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Development of Power Market in India By S. K. Dube, Director (Operations), PTC India Limited

At the time of independence in 1947, Indian power sector was merely concentrated in and around few towns and urban areas to meet the need. In the following decade it saw development of massive river valley projects that lead to some form of limited interconnected system to provide power to population along particular belts as side by side benefit to the effort made for irrigation for the agricultural need and flood control. However, sixties gave proper status to the development of power sector both in terms of generating unit sizes, transmission voltage due to the requirement of rapid industrial development, calling for integration and evolution of state grids. Attempt to join these grids to form the five regional grids; however, became successful by seventies and eighties with unit sizes going from 210 to 500 MW and transmission voltage from 220 to 400 kV as a consequence of haulage of large amount of power from coal pit-head (mine-mouth) thermal power stations to urban conglomeration. Subsequent scenario of power sector in nineties and beyond of course has been quite bright from the point of view of development of HVDC systems, incorporated both for bulk power supply over a large distance as high as about 1370 km, be it within a large state or region or for inter-regional transfer of power, and also for inter-regional back-to-back connection for limited transfer of power. Side by side to this, sector was unbundled with the recognition of generation, transmission and distribution as separate and distinct activities so far as power supply system is concerned. Both at state level and central level regulatory commissions were gradually formed to decide tariff, grid code, etc. With the opening up, sector experienced participation of private sector entities, mainly in generation and then in distribution to some extent. Transmission still remains monopoly with public holding terming it as State Transmission Utility (STU) or Central Transmission Utility (CTU) depending upon whether it belongs to any state or center. With Central Electricity Regulation Commission (CERC) permitting open access to inter-state transmission facility from November 2003 [1], opened vistas of power trading by state-owned Companies or private traders or joint sector venture. It was an important step after the promulgation of Electricity Act 2003 [2]. Activities that followed and aimed at, influencing scheduling and real time grid operation with pseudo Power Exchange [3] in place definitely pave the way for healthy trading in power that unlike other commodities in market cannot be stored in its form and hence calling for supply-demand matching at every instant of time. As it proceeds paper gives the status of such trading prevalent in India considering the market related to energy, generation capacity, transmission capacity and ancillary services one by one. Also, with the development in neighboring countries, possibility of power and energy trading is explored.

Energy Market
For the Indian power sector bilateral energy market may be on the basis of long term, short-term, day-ahead or intra-day commitments. With measurements logged at 15- minute intervals weekly cycle of settlement of energy is carried out. This is based on before the fact commitments at mutually agreed terms, but taking into care deviations settled at frequency actuated dynamic rate known as Unscheduled Interchange (UI) rate [3]. However, the process has excessive reliance on UI mechanism, though the rate is restricted by regulatory caps. The trend of course is encouraging with consensus being built for an organized market in this respect in the form of Power Exchange (PEX).

Generation Capacity Market
As one goes back to history, typically under Central Government regional power stations, may be termed as Inter-State Generating Stations (ISGS) (be it thermal – fossil fired or gas-based, hydro or nuclear) established at different times have a common basis of sharing of power amongst the beneficiary states of the concerned region.

Totally an allocation of 85% is made of the installed capacity of the station by that procedure. Hence the capacity may be thought of as locked up in long-term bilateral contract between the producer and consuming states. Remaining 15 % floating capacity is highly sought after during peak demand season and it keeps changing hands subject to negotiating skill and political networking of the beneficiary causing considerable amount of heartburning for the losers. What started as a flexibility margin to accommodate seasonal demand pattern has degenerated into a discretionary instrument.

On the other hand, lackluster participation of private layers in capacity addition (generation & transmission) could be attributed to lack of an organized capacity market.
However, rays of hope exist due to stray examples of capacity trade. One such case is with Power Trading Corporation (PTC) brokering the sale of royalty share of Himachal Pradesh State Electricity Board (HPSEB) in Nathpa-Jhakri Hydro-Electric Project to Punjab State Electricity Board (PSEB) for the summer months.

Transmission Capacity Market
Perspective planning as a whole is carried out by the Central Electricity Authority, an apex technical body of Government of India in power sector. With the data collected through load survey by its regional units in collaboration with the state electric utilities, long term load forecasting is done. Based on the same matching generation is formulated through integrated resource planning approach identifying generation location and possible corridor for transmission of power from source to load. Thereafter studies are carried out to configure in details the network for evacuation of power from generating stations and consequent strengthening of existing network, if required, with level of voltage chosen with a view to have adequate margin for future expansion.

Transmission capacity expansion so planned is then deliberated in the Standing Committees region-wise through a consultative procedure to identify utilities to build, own and operate the relevant expansions.

Accordingly with transmission system still being totally need-based and enjoying natural monopoly, has the pricing tightly aligned to long-term capacity allocations. Though open access is in vogue, in reality it has not been segregated yet as an independent facility under the fear of jeopardizing the existing setup. On the other hand lack of addition may result in congestion sometime at some pockets during grid operation; consequently its management is totally based on the discretion of concerned Regional Load Dispatching Center (RLDC).

The long-term transactions have a priority over short-term transactions. The RLDCs have discretionary powers over interstate dispatch and load regulation. Inter-regional (Pool to Pool) unscheduled interchange transactions are then used for easing congestion.

