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Functioning of PowerExchanges: Regulation,
Development and Products
Akhilesh AwasthyDirector (Market Operations)
Functioning of PowerExchanges: Regulation,
Development and Products
Akhilesh AwasthyDirector (Market Operations)
In this presentation…
Fundamentals of Electricity MarketFundamentals of Electricity Market
Evolution of Power ExchangesEvolution of Power Exchanges
Regulations for Power ExchangeRegulations for Power Exchange
Products at IEXProducts at IEX
Future ProductsFuture Products
Fundamentals ofElectricity MarketFundamentals ofElectricity Market
Electricity, a unique commodity
Flow(Non storable)
Flow(Non storable)
Laws of PhysicsLaws of Physics InterdependenciesInterdependencies Speed of LightSpeed of Light
ImbalancesImbalances CongestionManagement
CongestionManagement
AncillaryServicesAncillaryServices
Scheduling &Dispatch
Scheduling &DispatchImbalancesImbalances Congestion
ManagementCongestion
ManagementAncillaryServicesAncillaryServices
Scheduling &Dispatch
Scheduling &Dispatch
Because ofcomplications inProduction &Delivery systems,mismatches willalways exist in supply& consumption asagainst contractedPower. SystemOperator managesthese imbalances
This commodityTravels as per lawsof physics which areunique to itself. We cantTell electricity whereto go or not to overloada route/line. Onetransaction of electricitycan affect any or allother transactions fordelivery.
Production &Consumption ofelectricity isdependent onancillary serviceswhich make thetransmission systemWork, such asOperating Reserves,Reactive Power, etc.
SO Schedules Contractsin advance and minglesenergy in real-time byDispatching Generationto meet demend
Can Electricity Markets be designed to meetstandard economic theory?• Electricity is a flow, rather than a stock• Cannot be metered perfectly• Storing potential energy is expensive• Stochastic ‘retail demand’ is too costly to moderate via spot
prices and devices for continuous control and metering• Flows on transmission lines are constrained continuously
by operational limits and environmental factors. Imbalances caninjure or destabilize transmission links, electrical systems require continuousbalancing of demand and supply
• Ramping rates of generators are limited
Electricity Markets are inherently incomplete andimperfectly competitive
• Electricity is a flow, rather than a stock• Cannot be metered perfectly• Storing potential energy is expensive• Stochastic ‘retail demand’ is too costly to moderate via spot
prices and devices for continuous control and metering• Flows on transmission lines are constrained continuously
by operational limits and environmental factors. Imbalances caninjure or destabilize transmission links, electrical systems require continuousbalancing of demand and supply
• Ramping rates of generators are limited
Electricity Markets are inherently incomplete andimperfectly competitive
Electricity Market Design
Electricity markets are designed to match supply anddemand, taking into consideration the technical
limitations, elasticities and delivery requirements
• Design is influenced by not only Economic, Engineeringconsiderations but also by Historical, Political and SocialConsiderations. These factors make every country unique.
• If the spot electricity markets were complete and perfect then allforward markets could be organized around financial contractspegged against spot prices
• The efficiency of Spot Markets to facilitate intertemporal effects asstartup costs and ramping constraints, and spatial effects such asconstraints on transmission lines decides the level of dependenceon Forward Markets
Electricity markets are designed to match supply anddemand, taking into consideration the technical
limitations, elasticities and delivery requirements
• Design is influenced by not only Economic, Engineeringconsiderations but also by Historical, Political and SocialConsiderations. These factors make every country unique.
• If the spot electricity markets were complete and perfect then allforward markets could be organized around financial contractspegged against spot prices
• The efficiency of Spot Markets to facilitate intertemporal effects asstartup costs and ramping constraints, and spatial effects such asconstraints on transmission lines decides the level of dependenceon Forward Markets
Transformation of Vertically Integratedto Liberalised Markets• From early 80s to late 90s, the process of privatisation of state
enterprises and liberalisation of markets was underway ininfrastructure industries (Telecom, Water, Gas, Electricity, Transport,etc)
For Electricity, this shift was justifiedby
diminished economies of scale in Generationto
expose cross-subsidies and to improve efficiency via better pricing andincentives for greater variety of products and services
asprivatization and liberalization seen as necessary to overcome organizational
inertia, and to attract private investment to serve rapidly growing demand arisingfrom economic expansion
throughseparation of the public good embodied in the infrastructure network, such aselectricity or gas transmission and rail lines, from the associated commodity or
service
• From early 80s to late 90s, the process of privatisation of stateenterprises and liberalisation of markets was underway ininfrastructure industries (Telecom, Water, Gas, Electricity, Transport,etc)
For Electricity, this shift was justifiedby
diminished economies of scale in Generationto
expose cross-subsidies and to improve efficiency via better pricing andincentives for greater variety of products and services
asprivatization and liberalization seen as necessary to overcome organizational
inertia, and to attract private investment to serve rapidly growing demand arisingfrom economic expansion
throughseparation of the public good embodied in the infrastructure network, such aselectricity or gas transmission and rail lines, from the associated commodity or
service
Designs for Spot Electricity Market
“Power Markets are actually ‘sequences of markets’ fromthe pre-commitment of plants at Day(s) Ahead to real-timebalancing of actual injections and withdrawals; via theallocation of transmission capacity and the necessarymanagement of unforeseen congestions.”Evolution of Global Electricity Markets by Sioshansi, 2013.
