POWER TRADING

June’16
Development of power sector in brief

 Indian Electricity Act 1910 laid down the basic framework for
electricity supply.

 The power sector in India has undergone significant progress after

Independence. When India became independent in 1947, the
country had a power generating capacity of 1,362 MW.

 Hydro power and coal based thermal power have been the main
sources of generating electricity.

 Generation and distribution of electrical power was carried out primarily by private
utility companies at the time of independence.
Power was available only in a few urban centres.

 In the Constitution of India “Electricity” is a subject that falls within the concurrent
jurisdiction of the Centre and the States.

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Key milestones: Pre-reforms
Year Key Events Remarks
Key 1897/98
milestones: Pre-reforms
First hydropower (~130 kW)
First thermal power (~1 MW)
1910 Indian Electricity Act, 1910 To regulate electricity
supply to consumers
1948 Indian Electricity (Supply) Formation of State
Act, 1948 Electricity Boards as
integrated utilities
Central Electricity
Authority for planning &
development of power
system
1964 Regional Electricity Boards Integrated grid operation
and regional cooperation
on power
1976 Incorporation of Central NTPC, NHPC, NPC, NLC,
Generating Power stations NEEPCO
company(ies)
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Key milestones: Reforms
Year Key Events Remarks
Key milestones: Reforms
1991 Indian ES Act, 1948 Private sector participation
amended in power generation
100% FDI in generation
1992 Tariff fixation of generation companies – Gazette
notification
1998 Electricity Regulatory Path towards Central
Commission Act Regulatory Commission
(CERC) and State
Electricity Regulatory
Commissions (SERC)
Regulatory powers
transferred to independent
bodies
1998 Amendment to Act towards Central Transmission Utility
(CTU) and State Transmission Utilities (STUs)
2003 Electricity Act, 2003
repealing IE Act 1910, ES Act 1948 and ERC Act 1998
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 The Electricity (Supply) Act, 1948

 Mandated creation of SEBs.

 Need for the State to step in (through SEBs) to extend
electrification (so far limited to cities) across the country.
 The Central Electricity Authority constituted under the Act is
responsible for power planning at the national level.
Main amendments to the Indian Electricity Supply Act
 Amendment in 1975 to enable generation in Central sector.
 Amendment to bring in commercial viability in the functioning
SEBs –
Section 59 amended to make the earning of a minimum return of 3%
on
fixed assets a statutory requirement (w.e.f 1.4.1985) .
 Amendment in 1991 to open generation to private sector and
establishment of RLDCs. 5
 The Electricity (Supply) Act, 1948 …contd.

 The National thermal Power Corporation (NTPC) and National Hydro-

electric
Power Corporation (NHPC) were set to enable generation in central sector in 1975.
 To construct, operate and maintain the inter-State and interregional transmission
systems the National Power Transmission Corporation (NPTC) was set up in
1989.
The corporation was renamed as POWER GRID in 1992.
 The Electricity Regulatory Commission Act, 1998
 Provision for setting up of Central / State Electricity Regulatory Commission with
powers to determine tariffs.
 Constitution of SERC optional for States.
 Distancing of Government from tariff determination.
 The Electricity Laws (Amendment) Act, 1998 passed with a view to make
transmission as a separate activity for inviting greater participation in investment
from
public and private sectors.
The Electricity Act Of 2003. 6
The Electricity Act Of 2003 …contd.

