19
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 3
1. OVERVIEW OF INDIAN POWER SECTOR
The Indian power sector is among the largest in the world by size and investment potential. It is also critical to rapid growth of the Indian economy. Economic liberalisation in India has resulted in high growth rates, leading to significant increase in energy consumption. With progressive regulatory developments private sector participation has grown in the sector.
Figure 1 Installed capacity mix by power sector at the end of FY 2007 (GW)
Total installed capacity: 132 GW
Source: Central Electricity Authority (CEA)
Figure 2 Installed capacity mix by sector as of January, 2013 (GW)
Total installed capacity: 212 GW
Source: Central Electricity Authority (CEA)
Central, 42, 31%
State, 74, 56%
Private, 17, 13%
Central, 63, 30%
State, 86, 41%
Private, 62, 29%
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 4
Of the total capacity addition of 80 GW in the last six years, the share of coal fired power projects has increased from 54 per cent in FY 2007 to 57 per cent in FY 2013. The installed capacity of renewable energy has also grown rapidly, during this period. About 18 GW of renewable energy capacity was added, thereby doubling the share of renewable energy.1
Figure 3 Installed capacity mix by fuel source at the end of FY 2007 (GW)
Total installed capacity: 132 GW
Source: CEA
Figure 4 Installed capacity mix by fuel source as of January, 2013 (GW)
Total installed capacity: 212 GW
Source: CEA
1Central Electricity Authority (CEA)
Renewable 8, 6%
Coal 71, 53%
Gas 14, 11%
Diesel 1, 1%
Nuclear 4, 3%
Hydro 35, 26%
Renewable 26,12%
Coal 122, 58%
Gas 19, 9%
Diesel 1, 1%
Nuclear 5, 2%
Hydro 39, 18%
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 5
In the Eleventh Five-Year Plan period, the actual addition was 55 GW, i.e., 71 per cent of the target. The Planning Commission has set a target of 100 GW for the Twelfth Five-Year Plan period. An estimated 80 GW of capacity is under various stages of construction. However, India has to address the uncertainties related to fuel supplies to realise this target.2
Figure 5 Investment required during the Five-Year Plan in the power sector
Source: Report of Working Group on Power, 12th Five-Year Plan
The total outlay of funds for the Eleventh Five-Year Plan in generation was US$ 113 billion, whereas the likely expenditure during the period was estimated at US$ 96 billion, which is around 85 per cent of the planned investments. In the Twelfth Five-Year Plan, an estimated US$ 275 billion is required for power- sector investments; of which, around US$ 168 billion is required for generation.3 2CEA, Planning Commission 3Source: Report of Working Group on Power, 12th Five-Year Plan; Conversion rate used: US$ 1 = INR 50
Generation (including
renewable) (61%)
Transmission (13%)
Distribution (22%)
Others (R&M, R&D)
(4%)
12th
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 6
Figure 6
Investments required in sub-sectors
Source: Report of Working Group on Power, 12th Five-Year Plan
2. DEMAND-SUPPLY SCENARIO IN INDIA
Despite a capacity addition of close to 80 GW in the last six years, India had a peak and energy deficit of 9.2 per cent and 8.7 per cent, respectively, as of March 2013. In the period from FY 2008 to FY 2013, the energy requirement of India has grown at a rate of 6.2 per cent, whereas the supply has grown at a rate of around 6.5 per cent; thereby, reducing the deficit from 9.9 per cent in FY 2008 to 8.7 per cent in FY 2013.4
Figure 7 Energy requirement and availability
Source: CEA, BU: Billion Units
4CEA
60.5%
20.9%
88.4%
21.5%
14.3%
6.5% 10.4%
61.7%
5.2% 7.7% 3.1%
0%
20%
40%
60%
80%
100%
Central State Private
Generation (excluding renewable) Transmission Distribution Others (R&M, R&D etc)
739 777 831 862 937 998
666 691 747 788 858 911
9.9% 11.1%
10.1%
8.5% 8.5% 8.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
200
400
600
800
1000
1200
2008 2009 2010 2011 2012 2013
Energy requirement (BU) Energy available (BU) Energy deficit (%)
