Basics Of Power Trading 206e18

Power Trading: Power trading inherently means a transaction where the price of power is negotiable and options exist about whom to trade with and for what quantum. Till the end of 2002, this sector was dominated by state owned companies but after the Electricity act 2003 a major revamp occurred in it allowed private participation. In other words, previously the suppliers of electricity have little choice about whom to sell the power and the buyers have no choice about whom to purchase their power from. The pricing has primarily been fixed/controlled by the Central and State Governments. However, this is now being done by the Regulatory Commissions at the Centre and also in the States wherever they are already functional. Benefits of Power trading: It reduces the cost of power at the same time reducing monopoly of state PSUs. Power trading also results in reduction of power outrage.

OPEN ACCESS AND TRADING: The Electricity Act, 2003 which has come into force from 10th June, 2003 repeals the Indian Electricity Act, 1910; Electricity (Supply) Act, 1948; and Electricity Regulatory Commissions Act, 1998. In previous system a variety of factors, financial performance of the state Electricity Boards has deteriorated. The cross subsidies have reached unsustainable levels. A few States in the country have gone in for reforms which involve unbundling into separate Generation, Transmission and Distribution Companies. To address the ills of the sector, the new Act provides for, amongst others, newer concepts like Power Trading and Open Access. Open Access on Transmission and Distribution on payment of charges to the Utility will enable number of players utilizing these capacities and transmit power from generation to the load centre. This will mean utilization of existing infrastructure and easing of power shortage. Trading, now a licensed activity and regulated will also help in innovative pricing which will lead to competition resulting in lowering of tariffs. DEFINITION OF “OPEN ACCESS”: Enabling of non-discriminatory sale/purchase of electric power/energy between two parties utilizing the system of an in-between (third party), and not blocking it on unreasonable grounds”. ISSUES: a) Freedom to buy/sell, and access to market b) Adequacy of intervening transmission c) Transmission/wheeling charges d) Treatment of transmission losses e) Energy ing, scheduling, metering and UI Settlement. IMPACT OF “OPEN ACCESS SYSTEM” ON DISCOM’S: Electricity Act 2003 has mandated that with immediate effect open access should be implemented. While everyone accepts that it may serve the consumer interests, there are two contradicting views regarding the implications of the open access system on the electricity entities especially the DISCOMs. The first view is that competitive power generation will bring down the ultimate costs to the consumers. Cost reduction is possible only by reducing the T&D losses, keeping under control the operating costs and keeping the additional power purchase costs low.

MARKET DEVELOPMENT: With the new Act, a liberalized market structure is sought to be provided. A customer has a number of choices to get his power. The generators can also compete among themselves for distribution companies/individual customers. There is a provision for surcharge to meet current level of cross subsidy, if a consumer opts to get electricity directly from generator or any source other than his own distribution license and has been allowed open access by the Regulator.

Regulatory Bodies: CERC regulates the tariff of Power Generating companies owned or controlled by the government of India, and any other generating company which has a composite scheme for power generation and interstate transmission of energy, including tariffs of generating companies. CERC has jurisdiction for regulation of transmission and wheeling charges for all inter-state and inter-regional power flows. As per the existing notification, the wheeling charges are payable at the same rate as the transmission charges for a particular region. National Load Despatch Centre (NLDC) : NLDC has been constituted as per Ministry of Power (MOP) notification, New Delhi dated 2nd March 2005 and is the apex body to ensure integrated operation of the national power system.

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It has Supervision over the Regional Load Despatch Centres.

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Coordination with Regional Power Committees for regional outage schedule in the national perspective to ensure optimal utilization of power resources and for the energy ing of inter-regional exchange of power

Scheduling and dispatch of electricity over the inter-regional links monitoring of operations of grid security of the national grid.

NLDC is further divided into two RLDC namely: 1) Northern RLDC 2) Southern RLDC In accordance with section 28 and 29 of Electricity Act, 2003 role of RLDC is The RLDCs shall be the Apex Body to ensure integrated operation of power system in the concerned Region that shall comply with principles, guidelines and methodologies in respect of wheeling and optimum scheduling and despatch of electricity as specified by the Central Commission in the Grid Code in the real time. It monitors the grid operations and supervises the inter-state transmission system.

POWER MARKET: The Wholesale transactions for electric power globally are through spot contracts, forward and future contracts short, medium and long term bilateral contracts. Trading is done in two ways i) ii)

Bilateral - Direct trading between generators & consumer Through exchange a. IEX b. PXIL

EXCHANGE: On 6th February 2007, the CERC issued guidelines for grant of permission to set up power exchanges in India. On st 9th June 2008 CERC accorded approval to IEX to commence its operations and 27th June 2008 1 exchange become operational in India.

In exchange there are three business models

1. Day Ahead market - Day-ahead market (DAM) is used for trading hourly contract, one day prior to the delivery of electricity. Both buyers and sellers electronically submit their anonymous bid during the bid call session. The market clearing price is determined on the basis of intersection point of demand and supply curve. This Uniform price (M) is offered to both selected buyers and sellers. Price discovery in DAM market is true function of demand and supply only. 2. Term – Ahead Market - Term-ahead market (TAM) contracts cover the entire range of products which can be offered for the duration upto two weeks, further sub-categorization is done for region wise, intra-day, day-ahead contingency, daily and weekly contracts to help participants manage their electricity portfolio for different durations. 3. REC - Renewable Energy Certificates (RECs) represent the attributes of electricity generated from renewable energy sources. These attributes are unbundled from the physical electricity and the two products— 1. The attributes embodied in the certificates 2. The commodity electricity This may be sold or traded separately. SERCs across the states have undertaken initiatives for promoting RE generation through renewable portfolio standards and other promotional policies related with feed-in tariff, access to transmission for RE projects, wheeling and banking facilities etc. The trading happens on last Wednesday of every month. There are two types of REC : 1. Solar 2. Non - Solar.