAM soon so as to meet the spurt in power demand that is expected during the summer months. The government is preparing to meet a projected peak electricity demand of 230.144 gigawatts (GW) in FY 2024.

In April-May last year (2022), many states in the country faced hours of outages because of an unrelenting surge in power demand due to a sudden heatwave, rapid economic recovery, and shortage of coal to generate power.

As per the power ministry’s proposal, in HP-DAM, sellers with a variable cost greater than the price cap of a spot of the integrated-DAM market i.e. Rs. 12 per unit will be allowed to sell power in this market. These can be gas-based power plants, imported coal-based power plants, or any other entity that meets the variable cost eligibility criteria. Minimum bid price will be at 0 paise/unit and maximum price will be higher than the existing price cap for DAM, the proposal stated.

“The price discovery for HP-DAM will be Double-Sided Closed Auction (same as G-DAM, DAM and RTM). This will enable high-cost power plant to be made available during the high-demand period. Only such buyers who are in deficit and can afford to pay high price will be able to participate in this segment. The other buyers and consumers will not get affected,” read the power ministry’s proposal.

A double-sided closed auction is when both buyers and sellers meet to exchange a product or service, creating both bids to buy and offers (asks) to sell.