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 7
In the same period, the peak demand in India has grown at a rate of around 4.5 per cent and the peak availability has grown at a rate of 6.3 per cent. This has helped reduce the peak deficit from as high as 17 per cent in FY 2008 to 9 per cent in FY 2013.5
Figure 8 Peak demand and peak met (GW)
Source: CEA
Inter-regional transmission and grid connectivity The inter-regional and inter-state transmission system of country is mainly operated by the Power Grid Corporation of India Limited (PGCIL), which is the Central Transmission Utility (CTU). State transmission utilities (STUs) are responsible for the interstate grid operation. The inter-regional transmission capacity of country has grown from 5,050 MW at the end of the 9th Five-Year Plan to 28,000 MW at the end of the 11th Five-Year Plan (against a target of 37,700 MW6 ), exhibiting a CAGR of over 18.5 per cent. At present, the transmission network in India is divided into two grids, viz., the integrated grid of Northern, Eastern, Western and North Eastern regions (NEWNE) and the Southern Grid. One of the main reasons for the shortage in the southern region is the limited connectivity with NEWNE Grid, which has restricted the flow of power from Eastern and Western regions. The National Electricity Plan (NEP) expects around 40,000 MW of addition in inter-regional transmission lines during the 12th Five-Year Plan period. Around 52 per cent of the planned capacity addition is between the eastern region and other regions for transmission of power from upcoming capacity in the eastern region to the other regions. Another 6,400 MW of transmission capacity is expected to come up
5CEA 6National Electricity Plan (12th Plan)
109 110 119 122 130 135
91 97 104 110 116 123
16.6%
11.9%
12.7%
9.8% 10.6% 9.0%
0.0%
5.0%
10.0%
15.0%
20.0%
0
50
100
150
2008 2009 2010 2011 2012 2013
Peak demand (GW) Peak met supply (GW) Peak deficit (%)
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 8
between western and southern regions, which will synchronise the Southern Grid with NEWNE Grid.5
Figure 9 Inter-regional transmission capacity (MW)
Source: National Electricity Plan (12th Five-Year Plan)
Regional demand-supply scenario Due to several reasons such as higher population density and industrialisation, the western region is the load centre, whereas resource-rich eastern and north-eastern regions are supply centres. This essentially means that there is potential for electricity to be generated in the eastern and north-eastern region for use in the western region; provided there is new generation capacity and adequate transmission capacity. As discussed earlier, the southern region has the highest energy deficit of 15.5 per cent among all the regions.
3,630
10,030
4,390 1,260
4,220 1,520
7,900
8,400
1,600
10,200
6,400 3,630
17,930
12,790
2,860
14,420
7,920
0
4,000
8,000
12,000
16,000
20,000
ER-SR ER-NR ER-WR ER-NER NR-WR WR-SR
End of Eleventh Plan Planned for Twelfth Plan End of Twelfth Plan
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 9
Figure 10
Regional energy demand-supply situation in 2012-13
Source: CEA Monthly Demand Supply Scenario, 2012-13; MU: Million Units
Seasonal power requirement and supply The demand-supply situation is also affected by seasonal changes in the requirement of electricity because of actors such as weather, temperature and agricultural requirements. Peak demand occurs in the month of March. In FY 2012-13, energy requirement and availability varied from 7.6 to 9.9 per cent.7
Figure 11 Seasonal variation in demand and supply, 2012-13
Source: CEA
7CEA
300,774 296,475 281,842
107,457 11,566
273,240 286,683 238,058
102,510 10,718
9.2%
3.3%
15.5%
4.6%
7.3%
-10.0%
-6.0%
-2.0%
2.0%
6.0%
10.0%
14.0%
18.0%
0
100,000
200,000
300,000
400,000
NR WR SR ER NER
Energy required (MU) Energy available (MU) Deficit (%)
78,542
84,242 85,004 87,828
82,815 81,296
85,922
78,279
84,593 84,670
76,667
88,256
72,138
77,831 77,700 80,047
75,306 74,297 78,289