VerticalVertical Wholesale or RetailWholesale or RetailorVerticalVertical Wholesale or RetailWholesale or Retailor
PoolPool ExchangeExchangeor
AuctionAuction ContinuousContinuousor
UniformUniform Pay-as-bidPay-as-bidor
ImplicitImplicit ExplicitExplicitor
SingleSingle MultipleMultipleor
Pool vs Exchange Model
Pool Model
GeneratorGenerator
BilateralContracts
Bilateral/Exchange Model
GeneratorGenerator
BilateralContracts
Discom/ConsumerDiscom/
Consumer
CentralMarketCentralMarket
BilateralContracts
Centralised Dispatch
Discom/ConsumerDiscom/
Consumer
PowerExchange
PowerExchange
Decentralised Dispatch
Pool vs Exchange ModelPool Exchange
Characteristics
• Largely emulates the originally verticallyintegrated and strictly regulated marketarchitectures
• Suited where decentralised markets exist, withderegulated environment
Pros • Permits an excellent co-ordination of thevarious sub-sections of the electricitymarket
• Considered the only way in which electricitysupply at minimum costs could be ensured
• Advantageous if competition is strong orregulation is effective, if the demand cannotplay a big role in pricing
• Easier to achieve an active participation of thedemand side in electricity trading
• market participants can usually avoid institutionswhich do not work well
• Errors in the design of the market cause less damageand can be identified and remedied faster
• Advantages if close co-ordination could be achieved bymeans of a suitable market architecture
• Permits an excellent co-ordination of thevarious sub-sections of the electricitymarket
• Considered the only way in which electricitysupply at minimum costs could be ensured
• Advantageous if competition is strong orregulation is effective, if the demand cannotplay a big role in pricing
• Easier to achieve an active participation of thedemand side in electricity trading
• market participants can usually avoid institutionswhich do not work well
• Errors in the design of the market cause less damageand can be identified and remedied faster
• Advantages if close co-ordination could be achieved bymeans of a suitable market architecture
Cons • Demand side has few incentives and possibilities to make acontribution in pool models or to respond to prices
• Mandatory trading at an electricity pool suppresses thecompetition among different market platforms
• Defective or deficient design of the procedures and rules at thepool results to grave imperfections as there wont be alternatives
• Focus of the optimisation algorithms on short-term costminimisation, which leads to a situation in which investmentincentives can be distorted
• Requirement of close monitoring of the market not only implieshigh costs but also that the regulator (with poorer information)has to take decisions which the market takes in an Exchangemodel
• Coordination problems
Consolidated Overview…
Nord Pool PJM AEMO IEXParticipation Voluntary for DAM Compulsory for Real Time Compulsory for DAM Voluntary
Market OfferingsDA spot, hour-ahead,
forward, futures, optionsDA spot, real-time balancing,
capacity credit marketsDA spot, Short term
forwards DAM, TAM
Bidding Type Double Sided Double Sided Double Sided
Double SidedClosed, Open
Auction &Continuous
AdjustmentMarket
Elbas: Intra-day auctionmarket
Bid quantity can be changedtill gate closure -- Not available
AdjustmentMarket
Elbas: Intra-day auctionmarket
Bid quantity can be changedtill gate closure -- Not available
Real-time /Balancing market
Counter trade Balancing MarketPurchase of ancillaryservices & reserve
capacity
UI charge fordeviations
Pricing Rule Zonal Pricing Nodal Pricing Zonal Pricing Zonal Pricing
Pricing Type Ex-ante Ex-post Ex-post Ex-ante
RiskManagement
Forwards, futures,options
FTRs, Bilateral OTC, Multi-settlement, virtual bidding
Bilateral OTC, Derivativeson Sydney Exchange Bilateral OTC
CongestionManagement
Area splitting Security constrainedeconomic dispatch
Locational signals fortransmission Area splitting
TransmissionLosses
Included in zonal price Included in LMP To be purchased bygenerators
To be purchasedby participants
Evolution of PowerExchanges
Evolution of PowerExchanges
Erstwhile Vertically Integrated Structure
Generation
Transmission
VerticallyIntegrated State
ElectricityBoards (SEB)
Consumer Consumer Consumer
Distribution
VerticallyIntegrated State
ElectricityBoards (SEB)
Electricity Market
Introducing Competition
ProductionFunction
ProductionFunction
TransportationFunction
TransportationFunction
MerchantFunctionMerchantFunction
• Generation • Transmission• Distribution
• Wholesaling (Supply)• Retailing (Demand)
Natural MonopoliesNatural Monopolies
Step-1: Introduce competition in Supply side so as to decrease electricity prices.(Demand side competition doesn’t result in reduction of prices unlessproduction is competitive)
Step-2: Introduce competition in Demand Side so as to pass the gains in supply sidedirectly to consumers
Pre requisites for a competitive market
•Separation of Vertically integrated utilities, transmission should be separatedfrom generation & supply
Unbundling ofUtilities
•Choice to consumers to buy from any generator or third party•Choice to generator to sell to any buyerMulti Buyer Model
•Independent System Operator:To maintain grid security and reliability, transmission allocationSystem operator
•Open Access in Transmission & Distribution NetworkOpen Access
•Deviation or Imbalance settlement mechanism to ensure discipline• Balance Responsible Party ( Control Areas)
ImbalanceSettlementMechanism
•Recognizing trading as a distinct activityTrading
•To overlook the working of the MarketAutonomousRegulator
Development of Power Market
• Market Participants can efficiently manage their portfolios bychoosing different products available under long term , medium termand short term duration.