Land mark Legislation in Indian Power Sector

Enacted on 26th May 2003. came into effect on 2nd June 2003

Trading was defined as distinct activity

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Strategic Intent of the Electricity Act 2003 …

 Dis-aggregate the process of Generation, Transmission,

Distribution and Supply
 Promote investment
 Elimination of Cross Subsidy
 Choice to the consumers.
 Promote competition
 Commercialization of Power Industry

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Electricity Act, 2003… on Trading of power

Definition:
Trading: Purchase of electricity for resale thereof and the
expression “trade” shall be construed accordingly

Need of License for Trading

Sec. 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.
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 Electricity Act, 2003… on Trading of power
Issue of Trading License
Sec 14 The Appropriate Commission may, on application made to it under section 15,
grant any person license to any person -
(c) to undertake trading in electricity as an electricity trader, in any area which
may be specified in the license.
Provided also that in case an Appropriate Government transmits electricity or
distributes electricity or undertakes trading in electricity, whether before or after the
commencement of this Act, such Government shall be deemed to be a
licensee under this Act, but shall not be required to obtain a license under this Act.
Provided also that the Damodar Valley Corporation, established under sub-section (1) of
section 3 of the Damodar Valley Corporation Act, 1948, shall be deemed to be a licensee
under this Act but shall not be required to obtain a license under this Act and the
provisions of the Damodar Valley Corporation Act, 1948, in so far as they are not
inconsistent with the provisions of this Act, shall continue to apply to that Corporation:
Provided also that the Government company or the company referred to in sub-
section (2) of section 131 of this Act and the company or companies created in
pursuance of the Acts specified in the Schedule, shall be deemed to be a licensee
under this Act
Provided also that a distribution licensee shall not require a license to undertake
trading in electricity.
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Electricity Act, 2003… on Trading of power
Role of CERC/ SERC
Sec 79(1) The Central Commission shall discharge the following functions,
namely:-

e. to issue license to persons to function as transmission licensee and electricity

trader with respect to inter-state operations

j. to fix the trading margin in the inter-state trading of electricity, if considered,

necessary.

Sec 86 (1) The State Commission shall discharge the following

function, namely:-

d. issue license to persons seeking to act as transmission licenses, distribution

licensees and electricity traders with respect to their operations within the state.

j. fix the trading margin in the intra-State trading of electricity, if considered,

necessary.

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 Electricity Act, 2003… on Trading of power
Qualification of Trader
Sec 52 (1) Without prejudice to the provisions contained in clause (c) of section
12, the Appropriate Commission may, specify the technical requirement,
capital adequacy requirement and credit worthiness for being an electricity
trader.
(2) Every electricity trader shall discharge such duties, in relation to supply
and trading in electricity, as may be specified by the Appropriate Commission.
Promotion of Trading
Sec 66 The Appropriate Commission shall endeavor to promote the
development of a market (including trading) in power in such manner as may be
specified and shall be guided by the National Electricity Policy referred to in
section 3 in this regard.

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 Electricity Act, 2003… on Trading of power

Provisions on Open Access

Open Access:
Open Access means the non-discriminatory provision for the use of
transmission lines or distribution system or associated facilities with such lines
or system by any licensee or consumer or a person engaged in generation in
accordance with the regulations specified by the Appropriate Commission
Sec 38 (2) The functions of the Central Transmission Utility shall be –
(d) to provide non-discriminatory open access to its transmission system
for use by:
i. any licensee or generating company on payment of the transmission
charges; or
ii. any consumer as and when such open access is provided by the State
Commission under sub-section (2) of section 42, on payment of the
transmission charges and a surcharge thereon, as may be specified by
the Central Commission:
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Electricity Act, 2003… on Trading of power

Sec 39 (2) The function of State Transmission Utility shall be: -

d. to provide non-discriminatory open access to its
transmission system for use by-
i. any licensee or generating company on payment of the
transmission charges ; or
ii. any consumer as and when such open access is provided
by the State Commission under sub-section (2) of section
42, on payment of the transmission charges and a
surcharge thereon, as may be specified by the State
Commission

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Electricity Act, 2003… on Trading of power
Sec 42 (2) The State Commission shall introduce open access in such phases and subject
to such conditions, (including the cross subsidies, and other operational
constraints) as may be specified within one year of the appointed date by it and in
specifying the extent of open access in successive phases and in determining the
charges for wheeling, it shall have due regard to all relevant factors including such
cross subsidies, and other operational constraints:

Provided that such open access may be allowed before the cross subsidies are
eliminated on payment of a surcharge in addition to the charges for wheeling as
may be determined by the State Commission;

Provided further that such surcharge shall be utilized to meet the requirements of
current level of cross subsidy within the area of supply of the distribution licensee;

Provided also that such surcharge and cross subsidies shall be progressively
reduced and eliminated in the manner as may be specified by the State
Commission;

Provided also that such surcharge shall not be leviable in case open access is
provided to a person who has established a captive generating plant for carrying
the electricity to the destination of his own use.
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Market Structure Prior to Electricity Act, 2003
(Bundled)

IPP
CGS
SEB
Generation
+
Transmission
+
Distribution
Govt Consent

Consumer
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Market Structure after Electricity Act, 2003

STATE IPP
CGS GENCO

Trader Discom

Consumer

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 Power trading in India: background

Amended trading
regulations (2012)
Power Market regulations (2010)
New trading regulations (2009)
Grant of 1st Trading License – PTC India (2003)
First time – CERC regulations for inter-state trading
(2003) Act, 2003 – trading identified as business segment
Electricity
PTC India – incorporated
100% FDI(1999)
in Generation
(1991) generating companies (1976)
Central Sector

Foundation for power trading Early regulations Modified regulations

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Short Term : Type of Transactions

• Bilateral – Discom to Discom sales • Bilateral – through traders • Through Power Exchanges (PX)
o Directly between two discoms or o Largest component of Short- o >2500 participants
between a discom & a generator term Market o >1500 Open Access (OA)
o Banking transactions o Facilitated by traders consumers
o Direct Participation in o Negotiable Contracts o Day-ahead & Term ahead
Competitive Bidding Tenders o Short-term tenure up to 1 year market, Contingency, Open
o Competitive Bidding Tenders Access Consumers
o Banking transactions

Particulars Agreement Duration Open Access Duration

Medium Term (earlier SBDs) >1 year up to 7 years
>3 months up to 3 years
Medium Term (FOO) >1 year up to 5 years
Long Term (excluding Hydro) >7 years up to 25 years
>12 years
Long Term (Hydro) >7 years up to 35 years
Short Term –Bilateral Up to 1 year For a period of up to 3 months

Day Ahead Market (1 day) 1day (corridor left after short

Short Term –Power Exchange term bilateral)
Term Ahead Market (up to 7 days) Up to 7 days in advance
Prior to Power Markets

Monopoly Suppliers (SEBs, Private Licensees) ; Each SEB had an allocated

share in a Central/ Jointly owned station

Generators (CGSs, IPPs and SEBs) with capacity fully tied up

Price setting by Central/ State Governments – SEBs hardly having any

say

Entire sector developed on fixed rate return; Interplay of market forces

remained non-existent

Utilities would back-down in case of low demand and resort to load

shedding in case of excess demand

Power as a resource for earning revenue did not exist in this cost based
regime
Market structure

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Types of Traders…
1. Inter State Traders:
 Presence in all regions.
 Involve in Surplus & Short term/ Long term trading.
 Diverse customers & High volumes of trading
2. Intra-State Traders / Bulk Supply Licensees:
 Sources power for the local Distribution Licensee
 Limited set of customers
 May / may not have presence in all regions
3. Local Traders:
 Trades surplus power available with local IPPs /CPPs
 Supply to major consumers / cooperatives
 Low volumes of trading
 Operate within a State
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 Non Discrimination in Open Access…

 Adequacy of inter-regional transmission system.

 Adequacy of Regional Transmission Network.
 Non-discrimination
in Open Access to various players e.g.
ISGS, SGS, IPPs, CPPs, Traders, Consumers.
 Claims of ISGS/ SGS/ for priority.
 Impact of priority on opening of market.