71,005
76,832 76,276
70,549
80,939
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000
100,000
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Requirement (MU) Availability (MU)
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 10
3. POWER MARKET IN INDIA The Electricity Act, 2003, defined trading in its section 2(71) as ‘Power trading means purchase of electricity for resale thereof’ and set the agenda for power trading in the Indian electricity market. The Act paved the way for disintegration of the sector, which was integrated until then. The Electricity Act, 2003, sets the path for disintegration of state electricity boards (SEBs) into mostly three parts: generation, transmission and distribution. Distribution companies (discoms) sign power purchase agreements (PPAs) with power developers to serve the base load requirements of the discoms. However, it is not economical to sign PPAs for the peak load requirement, which varies constantly. Hence, short-term markets came into existence to bridge the gap between unplanned and fluctuating requirement and the available supply. It also facilitates the sale of surplus power by the generators. The short-term markets offer a competitive platform to procure and sell electricity. The key milestones in terms of setting up Indian electricity markets are: May 27, 2008: CERC awarded license to PXIL June 09, 2008: CERC awarded license to IEX February 16, 2009: In light of the EA 2003, CERC came up with a notification regarding procedures,
terms and conditions for grant of trading licenses and other related matters January 11, 2010: CERC notification for Fixation of Trading Margin Regulations, 2010 As of March 31, 2010: CERC awarded power trading license to 45 companies
At present, trading takes place through one of the following four ways: 1. Bilateral (direct discom-to-discom sales) 2. Bilateral through traders 3. Through power exchanges 4. Unscheduled interchange (UI)
The share of traded volume has increased from 6 per cent of total generation in FY 2009 to about 11 per cent of total generation in FY 2013. Power traded through power exchanges has increased from a meagre 0.5 per cent of total generation in FY 2009 to 2.5 per cent of total generation in FY 20138. In FY 2012-13, of the total volume traded in the short term market, the share of volume traded through traders was around 37 per cent, through bilateral was 15 per cent, through power exchanges was 23 per cent and through UI was 25 per cent.8
8CERC Market Monitoring Reports
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 11
Figure 12
Power traded in short term market (Billion Units)
Source: CERC Market Monitoring Report, CEA
On a monthly basis, the volume traded was highest in the month of July, FY 2012-13, as can be seen in the figure below:
Figure 13 Monthly power traded in short term market (Billion Units)
Source: CERC Market Monitoring Report, CEA
21.9 26.7 27.7 35.8 36.6 3.3 6.2 10.3
15.4 14.5
2.8
7.2 15.5
15.6 23.0
14.4
25.8
28.1
27.8 24.8
42.4
65.9
81.6 94.6
98.9 691.0
746.6 788.4 857.9
911.2
-5050150250350450550650750850950
0
20
40
60
80
100
120
2009 2010 2011 2012 2013
Traders Bilateral Power exchanges
UI Total trading volume Total generation
2.4 2.4 2.9
3.8 3.9 3.1
2.4 3.2 3.4 3.5
2.7 3.0 1.0 1.1 1.1
1.7 1.9 1.7
0.9 0.9 1.1 1.2
0.9 0.9 1.3 1.5
1.6
1.6 1.9 1.9
2.3 2.2
2.3 2.1
2.0 2.3
2.6 2.7
3.6 2.9 2.1
1.7
1.5 1.5
1.5 1.5
1.5 1.6
7.3 7.7
9.4 10.0 9.7
8.3 7.2 7.8
8.3 8.3 7.2
7.8
72.1 77.8 77.7 80.0
75.3 74.3 78.3
71.0 76.8 76.3 70.5
80.9
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
-
2.0
4.0
6.0
8.0
10.0
12.0
Ap
r-1
2
May
-12
Jun
-12
Jul-
12
Au
g-1
2
Sep
-12
Oct
-12
No
v-1
2
Dec
-12
Jan
-13
Feb
-13
Mar
-13
Traders Bilateral Power exchanges
UI Total trading volume Total generation
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 12
Power traded through traders: Traders contributed to about 38 per cent of the total short term volume traded in FY 2013. Although more than 45 licenses have been awarded by the CERC to different parties, not all traders are active.8