• Provides an exit route for PPAs.• Efficient Market provides transparency and which may lead to easy
financing .• Markets are driven by the force of economies i.e. demand and
supply and hence the prices are derived.• Market Participants e.g. DISCOMS may reap benefits of real time
balancing.• Typically lower unit pricing compared to standard electricity supply
contracts.• Derivative products may provide an avenue to hedge against spot-
price volatility
Advantages of an Organized Power Market
16
• Market Participants can efficiently manage their portfolios bychoosing different products available under long term , medium termand short term duration.
• Provides an exit route for PPAs.• Efficient Market provides transparency and which may lead to easy
financing .• Markets are driven by the force of economies i.e. demand and
supply and hence the prices are derived.• Market Participants e.g. DISCOMS may reap benefits of real time
balancing.• Typically lower unit pricing compared to standard electricity supply
contracts.• Derivative products may provide an avenue to hedge against spot-
price volatility
On-lineOn-line
NationalNational
Automated
StandardizedContracts
StandardizedContracts
Delivery…Delivery…
•Spot•Intra-Day•Day-ahead
•Forward•Weeks
VoluntaryVoluntary
Power Exchange?Organised Marketplace
Handles…Handles…
Bidding Delivery Money Risks
AutomatedAutomated
StandardizedContracts
StandardizedContracts
CentralCounterparty
CentralCounterparty
•Spot•Intra-Day•Day-ahead
•Forward•Weeks
Bidding Delivery Money Risks
• Price Transparency– Ability to know the price of electricity now and in
the future (up to 15-18 months)• Risk Management
– Manage price/ delivery risk– Secure and Regulated market
• Guaranteed performance of trades– Credit tracking mechanism– Default Mitigation mechanism
• Lower Transaction Cost• Flexibility
– Term of delivery– Time of Closure
• Access to a wider/ larger market spectrum
Power Exchangefacilitates
• Price Transparency– Ability to know the price of electricity now and in
the future (up to 15-18 months)• Risk Management
– Manage price/ delivery risk– Secure and Regulated market
• Guaranteed performance of trades– Credit tracking mechanism– Default Mitigation mechanism
• Lower Transaction Cost• Flexibility
– Term of delivery– Time of Closure
• Access to a wider/ larger market spectrum
Role of Power Exchange
► A neutral and easy access to the marketplace
► Standardized Contract
► Offers “law of One Price”
► An automatic interface.
► Clearing & settlement of deals
► Security by being a safe counterpart
►Information disemination among the participants
► A neutral and easy access to the marketplace
► Standardized Contract
► Offers “law of One Price”
► An automatic interface.
► Clearing & settlement of deals
► Security by being a safe counterpart
►Information disemination among the participants
TRADINGTRADING BROADCAST
BROADCAST
CLEARINGCLEARING
Power Exchange Functions
Easy AccessAnonymousTransparent
ReliableSecure
Easy AccessAnonymousTransparent
ReliableSecure
LIQUIDITY
POWER EXCHANGEPOWER EXCHANGE
CLEARING
DELIVERYDELIVERY SETTLEMENTSETTLEMENT
Easy AccessAnonymousTransparent
ReliableSecure
Easy AccessAnonymousTransparent
ReliableSecure
PriceReferences
Regulations for PowerExchange
Regulations for PowerExchange
Regulatory Boost for Power MarketDevelopment (1/2)
• EA 2003 and enabling provisions on Power MarketThe intent and object of the EA 2003 is to develop power marketthrough increased competition, more players and protectconsumer interests
• Development of Power Market – EA 2003, Section 66, “TheAppropriate Commission shall endeavor to promote thedevelopment of power market…”, guided by the NationalElectricity Policy
• Suitable safeguards to prevent adverse effect on competition• Recognized Trading as a distinct activity. Defined under section(2)
(47): “Purchase of electricity for resale thereof”• Adequate and progressive provisions governing open access both:
» to transmission networks (inter-state and intra-state) and» to distribution networks
23
• EA 2003 and enabling provisions on Power MarketThe intent and object of the EA 2003 is to develop power marketthrough increased competition, more players and protectconsumer interests
• Development of Power Market – EA 2003, Section 66, “TheAppropriate Commission shall endeavor to promote thedevelopment of power market…”, guided by the NationalElectricity Policy
• Suitable safeguards to prevent adverse effect on competition• Recognized Trading as a distinct activity. Defined under section(2)
(47): “Purchase of electricity for resale thereof”• Adequate and progressive provisions governing open access both:
» to transmission networks (inter-state and intra-state) and» to distribution networks
• National Electricity Policy 2005 – Para 5.7
“ To promote market development, 15% of the new generatingcapacities, be sold outside long term PPAs”.-As the power markets develop, it would be feasible to finance projectswith competitive generation costs outside the long term PPAs….this willincrease the depth of power markets….and in long run would lead toreduction in tariff”
• Open Access Regulations , 2004 & 2008 Universal Open Access to transmission networks Separate procedures for ‘Day-Ahead Market( collective
transactions) and OTC transactions
Regulatory Boost for Power MarketDevelopment (2/2)
24
• National Electricity Policy 2005 – Para 5.7
“ To promote market development, 15% of the new generatingcapacities, be sold outside long term PPAs”.-As the power markets develop, it would be feasible to finance projectswith competitive generation costs outside the long term PPAs….this willincrease the depth of power markets….and in long run would lead toreduction in tariff”
• Open Access Regulations , 2004 & 2008 Universal Open Access to transmission networks Separate procedures for ‘Day-Ahead Market( collective
transactions) and OTC transactions
Evolution of Electricity Regulations
The Indian Electricity Act, 1910
The Electricity (Supply) Act, 1948
Electricity Laws (Amendment Act), 1991Electricity Laws (Amendment Act), 1998
And Electricity Regulatory Commissions Act, 1998The Electricity Act, 2003(Consolidates above laws)The Electricity Act, 2003(Consolidates above laws)
Open Access Regulations, 2004
Power Exchange Guidelines, 2008
Power Market Regulation, 2010
MoL Notice of Open Access Circular , Nov,2011
The Electricity Act Amendment Bill , 2014
Market related legislations in India
• De-licensing of generation• Development of a multi-buyer multi-seller market in power• Trading – licensed activity.
