Cross Border Trade - Regulatory Role_Print (1)

7/31/2019 Cross Border Trade - Regulatory Role_Print (1)

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Presentation

SOUTH ASIA REGIONAL WORKSHOP ON THE

REGULATORY ROLE OF PROMOTING CROSS BORDERENERGY TRADE

27.06.2012

Vijay Menghani, Joint Chief(Engg.),CERC

27th

June 20126/25/2012 1


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Generation Capacity Growth India

6/25/2012 3

65941 70224 70096 74689 7611679392 82453 85667

38790 3992345121

48361 4897150993 54413

5968313688 1413917113

20011 2287929014 37496

54276

0

50000

100000

150000

200000

250000

Private Sector Capacity Addition

Private gencos

Central gencos

State gencos


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Indian Power Sector

6/25/2012 4

1146313897

1807313024 15157 12031 13815

12.313.8

16.6

11.912.7

9.810.6

0

2

4

6

8

10

12

14

16

18

0

20000

40000

60000

80000

100000

120000

140000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

%shortage

India Peak Demand

Peak Demand (MW) Peak Met (MW) Peak Shortage (MW) Percentage (%)


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Indian Power Sector

6/25/2012 5

5273586092 73336 86001 83950 73236 79313

8.4

9.69.9

11.1

10.1

8.5 8.5

0

2

4

6

8

10

12

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

%shortage

India Energy

Requirement (MU) Availability (MU) Energy Shortage (MU) Percentage (%)


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International Cooperation

6/25/2012 8

132.0 145.6

289.9 276.3

486.8

639.7 633.7

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Export to Nepal (Million Units)


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International Cooperation

6/25/2012 9

1763.0

2957.3

5230.0

5884.0

5337.05577.5

5253.0

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Import from Bhutan ( Million Units)


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Objective of the workshop.

Overview of regulations and policies thatsupport successful cross border

electricity exchange.

To identify existing regulatory barriers tocross border trade and identify solutions

to be made to overcome these barriers.

To discuss "next steps" in adaptingregulations to better support cross

border electricity exchange projects

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Mandate of CERC as per Act

o Tariff Determination Tariff for bulk supply from Central Government owned/inter-state

generating companies and transmission companies

(Consumer tariff is under the jurisdiction of State ERCs)

o Regulating Inter State Transmission and Grid Code

o

Market Developmentfacilitating framework(Generation capacity planning responsibility of Government)

o Licensing, Adjudication, Advice to Government

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Role CERC :Balancing Consumer Interest and Investment promotion need

o Consumer interest served by Enhanced Power Supply and Transmission Availability

Inducing Efficiency in operation of power plants gains forConsumers

Ensuring Reliable Power Supply

Providing Alternatives to procure power

o Investment Promotion: Enabling framework for Market Access to Generators

Development of Power Market

Competition in Transmission Promoting Green Energy

o CERC is responsible for Oversight of Market and Grid Security

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Role of CERC:

Tariff Regulations that improveAvailability and Efficiency of

existing power plants

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Tariff Regulation inducing operating

efficiency in Generating Stationso

CERC determines tariff for about 40,000MW ofgeneration assets

o Introduced Availability Based Tariff ( ABT) in Generation

Incentive provided to generator to increase availabilityand efficiency/ Disincentive for underperformance

Efficiency and operating norms of generators tightened

Sharing of benefit of savings in secondary fuel oilconsumption in 2009-14 regulations

o Plant Availability Norms raised from 80 to 85 %

Increased Availability of existing power stationsfacilitated

( More value for money for Consumer )

6/25/2012CERC regulations have improved generation efficiency

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Role of CERC:

