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Interaction | February 2013

Transmission Constraints Hit Power Trading at Power Exchanges

Trade of energy at Indian Energy Exchange (IEX) has grown manifold in the past four years but going ahead states have to  ease the provisions of open access to boost power trading on one hand and the availability of transmission capacity  on the other. Transparent and healthy competition coupled with ease of doing  transactions on energy exchange is a lucrative counter for buyers and sellers both,  avers Rajesh K Mediratta, Director Business Development, IEX,  in an interaction with Pradeep Pandey.
Indian Energy Exchange has completed more than four years of operation in power trading exchange. What were the major achievements?
We started our market in 2008 and have grown from say 9,000MW hours daily trading in 2008-2009 to about 58,000MW hours daily in this year. The number of trading participants and trade volume has increased with new power capacity addition and rising demand of power. We have 1600 plus participants registered and about 1000 plus participating in daily auctions. There is preference for all utilities to come to the exchange because it is a transparent platform with very high level of competition, no payment security issues and easy transactions. We take care of financial settlement on daily basis and there is no backlog. Buyers get advantage of getting cheaper power. In that way everyone gets benefits.
Normally, what kind of price difference mainly buyers find between PPA prices and  
exchange rates?

Normally, we do not compare long-term PPA rates with exchange. We can compare short term trading, which is done through traders and directly with exchange rates. Currently, trades on bilateral market are higher -- say Rs 4.50 per unit and in exchange you get it at about Rs 3-3.50 on an average. Only thing is, there is a variation during the day and during week but on an average the price is about Rs 3-3.50 in most of the areas in the country, excluding the Southern region. Southern region prices are high due to transmission constraints.  
Does this mean that after the grid connectivity of southern region with the national grid,cheaper power will be available to the region? At what rate users as of now buy power from exchange?
Yes, that's correct, the rates will be softened. Now maximum we are touching Rs 18 per unit in few 15 minute blocks. But, on an average the price is between Rs 6-8 a unit. Peaking shortage is very high in the southern region, in the order of more than 6,000MW.
Rates on power exchange in 2010 were quite high but dropped drastically in 2011. It has also been reported that sellers are not getting buyers at good rates. What was the main reason for  
volatile prices?
In 2010 rates had gone up because of election in 4-5 states. So, demand was high for power, while supply was less thus the prices had gone up. We knew as soon as the elections will be over, the demand will come down. The state distribution utilities today are starved of funds . So they are not ready to pay a high price even if there is a shortage. The capacity and willingness to pay higher prices for power has been absent post-2010. May be next year we will witness the same things with the nearing and thusutilities in order to avoid any load shedding will purchase power and will be willing to pay higher prices. In the year 2012, the tariffs in many of states have been hiked after APTEL directions to SERCs to review tariffs yearly and there is general feeling that energy is not cheap anymore and tariff hikes are inevitable to avoid utilities going bankrupt. Since elections are there so distribution utilities will buy power.
According to you what are the major challenges in power trading growth?
One of the major challenge is transmission constraints. We are not able to meet our power requirement in some parts of the country despite willingness to pay and on other hand power is available just because transmission networks are not available. Second is implementation of provisions for open access. It is to be provided to all industries so the real competition can come in. But states are trying to put some restriction. However, few states have implemented and they have provided open access. Open access should be seen as win-win for States and industries. Not only utilities but state government also gets more than Rs 10/unit if industry avails open access and utilises power for its production.
Which are the states where industrial buyers have open access and where the charges are very high?
Access is there in many states like Punjab, Haryana, Rajasthan, Gujarat, MP, AP, Karnataka, Tamil Nadu, Kerala. Of course there is a varying degree of open access charges. The open access charges and other terms and conditions are favourable in some states but some other States like Maharashtra, West Bengal have very unfavourable conditions for open access.  
Which is the most suitable state where industries have open access and more volume are traded ?
Now because of high power deficit, AP has given open access to industries but only for the period when they are having shortage. Most of the states are like this only. Either there is shortage or the tariff is very high so the industry is pushing for open access.
On buyers side you have given us lots of information. What is the number of sellers in the exchange? Could you name some of the major players who are trading huge volumes through exchanges?
It is not that people are selling on huge volumes. They are only selling part of the capacity which is not sold under short term. If you put them together the number is big but individually numbers are not so big. Merchant hydro power stations in north like Alan Duhangan, and many other power stations are selling power. Adani, Jindal Power, JSW Energy are some of the big players. Tata Power is not that much since they have their own demand.  
How do you view the prospects in the light of a persisting challenging scenario for the power sector?
With time we will see growth. More new capacity will come and more demand in states. However, it will depend upon how soon we shall expand transmission capacity across critical corridors. If there are no transmission constraints then growth would be much higher otherwise growth would be stunted.
On a year on year basis what kind of growth have you posted in the past few years and what kind of growth are you looking at in terms of percentile?
CAGR has been about 60-65 per cent in past years and going ahead we expect to see about 20-30 per cent, depending on open access, transmission constraint and all these issues.
Do you see any initiative being taken by the state governments for implementing open access?
There is a varying degree of facilitation of open access in different states We expect Maharashtra and UP will also facilitate open access for industries soon. We are slowly opening up. The process will continue at a gradual pace.
How is the trading of Renewable Energy Certificates (REC) is done at power exchanges?
Green generators normally need some premium. So far the premium was be paid only through preferential tariffs . But that is possible only when power is sold only within the same state. With REC, what we have done is we have separated the green premium into a certificate so generator can sell power at normal tariff to state and gets a certificate for green premium. These certificates can be sold on the exchanges. The exchanges are the only platform where the certificates can be traded.
Who buys these REC's again?
State utilities, captive consumers and open access consumers are the buyers as they are obligated to meet the requirements of renewables. They are supposed to buy 4-5 per cent of their total requirement depending on State specific regulations,. Depending on obligation, which is provided in state regulation, each state utility or open access consumer or a captive consumer are required to purchase certain parts of the total consumption. What these people can do now is they can purchase those certificates and meet the obligation. Electricity, they can purchase from anywhere but he buys the certificate to comply comply with requirement of renewable obligation. Principal regulation was put in place in 2010 and we started trading in certificate in March 2011. With consumption of 1MW for one hour user gets one REC. There are two types of RECs, non solar and solar. And, the obligated entities can meet their requirements of renewable purchase obligation through solar and non solar certificates. The price of the certificates recently in the past five months have come down because the demand in the market is limited. First year, we saw that sellers were coming and were acquiring registration and now we have got more than 3000MW of capacity registered under REC. As of now not all state utilities are buying RECs since they are required to meet their obligations.  
What are the prospects going ahead if the current reform initiatives work in a proper way?

