POWER TRADING
Shilpi Mukherjee
Introduction
In economic terms, electricity is a commodity capable of being bought, sold and traded. As defined in Electricity Act 2003, Trading means purchase of electricity for resale thereof and the expression "trade" shall be construed accordingly. Trading is a licensed and regulated business as per Electricity Act 2003 CERC notifies procedures, terms and conditions
for power trading
Evolution of Power Market
India being predominantly agrarian economy,
some states experience seasonal surpluses of power while some face deficit. Interstate Transmission became need of the hour. RLDCs were formed to facilitate such transfer of electricity. Contracts were mostly of long duration i.e. 25 yrs or more.
Evolution of Power Market
To meet short term demand the states
resorted to trading of power through bilateral trading agreements. States resorted to energy banking where in surplus state would supply energy to a deficit state and in deficit situation vice versa. But when both the states were deficit it gave rise to complications.
Benefits provided by power exchanges
Common platform for trade of electricity
Transparent mechanism of price discovery Meeting peak demand Overall Demand Optimization
Benefits provided by power exchanges
No need to search for buyers and sellers, thus
eliminates search cost. Sell / Buy all across the nation. No need to negotiate for the prices unlike in Bilateral Contracts. Power exchanges act as counterparty, thus a participant need not to assess the risk profile of the other participant
Services provided by traders
Facilitation to reduce geographical, seasonal
and daily gap between demand and supply thereby encouraging optimum use of existing assets. Assured physical delivery based on available transmission corridors.
PROVISIONS IN THE ELECTRICITY ACT 2003 FOR POWER TRADING
Sectio
PROVISION
n
2(26) "electricity trader" means a person who has been granted a license to undertake trading in electricity under section 12;
2(71)
"trading" means purchase of electricity for resale thereof and the
expression trade shall be construed accordingly;
12
No person shall a) transmit electricity; or b) distribute electricity; or c) undertake trading in electricity, unless he is authorized to do so by a license issued under section 14, or is exempt under section 13:
14
Provided also that a distribution licensee shall not require a license to undertake trading in electricity.
26,27, Provided Regional & State Load Dispatch Centre shall not engage in 31 the business in trading of electricity. 38(1) 39(1) 41 Provided Central Transmission Utility shall not engage in the business in trading of electricity. Provided State Transmission Utility shall not engage in the business in trading of electricity. Provided also that no transmission licensee shall enter into any contract
or otherwise engage in the business of trading in electricity.
79(1)(j) The Central Commission shall discharge the following functions, namely: to fix the trading margin in the inter-State trading of electricity, if considered, necessary 86(1)(j) The State Commission shall discharge the following functions, namely: fix the trading margin in the intra-state trading of electricity, if considered, necessary;
Features Of Electricity Act 2003 Facilitating Power Trading
With enactment of the Electricity Act 2003 the potential of trading would increase further on account of the reasons stated below. The key features of the Act likely to facilitate power trading are Mandatory and non-discriminatory open access De-licensing of generation Specific provisions for trading of power and market evolution Emphasis on non-conventional energy trading STU's not allowed to trade in power Phasing out of surcharge/cross-subsidy both on open access and on retail tariffs
Customers for Power Exchanges
Suppliers: State/ Private Utilities,
CPPs/IPPs/MPPs, Renewable Sources Buyers: State/ Private Utilities, Direct Open Access Customers (Industrial and Commercial Consumers)
Collective Transaction
Exchange is a platform on which buyers and
sellers gather to trade in a commodity. The buyer does not come to know who the seller is and the seller does not come to know who the buyer is. The buyers and sellers remain anonymous to each other, so that the bigger players will not be in a position to influence the smaller players. In this a there will a level playing field for all the participants.