Ensuring Reliable Transmission Gridand Power Supply

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Ensuring Reliability of Grid Operation

o Frequent Grid Disturbance before 2002

o CERCs Intervention 2002, Introduction of UI*mechanism and Grid Code(IEGC

**)

Frequency Range tightening

2002 : 49.0- 50.5 Hz

2009 : 49.2- 50.3 Hz

2010 : 49.5- 50.2 Hz

2012 : 49.7- 50.2 Hz

o Improved Reliability of power supply through Grid

Discipline , UI mechanism and Grid Security

No major Grid failure since 2002

6/25/2012* Unscheduled Interchange* *IEGC Indian Electricity Grid Code

Frequency Band tightening improved quality of power and supply voltage

16

I f R l I i F i NEW G id


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6/25/2012Frequency Excursions reduced

Impact of Regulatory Intervention on Frequency in NEW Grid

(1998 onwards)

17


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Improved Transmission System Availability

o Availability Based Tariff in Transmission

Incentive / Disincentive linked to Normative

system availability Has resulted in higher actual availability than prescribed Operating

Norms

o Operating Norm 98 % for AC System, Actual

availability ranges between 99.90- 99.99 % across

all regions

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CERCs Regulations have helped ensure consistent power supply


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Role of CERC:

Enabling framework forInvestment in Generation

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Enabling framework for Investment

in Generationo Pre 2003:

Government guarantee on PPA required to attract investment inprivate generation

No marketsor alternatives to sell in case of default by buyer

o EA 2003 and CERC regulations : Concept of open access through Act : Framework by CERC

o Interstate Open Access regulations

Allowed generators to sell power to any buyer across the country

o Connectivity, Long term and Medium Term Open Access Improved Market Access for generators

Provides certainty and surety of evacuation for new capacity

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Enabling framework for Investment in

Generation o Development of Power Market through regulations

Provided multiple buyer seller model

Multiple alternatives available to generators to sell powerdirectly, traders, power exchange

o Regulatory approval for transmission networkaugmentation Ensures Transmission Network expansion keeps pace with

Generation capacity addition

Ensures new generation is not stranded

o

Introduced Point of Connection Tariff Removes regional cascading of transmission charges

Level playing field among all generators to compete in Competitivebidding

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CERCs framework has reduced various risks - default /payment risk,

operational risk, liquidity risk in generation business


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Enabling framework for

Investment in Generation

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o Regulatory Intervention and GOI policies in last 5 yearsnow showing results

In 11th Five Year plan Private Generation Capacity addition of23,000 MW

Private Generation capacity addition 41.8 % of the totalcapacity addition in 11th Plan

Five

Year

Plan

Private Generation

Addition ( MW)

Total Capacity

Addition

(MW)

% of Private capacity

addition to Total

Capacity Addition

10th Plan 1,930.60 21,180.24 9.1%

11th Plan 23,011.50 54,963.90 41.8%


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Role of CERC:

Providing alternatives for powerprocurement through development

of Power Market

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Alternatives to Procure Power

o Created a Market Structure and Market Rules

License to electricity traders , power exchanges

o Multiple alternatives available to purchase power today

Directly through Open Access

Electricity Traders

Power Exchange

o Open access in interstate transmission being encouraged

Approx 1000 industrial consumers and Discoms procuring electricitythrough Power Exchanges regularly

o Total Generation = 877 Billion Units ( in FY 2011-12)

Short Term Market is 8 % of total generation (68 BU )

Short Market size of approximately 18,000 crore

Volume has grown at 25 % CAGR over last 4 years

6/25/2012 24CERC is working towards providing choice


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Development of Power Markets

o License to electricity traders Large number of licensed traders (43)

Two Power Exchanges operational for last 3 years Anonymous and Competitive price discovery

Based on real demand and supply

Electronic platform

Quick Price dissemination across countryo Introduced various products

Day ahead, week ahead, intraday/contingency traded, REC

o Regulations notified

Grant of Trading License Power Market Regulation

Trading Margin Regulation

Short Term Open Access Regulation

6/25/2012 25CERC has helped create a robust market structure


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6/25/2012 26

Requirements for Trading Licensee

TechnicalRequirement

Power system operations and commercialaspects of power transfer

Degree in Engineering with at least10 years experience

Finance, Commerce and Accounts CA/ICWA/MBA(in Finance) withat least 5 years experience