Power exchanges elsewhere have been successful in the world because everybody loves transparency and payment security. If trading and competition is to grow, exchange is supposed to grow. Only thing is facilitatory policy and infrastructure framework are to be provided. Basically, we have to improve in terms of right policy framework for open access, adequate transmission network availability and one more thing we are talking about now is we are trying to automate the whole system of open access where someone should be able to do it online like registry. If somebody wants open access they do not need to file a paper or do payment settlement. Everything should be electronic. Once we automate this part which we call registry which we feel very much possible Today people are not able to perform transactionss on a short term basis. For example if somebody wants to purchase during the day the process is cumbersome and it takes more than a day. So transition does not happen during the day.We should expedite this part. Other areas where CERC has taken initiative is ancillary service market. In ancillary service market, peaking generators which are not despatchable as base load will be available through market to despatch power on directions of system operators.  
Recently, Pramod Deo at an international conference pushed the idea for south Asian power exchange.How do you see it?

We are also working on this.The idea of regional exchange has promise because this model ois very scalable. It is just that generators or buyers can come and bid on-line. He needs clearance from SLDC or RLDC so that he can start trading on the exchange. While we interconnect two countries, the Available transmission capacity will be required to be notified So, if there is another country who wants to be a part of the exchange model then it is easy because people there can easily register and only need to know what kind of transmission capacity is available during any time. Then through bidding he can come on exchange and the payment can then be done electronically. We need to modify certain procedures to resolve disputes and facilitate arbitration Here we are speaking in terms of a delivery based market. Whichever country gets connected electrically can form a part of the exchange. If you are not connected electrically then buyers and sellers of those countries cannot participate.  
What kind of process in this line has been initiated so far ?
Process is on but at a slow pace. Now connectivity with Bangladesh is going on and as per plans it will be connected by end of this year. It will be HVDC back-to-back with capacity of 500MW. With Nepal, we are getting 400kV double circuit AC line which will be in place by 2015. There are cooperation forums like SAARC, BIMSTEC and SASEC who are in the process of finding right framework to take care of issues of harmonising grid code and other commercial and technical aspects. Nepal and Bhutan can start with minimal preparations for small amount of electricity transactions. Nepal has shortages and need can be met in very small way through 33kV and 132 kV radial interconnections. Bhutan presently has no merchant capacity but as soon as they will have merchant capacity, they will be able to transact through IEX.
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