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Long-Term Trading in India

• To promote private investment in power sector

• Financial position of State power utilities was not healthy
• IPPs were not willing to enter into PPAs with them without government guarantee
• PPAs with power trading companies helped IPPs in financial closure
• Long term trading contracts
 To reduce volatility in trading volumes
 Entering into Long term PPAs with new IPPs
 Investments into power projects to increase the trading volume
 PPAs and MoUs to procure long term power
 PSAs/ MoUs to ensure long term sale of power

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 SHORT TERM TRADING
 Short Term transactions for load balancing
 Duration of Transactions (1 day to years)
 Hours of Supply
 Round the Clock
 Evening Peak / Morning Peak
 Night Off Peak / After Noon Off Peak
 Night Hours + Morning Supply
 18 Hrs. /12 Hrs./ 8 Hrs. / 6 Hrs. supply
 “As and When Available” Power for balancing Scheduled Interchanges.
 “Weekend / Holiday Power”
 Power Banking

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 SHORT TERM TRADING

 Tenders: States sell their Surplus power and determine tariff through Tendering
Process.
 Market: Market is constituted by seller and Buyer Utilities along with more than 40
licensed Traders and Two Power Exchanges
 Use of Technology : For Transparency of bidding process, more and more states
are coming up with power procurement tenders via e Bidding.
 As per the short term power procurement guidelines issued by MoP, MSTC has
developed e- bidding platform called DEEP (Discovery of Efficient Electricity Prices)
for e-bidding and reverse auction.

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Power Exchange: A Day-Ahead Market Place

• Manages short-term trading

• Co-exists with bilateral trades
• A neutral & transparent platform for price discovery through competitive two-sided
auctions
• Promotes better utilization of both generation & transmission resources
• Promotes trading by effective management of counter-party risks
• Does not interfere in grid management functions of System Operators (RLDCs /
SLDCs), but needs their cooperation.
• Promotes better demand-supply balance through day-ahead trading.

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Power Exchange (PX) in India

 Set-up and operated under CERC regulations

 Transparent platform for market-based trading mechanism

 Price discovery
 Robust payment security mechanism
 PX in India
 Currently, two in operation – Indian Energy Exchange (IEX) and Power Exchange of India
Limited (PXIL)
 IEX was set up in 2008 and has more than 90% market share of total PX trade
 Current products
 Day ahead Market
 Term ahead Market( Intra Day, Day ahead Contingency, Daily , Weekly )

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Role of a Power Trader

• A credible intermediary – help managing marketing & credit risks

• Pooling of power and developing innovative products suiting to the customers
• Single window service for various requirements
• Developing PPAs with equitable distribution of risks
• Help developing renewable power market

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Role of Traders in developing power market

 Transition from cost-based returns to market based returns

 Creating “value” for power – market based price discovery of power
 Optimal utilization of generation capacity – short-term trading
 Increased generating capacity addition – long-term trading
 Encouraging Renewable Energy market
 Introducing innovative products suiting customers needs
 Single window service

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Technical Qualifications : Trading Licence

 The applicant shall have at least one full-time

professional having, qualifications and experience in
each of the following disciplines, namely:-

Sr. No. Discipline Qualifications and

Experience
1 Power system operations Degree in Engineering with at
and commercial aspects of least 10 years experience in
power transfer the field
2 Finance, commerce and CA/ICWA/MBA(in Finance)
accounts with at least 5 years
experience in the field

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Capital Adequacy and Liquidity Requirements:

 Considering the volume of inter‐State and intra‐State trading proposed to

be undertaken by the applicant on the basis of the inter‐State trading
license, the minimum net worth of the applicant on the date of application,
as per audited special balance sheet accompanying the application, shall
not be less than the amounts specified hereunder

Category of the Volume of electricity proposed Minimum Net

Trading Licence to be traded in a year including Worth (Rs. In
intra‐State trading, where crores)
applicable
Category I No Limit 50.00
Category II Not more than 1500 MUs 15.00
Category III Not more than 500 MUs 05.00
Category IV Not more than 100 MUs 01.00