FinancialRequirement

Networth as per category for the last 3 yearsbefore application

Current ratio 1:1, Liquidity ratio1:1for last 3 years before application

Categories Volume of electricity traded in a year Minimum Net Worth (Crore)

Category 1 No limit 50

Category II Not more than 1500 MUs 15Category 111 Not more than 500 MUs 5

Category IV Not more than 100 MUs 1

Steps Process of Grant of Licence

1 Applicant files petition to CERC with public notice inviting objections to the grant of licnese and

publishing application on its website

2 Applicant files reply to objection raise with 45 days of publication of public notice

3 CERC hears the petitioner and objections raised

4 CERC publishes public notice proposing grant of license and inviting objections if any

5 CERC conducts public hearing to hear objections

6 Trading License Granted


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Role of CERC:

Introducing Competition inTransmission

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Competition in developing

Transmission Assets

o CERC notified Transmission Licence Regulations

Entity selected through competitive bidding is eligible

to get licence

Tariff discovered through Competitive bidding isadopted

o Eight projects bid out through competitive bidding

o Tariffs discovered are 30-40% lower than cost plus tariffs

for similar projectso Empowered committee chaired by Member CERC

identifies projects for competitive bidding

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Competition in Transmission is reducing cost significantly


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29

Creation of Transmission Highways

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CERC has granted approvalfor investment (of about Rs.75000 crore) to CTU for

Eleven High capacitytransmission corridors :1. Orissa2. Chhattisgarh3. Madhya Pradesh4. Jharkhand5. North-East- Sikkim

6. Andhra Pradesh-Krishanapattanam area7. Andhra Pradesh-

Srikakulam area8. Tamil NaduTuticorin

area9. SRWR/NR System

Strengthening

10. Vemagiri Area11. Naggapattnam Area

Source: NLDC

Cluster of

Generationpockets

Cluster of

Concentrated

Demand

pockets

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Role of CERC:

Promotion of Renewable Energy fora sustainable future

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Promotion of Renewable Energy

o Diversification of Energy resources for Energy

Security

o Regulatory framework in line withNational Action

Plan on Climate Change ( NAPCC)

Preferential Tariff Regulation introduced Framework for Grid Integration

Renewable Energy Certificate (REC) mechanism for

Renewable Purchase Obligation (RPO) compliance by

Discoms / open access consumer RPO mandated under the Act

6/25/2012 31CERCs initiatives to create a Sustainable Future


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Renewable Generation Capacity Growth

6/25/2012Spurt in growth of Renewables due to Regulatory and Policy initiatives

0

5000

10000

15000

20000

25000

MW

Wind Biomass Small Hydro Waste to Energy Solar

PolicyAnnouncement

by CentralGovernment

Enactment

of ElectricityAct, 2003

NAPCC,JNNSM,

GBI

Emergence ofElectricityRegulatory

Commissions

Enactment ofNational Tariff

Policy

CERC RETariff

Regulations

RECRegulati

ons

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Role of CERC:

Market Oversight and GridDiscipline

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Market Oversight

o Ensures that market is Free, Fair and Transparent

o Regularly monitors Trading Margin and short term powerprices

o Publishes Monthly and Annual market reports for

Information dissemination

o CERC intervened in market when prices increasedexorbitantly

Price Cap introduced in day ahead market in September 2009 for45 day period

o Ensure large entities do not exercise market power

6/25/2012 34CERC ensures Market Integrity


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Institution of CERC has

o Brought Transparency in Regulatory processo Introduced Efficiency in Operation

o Created environment to attract private investment in

Generation

o Promoted Competition in generation and transmission

o Created Market Structure in power sector

o Facilitated Sustainabledevelopment through promotion

ofRenewable Energy

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Intent of the Electricity Act being

translated into reality through

CERC Regulations

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1541418128

19883

24111

30521

39457

55232

66987

0

10000

20000

30000

40000

50000

60000

70000

80000

2008-09 2009-10 2010-11 2011-12

Short Term Open Access - Number

of Transactions and Energy

NO. OF TRANSACTIONS APPROVED ENERGY (MU)