Electricity Act, 2003
National Electricity Policy,2005
• Sec 5.7.1 (f) Enabling Regulations for inter and intra state tradingand also regulations on power exchange shall be notified by theappropriate commission within six months
National Electricity Policy,2005
• Promote Merit Order• Competitive Bidding compulsory• Cross Subsidy Surcharge formula
National Tariff Policy, 2006
Legislative Enabler for operationalization of PowerMarkets in India : Electricity Act 2003
• Intent of the Act was to promote competition by “freeing” allpossible avenues of procurement and sale of power:
• De-licensing of generation (Sec-7)• Development of a multi-buyer multi-seller market in power
(Restructuring of SEBs – Sec 131)• Trading – licensed activity (Sec-12).• Non Discriminatory open access to transmission (Sec 38-40) and
Open Access in Distribution (Sec-42)
• Autonomous Regulatory Commission (Sec 76) to overlookfunctioning of Power markets
• Development of Power Market• Section 66 of the Electricity Act 2003 gives powers to the regulatory
commissions to develop the power market including trading
• Intent of the Act was to promote competition by “freeing” allpossible avenues of procurement and sale of power:
• De-licensing of generation (Sec-7)• Development of a multi-buyer multi-seller market in power
(Restructuring of SEBs – Sec 131)• Trading – licensed activity (Sec-12).• Non Discriminatory open access to transmission (Sec 38-40) and
Open Access in Distribution (Sec-42)
• Autonomous Regulatory Commission (Sec 76) to overlookfunctioning of Power markets
• Development of Power Market• Section 66 of the Electricity Act 2003 gives powers to the regulatory
commissions to develop the power market including trading
Framework for Development of Power MarketLegislative and Regulatory Framework• Electricity Act, 2003
Open Access means “The non discriminatory provision for the useof transmission lines or distribution system by any licensee or consumeror a person engaged in generation in accordance with the regulationsspecified by the appropriate commission”
• Open Access to transmission network was introduced after theElectricity Act,2003– Open Access to inter-state transmission immediately allowed by
the Centre
• CERC (Interstate Open Access) Regulation, 2008– Facilitates bilateral transactions– Non – discriminatory use of transmission lines– Nominated SLDC/RLDC to carry out transactions
• Electricity Act, 2003Open Access means “The non discriminatory provision for the use
of transmission lines or distribution system by any licensee or consumeror a person engaged in generation in accordance with the regulationsspecified by the appropriate commission”
• Open Access to transmission network was introduced after theElectricity Act,2003– Open Access to inter-state transmission immediately allowed by
the Centre
• CERC (Interstate Open Access) Regulation, 2008– Facilitates bilateral transactions– Non – discriminatory use of transmission lines– Nominated SLDC/RLDC to carry out transactions
• ~15% of new generation can be sold outside PPA• To increase the depth of power markets• Additional alternative to generators and licensees/consumers to
sell/purchase power which would facilitate reduction in tariff in longrun
• As power markets develop, financing projects with competitivegeneration costs outside long-term PPA would be feasible
• Development of Power Market by Central and State Commission withdue consultation with stakeholders
• CSS: ‘’the amount of surcharge and additional surcharge levied from OAconsumers should not become so onerous that it eliminatescompetition…….”
National Electricity Policy, 2005
Policy initiative for market development
• ~15% of new generation can be sold outside PPA• To increase the depth of power markets• Additional alternative to generators and licensees/consumers to
sell/purchase power which would facilitate reduction in tariff in longrun
• As power markets develop, financing projects with competitivegeneration costs outside long-term PPA would be feasible
• Development of Power Market by Central and State Commission withdue consultation with stakeholders
• CSS: ‘’the amount of surcharge and additional surcharge levied from OAconsumers should not become so onerous that it eliminatescompetition…….”