Conttd…. 32
 Trading Margin
Sr.
No. Period   Remarks       

1 Before January'06 No limit  

2 January'06 to Feb'10 4p/unit for all contract    

3 Feb'10 onwards 3p/unit for sale price<= Rs.3/unit  

      7p/unit for sale price> Rs.3/unit  

applicable only for contracts less than one

      year
      for other contracts no limit   

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Power Trading/Markets: benefits

 Payment security mechanism and not government guarantees – better way to manage liquidity
risks
 Improved valuation of companies and reduced the cost of capital for generating/supplying
companies because of alternative selling platforms.
 Take or pay contracts have empowered the risk mitigation mechanism.
• Prices act as signals for new investments – Merchant Power capacity and private sector
investments.
• Helps matching short-term surplus with demand variation in across the nation allowing for
optimal asset utilization
• Value of electricity as “commodity”  higher revenue realization

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PTC: Genesis & Objectives

 PTC India Ltd. (PTC), was established in the year 1999 by Govt. of India; with primary
focus on
 promoting power trading to optimally utilize existing resources

 attract viable investments in the power sector on the strength of multi-buyer model

 creating a Power Market in India and the neighbouring countries

 Promoted by public sector majors in the industry

 NTPC, POWERGRID, PFC and NHPC

 Emergence of PTC and its resounding success recognized power trading as a distinct
licensed activity in Electricity Act 2003

 Board with eminent persons from Government and Power Sector

 Stock listed on BSE and NSE since 2004; widely held by institutions.
PTC: Milestones

Signed Agreements for Tangsibji HEP in Bhutan; Long Term

Share~40% of total volume
2015
Export of power to Bangladesh 2014

Started PTC Retail for HT/industrial consumers 2013

PFS Listed on NSE and BSE; 2011

2009 Established PTC Energy Ltd.;

2008
Power to NEA 2007 Established PTC Financial Services
on commercial
terms
2004 Listed on NSE and BSE

2002 Commencement of Cross Border Trade

Commenced sustained Business
2001 Operations

1999 Incorporated
PTC: Overview

PTC Today
Shareholding as on PTC Today
31/03/2016 (%)  PTC’s business
business includes
includes Short
Short term,
term, Medium
Medium term,
term, Long
Long term
term (including
(including
 PTC’s
cross border)
cross border) power
power trading,
trading, banking,
banking, trading
trading of
of power
power through
through Power
Power
Exchanges
Exchanges
40.0 37.1
35.1
35.0
28.6
30.0
24.5
Promoters 25.0 24.3
16% 20.0 18.2
FII 13.8
15.0 10.1
(Foreign DII 11.0 9.9
Instl. (Domestic 8.9 9.5
10.0
Investors) Instl. 4.2
5.0 1.6
40% Investors)
44% 0.0
FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
Total BUs traded
Promoted by industry participants with a credible
track record and significant sector experience  PTC has now expanded its business operations and moved towards an
• NTPC - India’s largest thermal power
Integrated Energy player
generator  PTC has now expanded its business operations and moved towards an
• POWERGRID - India’s largest Central PTC Energy
India Financial

Integrated player Services Ltd
Transmission Utility (CTU)
 PTC Energy Limited
• PFC – Development Financial Institution (DFI)  PTC India Financial Services Ltd
dedicated to the power sector  Direct investments in other identified projects
• NHPC - Large hydroelectric power generator
 PTC Energy Limited
 Fuel Intermediation
in India  Direct investments in other identified projects
PTC Market Share: FY 16

PTC Market Share - FY16 Tradeable Volumes (MU) - FY 15 and FY 16

1,40,000
1,20,961
1,20,000
95,249

Volume (MU)
1,00,000

PTC 80,000
35% 60,000
Others 40,000
65% 20,000
0

FY 15 Financial Year FY 16

Volumes (MU)* Overall Financial Years Volumes (MU)

PTC 42,360 FY 15 95,249
Others 78,601 FY 16 1,20,961
Market volume (MU) 1,20,961 % Change 26.99%

*Including Cross Border

THANK YOU

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