Ancillary Services Market
Ancillary Services are defined as those services that are necessary to maintain reliable operation of the interconnected / integrated transmission system. These services are required to effect a transaction. It includes reactive power and voltage control, loss compensation, scheduling, dispatch and settlement, load following, system protection, energy imbalance and black start facilities. In India a lot of work needs to be done in this area till now as described below.

Load Following-Primary Response
Free Governing Mode Operation (FGMO) is mandatory as per grid code.
Issue is diluted / scuttled under the garb of technical jargon / issues put forth by generators.
Services are basically not priced and implicitly paid through capacity charges. Therefore, there is no incentive for Independent Power Producers (IPP).
Frequency linked dispatch guidelines are for secondary response.

Voltage Control
Reactive drawl and injection at interstate exchange points are priced.
It is a simple mechanism. Issues in treatment are virtually of residual amount. Generators are not paid and very often they take refuge under a conservative machine capability curve.

Loss Apportionment
Losses are shared by long-term customers in ratio of their subscriptions in ISGS.
All energy transactions are discounted by estimated losses during scheduling.
There is regulatory intent of moving towards the concept of incremental losses.

Scheduling and Dispatch
RLDC coordinates as well as implements inter-utility contracts.
Decentralized resource scheduling is in vogue with state load serving utilities having full operation autonomy of dispatching their generation resources.
Though as per grid code there is a provision for 5% spinning reserve, due to perpetual shortage in reality implementation has not been possible yet.
Well-defined timeline exists for declaration of availability and requisitioning of energy up to capacity subscriptions of the shareholders.
Expenses clubbed under RLDC Operation and Maintenance (O&M) head are paid by long term constituents only.
At present a sum of Indian Rupees (INR) 3,000 /day/ transaction is charged for scheduling open access transactions.
Inter utility settlement statement (Regional Energy Accounting taking care of UI and Reactive Accounting) is issued by Central Pool Administrator. Capacity and energy charges are settled mutually while the unscheduled and reactive energy settlement is routed through a pool.

System Protection
Equipment protection coordination is decided at the regional level by Protection Coordination Committee (PCC).
System monitoring and supervision is carried out by RLDC.

Energy Imbalance
It is addressed through unscheduled interchange mechanism.
Weekly settlement cycle based on above is in vogue.
It is the discretion of concerned RLDCs for arbitrage across asynchronous (HVDC) links.

Black Start
It is purely voluntary.
It is well documented under Regional Black Start Procedures.
UI mechanism is suspended during period of disturbance and actual transaction is treated as schedule.

Possible power and energy trading with neighbouring countries
India surrounded by countries of Nepal, Bhutan, Bangladesh, Sri Lanka, Pakistan creates major prospect in South Asia for trading in power and energy due to disposition of natural resources of different kinds for mutual benefits of all. Nepal and Bhutan are rich in Hydro resources, Bangladesh is rich in gas reserves and India is rich in coal resources, thus providing promising option for cooperation among countries. India can emerge as the main potential power / gas export market for the neighboring countries. Generation can be at source and trading through electrical interconnection. India can supply coal to the neighboring countries and can import gas from Bangladesh.

Issues to be addressed in the process of development are investment capabilities, lack of market information, viability of buyers, inadequacies in institutional mechanism, environment and social concerns. Cross border trading in electricity has technical considerations as well as political and economic ones. Pricing should be such that both sides benefit. For example, if one party has a lot of inexpensive hydropower, during monsoon seasons then it may benefit from selling it at lower price to a neighbor rather than having the water spill. There is necessity of larger perspective while planning, obviously through integrated approach for the entire SAARC (South Asian Association for Regional Cooperation) region. Both Generation capacity and Transmission interconnection capacity are to be enhanced. To be adopted is common principle / methodology for tariff determination, operational protocol, security / reliability and regulation. To be evolved also is the Contractual Agreement that addresses principal obligations that are equitable, risk sharing, issues related to financial and payment, commercial and legal, dispute resolution and arbitration. Therefore, prerequisites for Regional Power Pool (RPP) may be summarised as –
Technical solutions not difficult but Political will of the member countries important
A cooperative mindset;

Willingness to reconnect the subcontinent

Efforts to build trust / sensitize

Greater sensitivities to issues
A commitment from the member countries for:

Resources / manpower

Reciprocal measures
Success of Bilateral exchange will create the ground for multi-lateral exchange
Regional economic prosperity should take precedence over political compulsion

Though it is in the nascent stage, there are lots of promises in power trading in India with the participation of a number of players from public or private or joint holding companies. Permission for open access really has created opportunities for improving supply system through competition in terms of overall economy as well as ultimate efficiency. With the typical characteristic of the commodity (power) in the market that in its normal form cannot be stored and at every instant supply-demand matching is called for, inherent risk dictates necessity of well-laid principles of practices to be followed for short-term, mid-term and long-term contracts.

So far as power and energy trading with neighboring countries is concerned presently power trading is based on bilateral agreements and although Energy Ring is high in
SAARC agenda, the progress has remained slow. The strategies for promotion of trading can be through carrying out sector reforms, setting up suitable institutional arrangements, joint-investment in project including Environment Impact Assessment (EIA), private sector participation, long-term transmission planning and free exchange of information.
(With S. Mukhopadhyay and S. K. Soonee)

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   RNI No. WBENG/2008/27737
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