• 8.3.2: Tariff to be +/-20% of cost of supply by 2010-11
National Tariff Policy
Evolution of Power Markets in India:Regulatory Framework
• Reservation of transmission capacity: Long Term and Short Term Access• Short term open access granted on inherent margins
2004: First CERC OA Regulations
2005: Trading License Regulations
• Defined ‘Power Exchanges’• Transaction categorized as Bilateral or Collective (thru PXs)• Transmission charges: ‘PoC’ Method for collective transactio
2008 & 2009: CERC OA Regulations and Amendments
Features of Power Market Regulations, 2010
•Procedure for application, eligibility criteria, shareholding pattern, Net worth, riskmanagement by PX,
Role of PXs defined and norms for setting up and operating PX
CERC approval for setting up a PX and oversight for contracts offered
Objectives for PX
•Ensure fair, neutral, efficient and robust price discovery•Provide extensive and quick price dissemination•Design standardised contracts and work towards increasing liquidity in contracts
Objectives for PX
•Economic principle of social welfare maximisation•Closed double sided bidding, uniform price discovery, market splitting for congestion
management
Defined principle of price discovery for the exchange
Open Access in Inter-State Transmission
• Regulation Implemented w.e.f. 6-May-2004, revised Regulations w.e.f 1st April2008 and amended in May 2009. Last amended in 2015
• Transmission Capacity Reservation Categories• Monthly bilateral• Advance /FCFS• Day ahead bilateral• Collective Transactions through Power Exchange• Intra day bilateral
• Nodal Agency• Bilateral : RLDCs & Collective : NLDC
• Transmission Charges moved from “Contract Path” to “Point of Connection” forCollective/Bilateral
• Other Commercial Issues• Handing deviations from schedule• Handing reactive energy supply/drawl• Payment security• Collection and disbursement of charges
• Transmission Capacity Reservation Categories• Monthly bilateral• Advance /FCFS• Day ahead bilateral• Collective Transactions through Power Exchange• Intra day bilateral
• Nodal Agency• Bilateral : RLDCs & Collective : NLDC
• Transmission Charges moved from “Contract Path” to “Point of Connection” forCollective/Bilateral
• Other Commercial Issues• Handing deviations from schedule• Handing reactive energy supply/drawl• Payment security• Collection and disbursement of charges
Present Market Overview
Long Term
Upto 25 YearsUpto 25 Years
Medium Term
3 months – 3 years3 months – 3 years
Short Term
Intraday - 3 months
OTCPPAs
OTCBilateral
OTCBilateral
+EXCHANGE
WeeklyDaily
Day AheadIntraday
910 11 11 11 9
0200400600800
10001200
FY10 FY11 FY12 FY13 FY14 FY15
TWh
Total Generation Short Term ST Share (%)
%% % % % %
Short Term Market Remained StableShort Term Market Remained Stable
Exchange Transactions Registered Growth in Short Term Mkt.Exchange Transactions Registered Growth in Short Term Mkt.
28 25 21 19100%
91%
4%
<1%
Intraday - 3 monthsIntraday - 3 months
Balancing Market
Real TimeReal Time
OTCBilateral
+EXCHANGE
WeeklyDaily
Day AheadIntraday
DSMFrequency
linked
33 38 51 51 53 50
7 16 16 24 31 2926 28 28 25 21 19
0%
20%
40%
60%
80%
FY10 FY11 FY12 FY13 FY14 FY15OTC(ST) Exchange DSM (Balancing)
TWh
4%
3%
2%
53%
11%1%
3%
22%
10%
Aug'1061%
9%0%2%
15%
13%
Dec'15
CoalGasDieselNuclearHydroRen'
Installed Capacity Tilted Towards Coal & RenewablesInstalled Capacity Tilted Towards Coal & Renewables
165 GW 276 GW
Products at IEX
IEX Market SegmentsDelivery-based Contracts
Day-AheadMarketsince June,08
Day-AheadMarketsince June,08
Closed , Double-sided Auction10-12 am biddingEach 15-min block , 0.1 MW min NOC required
Closed , Double-sided Auction10-12 am biddingEach 15-min block , 0.1 MW min NOC required
Term-AheadMarketsince Sep,09
Term-AheadMarketsince Sep,09
Day-Ahead Contingency – Another window 3-5pm
Intra-Day - for the same day, delivery from 14:00 to 24:00
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for 1 week (Monday-Sunday)
Day-Ahead Contingency – Another window 3-5pm
Intra-Day - for the same day, delivery from 14:00 to 24:00
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for 1 week (Monday-Sunday)
ELECTRICITY
ELECTRICITY
Term-AheadMarketsince Sep,09
Term-AheadMarketsince Sep,09
Day-Ahead Contingency – Another window 3-5pm
Intra-Day - for the same day, delivery from 14:00 to 24:00
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for 1 week (Monday-Sunday)
Day-Ahead Contingency – Another window 3-5pm
Intra-Day - for the same day, delivery from 14:00 to 24:00
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for 1 week (Monday-Sunday)
Renewable EnergyCertificatessince Feb,11
Under development… Energy Saving Certificates
Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC
Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC
Auction Continuous
ELECTRICITY
ELECTRICITY
CERTS
CERTS
IEX at a glance
Delivery
Auction Type
Contract Unit
Day AheadMarket
Next day
ClosedAuction
15 minute
1. Intra-dayContracts
1400-2400 Hrssame day
ContinuousTrading
Hourly
2. Day AheadContingency
For next day
ContinuousTrading
Hourly
3. DailyContracts
From 4th dayto next 7 days
ContinuousTrading
Block of Hours
4. WeeklyContracts
For next week
Open Auction
Block of Hours
ELECTRICITYTerm Ahead Market (TAM)Day Ahead Market (DAM) Renewable Energy Cert’ (REC)
REC Market
Next day
ClosedAuction
1 Cert’
96% Market Share by volume
~80,000 MWh average daily trade
3400+ Participants
3000+ Industries
300+ Generators
7.3 5.23.6 3.5
3.5 2.83.5
0.0
10.0
20.0
30.0
40.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15
Volume(TWh) MCP (Rs/kWh)
DAM Gained Liquidity Over TimeDAM Gained Liquidity Over Time
Bid Matching
Open/ClosedAuction
Open/ClosedAuction
Orders accumulated duringorder accumulation phase
(no matching)
Orders accumulated duringorder accumulation phase
(no matching)
ContinuousTradingContinuousTrading
Price-time priority basedcontinuous matching
Price-time priority basedcontinuous matching
Open/ClosedAuction
Orders accumulated duringorder accumulation phase
(no matching)
Orders matched afterclosure of order
accumulation period
Orders matched afterclosure of order
accumulation period
Orders are used forcalculation common price
i.e. Equilibrium Price.