Price and Volume Determination in an exchange-
ILLUSTRATION OF CLOSED AUCTION BIDDING
PARTICIPATING SELLERS Sl No 1 2 3 4 5 6 Seller S1 S2 S3 S4 S5 S6 Sale Bid 50 MW at Rs 5,500 10 MW at Rs 6,000 40 MW at Rs 7,000 50 MW at Rs 8000 50 MW at Rs 9,000 50 MW at Rs 10,000
ILLUSTRATION OF CLOSED AUCTION BIDDING
PARTICIPATING BUYERS Sl No 1 2 3 4 5 6 7 Buyer B1 B2 B3 B4 B5 B6 B7 Purchase Bid 10 MW at Rs 10,000 40 MW at Rs 9,000 50 MW at Rs 8,000 25 MW at Rs 8,000 25 MW at Rs 7000 50 MW at Rs 6000 50 MW at Rs 5,500
MCP :Rs 8000/MWh Volume: 125 MW Selected Buyers : B1,B2,B3,B4 The Buyers Trade Selected Sellers Matched Sellers : S1,S2,S3,S4 (partial)
10 MW @ Rs 6,000 50 MW @ Rs 5,500 40 MW @ Rs 7,000 50 MW @ Rs 8,000 50 MW @ Rs 9,000 50 MW @ Rs 10,000
S1
S2
S3
S4
S5
S6
B1
B2
40 MW @ Rs 9,000
B3
50 MW @ Rs 8,0a00
B4
25 MW @ Rs
8,000
B5
25 MW @ Rs
7,000
B6
50 MW @ Rs 6,000
B7
50 MW @ Rs 5,500
10 MW @ Rs 10,000
125
SELECTED SELLERS AND BUYERS
SUCCESSFUL SELLERS Sl No 1 2 3 Seller S1 S2 S3 Cleared quantum 50 MW at Rs 8,000 10 MW at Rs 8,000 40 MW at Rs 8,000
S4
SUCCESSFUL BUYERS
25 MW at Rs 8,000
Sl No
Buyer
Cleared quantum
1 2
3 4
B1 B2
B3 B4
10 MW at Rs 8,000 40 MW at Rs 8,000
50 MW at Rs 8,000 25 MW at Rs 8,000
Conditions for Trading
Multi buyer and seller model Responsiveness of demand and supply to
prices. Equal access to essential facilities like transmission and distribution. Efficient marketplaces.
Factors affecting electricity prices
Effect of Demand on Price Effect of ATC & Congestion on prices Effect of external factors on prices Effect of UI charges on prices Effect of holidays on prices Effect of Weather on Prices
Categories of Traders
Sr. No Category of the Trading License Volume of Electricity proposed to be traded in a year No limit Net Worth (Rs. in Cr)
Category I
50.00
Category II
Not more than 1500 Million units
15.00
Category III
Not more than 500 Million units Not more than 100 Million units
5.00
Category III
1.00
Electricity Market Segments
Short-term market (8%)
Long-term market (92%)
Central Sector generation
Pvt Sector Generation State Sector generation
37 %
45 %
9%
5% 4%
UI
Short-term Market
(39 %)
IEX (5%)
UI market Bilateral+IEX trading market
Bilateral Market (56%)
Direct Trading
Through Traders
13 %
43%
Effect of Demand on Price
More is the demand, More is the price
40000
20.00
Sale Bids
35000
30000
Max MCP(Rs/unit)
15.00 25000
Rs/unit
Purchase Bids
MWh
20000
10.00 15000
10000 5.00 5000
0.00
01-08 May
09-15 May
16-23 May
24-31 May
01-08 Jun
09-15 Jun
16-23 Jun
24-30 Jun
Source: IEX
Max MCP(Rs)
Av MCP(Rs)
Purchase Bid
Sale Bid
MCV(Mwh)
Growth In Short Term Market
Growth in Short Term Market
10500
No of Transactions (Unit)
35000 30000 25000 20000 15000 10000 5000 0 FY 04-05 FY 05-06 FY 06-07 Year No of Transactions (Unit) Approved Energy (MUs) FY 07-08 Upto Oct'08
Approved Energy (MUs)
9000 7500 6000 4500 3000 1500 0
Thank You