The figure below shows the major traders who are active in the Indian power market:
Figure 14 Major traders in the Indian power market, 2012-13
Source: CERC Market Monitoring Report, 2011-12
PTC India Limited (PTC) contributed to around 30 per cent of the volume traded through traders in FY 2013 followed by NTPC Vidyut Vyapar Nigam Limited (NVVNL), which contributed to around 12 per cent of the total volume. In FY 2013, the weighted average price of power traded through traders was around US$ 0.09/kWh. The monthly prices of the power traded ranged from US$ 0.08/kWh to US$ 0.09/kWh.9 Power traded through power exchanges: At present, India has two power exchanges, viz., the Indian Energy Exchange (IEX) and Power Exchange of India Limited (PXIL). A third power exchange, National Power Exchange (NPEX), is in the proposal stage. These power exchanges contribute to more than 23 per cent9 of the total power traded in the short- term market. The products offered in Indian power exchanges are as follows: 1. Day Ahead Market (DAM) 2. Term Ahead Market (TAM) 9CERC Market Monitoring Reports
PTC 30%
NVVNL 12%
Tata Power 11%
JSW 10%
NETS 7%
Adani 7%
Reliance 7%
KISL 5%
Others 11%
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 13
Figure 15
Power traded (BU) at power exchanges, FY 2009-FY 2013
Source: CERC Market Monitoring Report, 2011-12
The weighted average price of power traded through IEX in FY 2013 was US$ 0.07/kWh and that in PXIL was US$ 0.07/kWh. The monthly prices ranged from US$ 0.06/kWh to US$ 0.09/kWh in IEX and US$ 0.05/kWh to US$ 0.10/kWh9 for PXIL. India is divided into 12 areas by the power exchanges. The prices are generally higher in the southern areas than other areas due to the deficit situation. In FY 2013, the price of power in IEX in the Southern Grid was around US$ 0.14/kWh; whereas in the NEW-NE Grid, it was around US$ 0.06/kWh.10 In FY 2013, Karnataka contributed the highest towards power sales; accounting for 13.3 per cent of the total sales volume in the exchanges. It was followed by Delhi and Gujarat with 12.4 per cent and 11.9 per cent, respectively. In terms of purchase of power, Gujarat was at the forefront; with close to 21.5 per cent of the total power purchased in the exchanges in FY 2013. Rajasthan purchased 17.4 per cent of the power and Punjab purchased 12.5 per cent.11 Bilateral trades: Bilateral trades contributed to about 15 per cent of the total volume traded in FY 2013. Gujarat led in terms of total bilateral sales with around 11 per cent of the total; while Punjab accounted for around 11 per cent of the total bilateral purchases; thereby taking the lead over all other states in accessing this option.11 9CERC Market Monitoring Reports 10Indian Energy Exchange (IEX) 11CERC Market Monitoring Reports
0.2 0.9 2.8 1.1 0.7 2.6
6.3
12.7 14.4
22.3
2.8
7.2
15.5 15.5
23.0
0
5
10
15
20
25
2009 2010 2011 2012 2013
PXIL (BU) IEX (BU) Total (BU)
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 14
Table 1
Active states/entities in bilateral trades
State/entity Sale of power (% of total sales)
Gujarat 10.7%
Jindal Power 8.6%
Sterlite 8.4%
Delhi 6.4%
DVC 6.2%
Karcham Wangtoo 6.0%
Karnataka 5.7%
West Bengal 5.6%
J&K 4.4%
Rajasthan 4.0%
State/entity Purchase of power
(% of total purchases)
Punjab 11.0%
Andhra Pradesh 9.8%
Maharashtra 9.3%
West Bengal 7.3%
MP 6.6%
Bihar 5.4%
Tamil Nadu 5.2%
Haryana 4.9%
Rajasthan 4.7%
Delhi 4.7%
Uttar Pradesh 4.3%
Gujarat 4.0%
Source: CERC Market Monitoring Reports Unscheduled Interchange (UI): India is the only country that is currently implementing the UI mechanism. Regional load dispatch centres (RLDCs) and state load dispatch centres (SLDCs) send dispatch instructions to the generators based on the schedule given by the generators. In case a generator’s dispatch is less than the schedule or the distribution company’s load is more than the schedule, UI charges are collected as per the methodology given by CERC. The UI mechanism aims at keeping the grid frequency stable.