Orders are used forcalculation common price
i.e. Equilibrium Price.
All successful ordersmatched at Equilibrium
Price.
All successful ordersmatched at Equilibrium
Price.
ContinuousTrading
Price-time priority basedcontinuous matching
Price-time priority basedcontinuous matching
The highest Buy order &lowest Sell order gets the
priority
The highest Buy order &lowest Sell order gets the
priority
If the prices are samethen priority is given to
the time of the order
If the prices are samethen priority is given to
the time of the order
IEX - DAM Product Description [1/2]
• Bidding- Double sided Closed Auction
• Order Types:– 15-min block or Portfolio Orders
• Min 15 Min• Different Price-Quantity Pairs• Partial Execution Possible
– Block Orders• Relational Block Bid• Any 15-min block or series of 15-min blocks during the same day
– Customized block bid allowed
• Order Characteristics– SLDC Clearance should be ≥ 0.1 MW (Subject to state regulations issued by
concerned SLDC)– Minimum Order quantity cannot be less than 0.1 MW– Minimum volume step: 0.1 MW– Minimum price step: Rs 1 per MWh ( 0.1p/kWh)
• Bidding- Double sided Closed Auction
• Order Types:– 15-min block or Portfolio Orders
• Min 15 Min• Different Price-Quantity Pairs• Partial Execution Possible
– Block Orders• Relational Block Bid• Any 15-min block or series of 15-min blocks during the same day
– Customized block bid allowed
• Order Characteristics– SLDC Clearance should be ≥ 0.1 MW (Subject to state regulations issued by
concerned SLDC)– Minimum Order quantity cannot be less than 0.1 MW– Minimum volume step: 0.1 MW– Minimum price step: Rs 1 per MWh ( 0.1p/kWh)
• Trading Availability– Every Calendar Day
• Firm commitment to purchase or sell
• Order Entry / revise /cancel– Entry of orders on D-1 from 10:00 hrs to 12:00 hrs
related to Delivery Day (D day)
• Delivery Point– Periphery of Regional Transmission System in which the grid-
connected entity, is located
IEX - DAM Product Description [2/2]
• Trading Availability– Every Calendar Day
• Firm commitment to purchase or sell
• Order Entry / revise /cancel– Entry of orders on D-1 from 10:00 hrs to 12:00 hrs
related to Delivery Day (D day)
• Delivery Point– Periphery of Regional Transmission System in which the grid-
connected entity, is located
Features of Day Ahead Market
Closed double-sided anonymous auction for each15-min time block for the following day
Intersection between the aggregated sale andpurchase curves defines the market clearing price(MCP)
12 Bid area defined
Congestion Management through market splittingand determining Area Clearing Price (ACP) specificto an area
Bid types: Portfolio Orders or Block OrdersMinimum bid=Re.1 for 0.1MWhMinimum Price & Volume Step = 0.1p * 0.1 MWh
12 Bid Areas
Price (Rs./kWh) 0 201 2 2.1 3 3.1 4 4.11.1 2.5
Portfolio A, MW 20 020 1020
Portfolio C, MW 40 -400 -12020 0 -120-80 -81-60
SUM, Sell 0 0 -40 -120-120-80 -81-60
Net transaction 120 20 -100-80-20 -21100 80 80 -1000
DAM Price Calculation Algorithm ….each block
20 0
5.0
Portfolio B, MW 6060 2050 40 4040 4040 20
SUM, Purchase 120 100 80 80 70 60 50 40 204060 20
0
50
100
150
200
250
-150 -100 -50 0 50 100 150
MW balance
Pri
ce (
$/M
Wh
)
0
50
100
150
200
250
-150 -100 -50 0 50 100 150
MW balance
Pri
ce (
$/M
Wh
)1
2
3
4
5
Rs./k
Wh 2.52.5
Price
(Rs./
MW
h)
Volume (MW)
Purchase
Sell
Open Auction• Orders accumulated during call phase (no matching)• Orders matched after call period• Orders are used for calculation common price i.e. Equilibrium Price.• All successful orders matched at Equilibrium Price.
Continuous Trading• Price-time priority based continuous matching• The highest Buy order & lowest Sell order gets the priority• If the prices are same then priority is given to the time of the order received.
Term Ahead Market MATCHINGTerm Ahead Market MATCHING
Open Auction• Orders accumulated during call phase (no matching)• Orders matched after call period• Orders are used for calculation common price i.e. Equilibrium Price.• All successful orders matched at Equilibrium Price.
Continuous Trading• Price-time priority based continuous matching• The highest Buy order & lowest Sell order gets the priority• If the prices are same then priority is given to the time of the order received.
Salient Features of REC Mechanism
Participation Voluntary
REC Denomination 1 REC = 1 MWh
Validity 1095 Days after issuance*
Categories 1. Solar REC 2. Non-Solar REC
Trading Platform Power Exchanges only
Banking/Borrowing Not Allowed
Transfer Type Single transfer only , repeated trade of the same certificate is notpossible
Transfer Type Single transfer only , repeated trade of the same certificate is notpossible
Solar RECs *Floor Price: Rs 3,500 /MWh*Forbearance Price: Rs 5,800/MWh
Non Solar RECs Floor Price: Rs 1,500/MWhForbearance Price: Rs 3,300/MWh
Penalty for Non-compliance ‘Forbearance’ Price (Maximum Price)
Price Guarantee Through ‘Floor’ Price (Minimum Price)
*CERC Order dated: 30 Dec’14
Future Products
Milestones & Way Forward
PXSPOT
PXForward
Contracts
Transmission &Generation
CapacityMarket
AncillaryMarket
Derivatives(Futures)
20042008
2009
2001
2003
2004
WayForward
Indian Power MarketProducts…Missing Blocks (1/2)
Medium TermMedium Term3 months- 3years3 months- 3years
OTC Licensed traders (42)ExchangesOTC Licensed traders (42)Exchanges
Short-TermShort-Term OTC Intraday- 3 monthsOTC Intraday- 3 months
ExchangesExchangesIntraday - 3 monthsIntraday - 3 months1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives
1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives
Balancing MarketBalancing Market Unscheduled Interchange/DSMUnscheduled Interchange/DSM
1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives
1. Intra-day2. DAM3. DAC4. Daily5. Weekly6. Monthly7. Derivatives
Real TimeReal Time Ancillary ServicesAncillary ServicesDemand ResponseDemand Response
TransmissionTransmission25 Years25 Years
Transmission LicenseeTransmission Licensee
ExchangesExchanges
Financial Transmission RightsPhysical Transmission RightsFinancial Transmission RightsPhysical Transmission Rights
Indian Power MarketProducts…Missing Blocks (2/2)
Financial Transmission RightsPhysical Transmission RightsFinancial Transmission RightsPhysical Transmission Rights
Missing Blocks (1/2)
• Ancillary Services Ancillary Services for frequency control are a necessity for the huge
Indian power system. Market based Mechanisms for Frequency Control Ancillary Services help
to procure ancillary services at optimum cost, maximizing the globalwelfare.
Proposed Ancillary Mechanism 2015 largely involves URS, to start with
• Demand Response Demand-side response may prove as a appreciation to power
management in supply deficit situation like ours
• Derivative Products: Electricity Derivative (hedge) products allow managing the risk
associated with purchasing electricity off the spot (wholesale) market.Hedge contracts can shield your expected electricity costs fromunpredictable shifts in the spot market.
• Ancillary Services Ancillary Services for frequency control are a necessity for the huge
Indian power system. Market based Mechanisms for Frequency Control Ancillary Services help
to procure ancillary services at optimum cost, maximizing the globalwelfare.
Proposed Ancillary Mechanism 2015 largely involves URS, to start with
• Demand Response Demand-side response may prove as a appreciation to power
management in supply deficit situation like ours
• Derivative Products: Electricity Derivative (hedge) products allow managing the risk
associated with purchasing electricity off the spot (wholesale) market.Hedge contracts can shield your expected electricity costs fromunpredictable shifts in the spot market.
Missing Blocks (2/2)
• Financial Transmission Rights (FTRs): Holding a financial transmission right would prevent company from price
hike in power due to transmission congestion. A counter product to congestion charge. Transmission right will guarantee the market participant about price
certainty and delivery of power
• Financial Transmission Rights (FTRs): Holding a financial transmission right would prevent company from price
hike in power due to transmission congestion. A counter product to congestion charge. Transmission right will guarantee the market participant about price
certainty and delivery of power
The aforementioned products can help a participant to better predict demandand create a portfolio which may optimize his cost.