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 15
In FY 2013, the energy traded through UI was around 25 BU, which is nearly 25 per cent of the total short-term volume. Gujarat and Delhi each contributed to around 10 per cent of the total sale of power through UI while Uttar Pradesh purchased close to 17 per cent of the total power purchases through UI. The prices are generally high in the southern region (SR) grid when compared to the NEW-NE Grid. In FY 2013, the average UI prices ranged from US$ 0.03/kWh to US$ 0.12/kWh in the NEW-NE Grid, while they ranged from US$ 0.06/kWh to US$ 0.11/kWh in the SR grid.11
Table 2 Summary of short term power market in India
S No Mode Market share
Major sellers Major purchasers
1 Bilateral 14.5 BU
(15%) Gujarat, Jindal Power, Sterlite
Punjab, Andhra Pradesh, Maharashtra
2 Traders 36.6 BU
(37%) PTC, NVVNL, Tata Power
3 Power
Exchanges 23 BU (23%)
Karnataka, Delhi, Gujarat
Gujarat, Rajasthan, Punjab
4 UI 25 BU (25%)
Gujarat, Delhi, Madhya Pradesh
Uttar Pradesh, Rajasthan, Haryana
Total 99 BU (100%)
Source: CERC Market Monitoring Reports
4. GLOBAL SCENARIO IN POWER TRADING Several western countries have well-developed electricity markets. Power is not only traded within the country but also across international borders. Some of the prominent markets across the globe are as follows: 1. PJM interconnection, USA 2. California ISO, USA 3. Nord Pool, Europe 4. Wholesale Electricity Spot Market (WESM), Australia 5. National Grid, UK 6. New Zealand Electricity Market (NEZM), New Zealand 7. Energy Market Authority, Singapore
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 16
Nordic power market, Europe
Nord pool is the combined power market for Norway, Sweden, Finland and Denmark. Total number of participants in the Nord pool is around 370 across 20 countries. There are two markets offered in Nord Pool Spot, which are given below: 1. Elspot Market, which is Day-Ahead Market and 2. Elbas Market, which is Intraday Market In the year 2012, 432 TWh of electricity, which was 77 per cent of the total consumption of power in the Nordic market, was traded through the Nord Pool Spot Market compared to 316 TWh traded in the year 2011. The price of electricity traded in the year 2012 ranged from € 12.46/MWh to € 54.10/MWh.12
PJM Interconnection, USA
PJM Interconnection is one of the 10 regional transmission operators (RTOs) responsible for electricity transmission in the USA. It is responsible for supply of power to several states including Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM currently offers two markets viz. Day-Ahead energy market and Real-Time energy market. PJM also offers ancillary services (AS) such as synchronised reserve and regulation. Currently, PJM has more than 700 participants in various states of USA.13 UK power markets
Three markets are offered by the APX Power UK market, which are day-ahead auction, continuous market and futures market. The total volume traded in these markets was around 18.5 TWh.14
12Source: www.nordpoolspot.com 13Source: www.pjm.com 14Source: www.apexgroup.com
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 17
Table 3
Comparison of different power markets
Name of exchanges Nord Pool
PJM Interconnection
APX - Power Spot Market
Indian Energy Exchange (IEX)
Power Exchange of India Limited
Operation started
1993 1997 1999 2008
Participant countries
Norway, Sweden, Finland,
Denmark
United States of America
United Kingdom, Netherlands,
Belgium India
Number of participants
370 700 More than 70
Products available
Hourly Day Ahead, Flexible
Day Ahead, Intraday Hourly, Intraday across
borders, Contract for Difference
Hourly Day ahead, Spot trade, Financial
Transmission Rights (FTR)
Day Ahead, Base, Peak and Off-Peak,
Industrial, Extended Peak & Off-Peak, Intraday
& Strips Monthly &
Quarterly Base
Day Ahead, Intraday
Contingency, Day Ahead
Contingency, Week Ahead
Market clearing mechanism
Market price formation
Location marginal pricing principle
System marginal price and capacity
payment
Hourly aggregate demand &supply
matching
Source: www.nordpoolspot.com, www.pjm.com, www.apxgroup.com, IEX/PXIL website
62
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 18
5. CONCLUSION India is among the few countries in the world with a well-developed power trading market. The necessity of fulfilling the demand-supply gap because of reasons such as regional capacity shortages, seasonality of some generation units, rapid industrialisation in deficit regions and agricultural demand – have given rise to a robust power trading market in India, well supported by legislation, open access norms, regional load dispatch centres, augmented transmission capacities, regional load dispatch centres power exchanges, trading companies, private and public sector suppliers and state buyers. Power is traded through various mechanisms. The share of traded volume has increased from 6 per cent of total generation in FY 2009 to about 11 per cent of total generation in FY 2013. Power traded through power exchanges has increased from meagre 0.5 per cent of total generation in FY 2009 to 2.5 per cent of total generation in FY 2013. In FY 2013, of the total volume traded in the short term market, the share of volume traded through traders was around 37 per cent, through bilateral was 15 per cent, through power exchanges was 23 per cent and through UI was 25 per cent.
…………………………………………………………………………………………………………………………….………………............................
Building a Robust Electricity Market 19
DISCLAIMER India Brand Equity Foundation (“IBEF”) engaged ICRA Management Consulting Services Limited (IMaCS) to prepare this report and the same has been prepared by IMaCS in consultation with IBEF. All rights reserved. All copyright in this report and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This report is for information purposes only. While due care has been taken during the compilation of this report to ensure that the information is accurate to the best of IMaCS’s and IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. IMaCS and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this report and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this report. Neither IMaCS nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this report.