Energy Savings Certificates(ESCerts)
PAT
• Covers 478 designated consumers in 8 sectors• All DCs consume about 165 mtoe energy• National Target = 6.6 mtoe at the end of 1st PAT Cycle (2012-15)
Perform Achieve and Trade (PAT)
A market based mechanism to enhance costeffectiveness of improvements in energy efficiency in
energy-intensive large industries and facilities, throughcertification of energy savings that could be traded
• Covers 478 designated consumers in 8 sectors• All DCs consume about 165 mtoe energy• National Target = 6.6 mtoe at the end of 1st PAT Cycle (2012-15)
ESCerts Trading Mechanismin a nutshell
• MoP in consultation with BEE notifies ‘Targets’ (SEC)for each DC for a 3 year period. Targets are based onSEC of a DC in the Baseline period
• DCs on closure of target year should get energy audited(M&V) by ‘AEA’ and submit the audit result to BEEspecifying the SEC achieved
• If SEC in target year exceeds the Target, ESCerts areissued to the DC (Seller)
• If SEC in target year falls short of Target, DC has topurchase ESCerts for the shortfall
• DCs not complying face penal action by SERCs/StateAdjudicator
• MoP in consultation with BEE notifies ‘Targets’ (SEC)for each DC for a 3 year period. Targets are based onSEC of a DC in the Baseline period
• DCs on closure of target year should get energy audited(M&V) by ‘AEA’ and submit the audit result to BEEspecifying the SEC achieved
• If SEC in target year exceeds the Target, ESCerts areissued to the DC (Seller)
• If SEC in target year falls short of Target, DC has topurchase ESCerts for the shortfall
• DCs not complying face penal action by SERCs/StateAdjudicator
ESCerts MechanismStart 2012Compliance MandatoryObligated Entities Energy intensive industries from 8 sectors, 478 in total
Target 6.6 Mtoe for1st cycle, allocated on SEC basis for each plant
Mechanism Market based Cap and TradeBanking Allowed till next cycle
Denomination of ESCert 1 toeDenomination of ESCert 1 toeIssuance Ex-post based on Energy Audit (80% issuance for intra-cycle,
every year)Cycle span 3 yrs (2012-15 for 1st Cycle)
Market Place Multiple Power Exchanges, regulated by CERCTrading Regulator CERCAdministrator & Scheme R’tor BEECentral Registry POSOCO
Penalty As per Section-26(1A) of EC Act, 2001, to be decided by SDA
Industry Sector Annual Energy ConsumptionNorm to qualify as DC (toe)
No. of Identified DCs
Aluminum 7500 10Cement 30000 85
Chlor-Alkali 12000 22Fertilizer 30000 29
Pulp & Paper 30000 31
Designated Consumers
Pulp & Paper 30000 31Thermal Power Plants 30000 144
Iron & Steel 30000 67Textiles 3000 90
Total 478
*Railways not included
• Accounts for about 165 mtoe of energy consumption annually• 1st Cycle target of 6.686 mtoe (TPPs’ target share is 3.2 mtoe)
Proposed ESCert Contract on IEX
Name of the Tradable Instrument: Energy Savings Certificate (ESCert)Underlying Energy Savings Attributes of 1toe of energy savings by
Designated Consumer allowed in Energy Conservation (EnergyConsumption Norms and Standards for Designated Consumers, Form,Time within which, and Manner of Preparation and Implementation ofScheme, Procedure for Issue of Energy Savings Certificate and Value ofPer Metric Ton of Oil Equivalent of Energy Consumed) Rules, 2012
Instrument Types ESCert denominated by Cycle (e.g. ESCERT-C12-15)Price Quotation INR/ESCertPrice tick 1 INRPrice Quotation INR/ESCertPrice tick 1 INRPrice Limits Not ApplicableVolume tick 1 ESCertMinimum Order volume limit: 1 ESCertTransaction Fee Specified by the exchange from time to time, upon approval
by the Commission
Matching Closed double-sided uniform price auctionTrading Cycle Once a month, Weekly trading from Jan’15 to Form -D
submission date (TBD)
REC Vs ESCerts SchemeREC ESCert
Cycle 1 year 3 yearsLife of Cert’ 365 days (second time extended to
1095 days)Closure of second Cycle(> 3 years)
Target State specific set by SERC, for Solarand Non-Solar
Plant/DC specific, set by GoI
Unit 1MWh equivalentRenewable Attribute
1 ToeEnergy Conserved
Buyers Obligated Entities (Discoms, CPPs andOA Consumers)
Designated Consumersfalling short of Target
Buyers Obligated Entities (Discoms, CPPs andOA Consumers)
Designated Consumersfalling short of Target
Sellers Qualified Renewable Generators Designated Consumerssurpassing Target
Banking No Yes (1 Cycle)Multiple Trading No (Once traded renders Extinguished) ---Floor Price Yes (Solar: Rs 3,500 /MWh,
Non-Solar: Rs 1,500/MWh)No
Forbearance Price Yes (Solar: Rs 5,800 /MWh,Non-Solar: Rs 3,300/MWh)
No
Regulator CERC (Trading) & SERCs (Compliance) BEE(Scheme) & CERC(Trading)Penalty SERCs SERCs
Best Power Exchange in India– Enertia Awards ’14, ’13 &’12– India Power Award 2014– Power Business View 2014
Inc India Innovative 100 Award for‘Innovation in Product and Technology’
Thank You for your attentionThank You for your attentionwww.iexindia.comwww.iexindia.com
Inc India Innovative 100 Award for‘Innovation in Product and Technology’
Best Performing Power Exchange –Power Line Awards ’13 & ‘12
India Power Awards ‘15 & ‘09
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