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Prices showing a declining trend in Short term power market

Short Term volume has grown at CAGR of 25 % over last 4 years

Short Term Power Price-Volume Trend

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00 7.31

5.26

4.79

4.18

7.49

4.96

3.47 3.57

Rs/Kwh

Trader Price( Rs/ kwh)

PowerExchangePrice ( Rs/kwh)

0.00

10.00

20.00

30.00

40.00

50.00

60.00

24.19

33.91

43.22

51.38

Volume(BUs)

Total Volume of Electricity Transactedthrough Traders andPower Exchanges

at6/25/2012 37


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Electricity Trading Margin

6/25/2012

PeriodVolume of

Electricity Traded

(Mus)

WeightedAverage

Purchase Price

(`/kWh)

WeightedAverage

Sale Price

(`/kWh)

Actual Trading

Margin

charged(`/kWh)

2005-06 14,189 3.14 3.23 0.09

Introduction of Trading Margin Regulation in 2006

2006-07 15,023 4.47 4.51 0.04

2007-08 20,965 4.48 4.52 0.04

2008-09 21,917 7.25 7.29 0.04

2009-10 26,820 5.22 5.26 0.04

2010-11 29,683 4.74 4.79 0.052011-12 35,840 4.13 4.18 0.05

Trading Margin has reduced

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Requirement for Cross Border

Trade- Institutional Framework

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Legal and RegulatoryFramework

Durable Framework forSystem planning and

Operation

Equitable CommercialFramework for Energy

Exchange

Ref: USAID-2008


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Requirement for Cross Border

Trade- Physical Infrastructure

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Surplus Capacity ondomestic Network

during some time period

Sufficient transmissionInterconnection betweenCountries to transport

Surplus Power


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Road map of Institutional

Framework

5.Responsibility for setting trades delegated toindependent entity

4.Cross-border trading is coordinated by regionalentities &takes advantage of centralized dispatch

3.Decisions made on framework for cross borderpower trading

2.Entities established to coordinate cross-border

trading

1.Government commitment to cross-borderpower trading


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Road map of Physical Framework

3.New Investment in cross-borderinterconnection and generation capacityresponds to regional market prices

2.Cross-border interconnections andgeneration capacity to support powertrading between multiple parties

1.Limited cross-borderinterconnections, used for long termtrading and short-term reliability.

Cross

BorderTransmission

Company

between

India Nepal

Many

IPPs inNepal &

Bhutan


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Interconnection

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Cross Border Power Trade:

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Power

Transmit

Schedule

Procure

For successful execution each of this need to

handled through rule of the game i.e formulized

through Act, Regulation, Standards and treaty.


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CERC Enabling Regulations

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Generation

Government-AdviceTo Govt

Generator- TariffRegulation

Trader/ PowerExchange Trading

License and PowerMarket Regulation

Transmission

Transmission Utility-Regulatory Approval

Regulation

TransmissionCharges- Point of

AccessCharges(POCMechanism)

Open AccessConnectivity, Long

Term and Short Term

SystemOperation

Schedule andDispatch- Grid Code

Unbalancesettlement( UI

Regulation)

CongestionManagement( In Real

Time and Powermarket)


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Regulatory Building Blocks for

Cross Border Energy Trade Procurement of Power:

Terms and conditions of Tariff

Renewable Generator Tariff

Trading License Regulation Power market Regulations

Transmission:

Regulatory Approval for Construction

Transmission License Regulation.

Connectivity and Access Regulation

(LT/MT/STOA)6/25/2012 47

f


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Regulatory Building Blocks for

Cross Border EnergyTrade Sharing of ISTS charges and losses (for tr.

charges and losses)-Point of Connection

System Operation:

Indian Electricity Grid Code( IEGC) Unscheduled Interchange (UI) Regulation

Congestion In Real Time Regulation

Congestion in Power Market throughMarket splitting

Ancillary Power Market

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Benefits of Regional cooperation


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Benefits of Regional cooperation-Economic

Large economies of the region have thegreatest shortages looming. Resource rich

Countries can benefit

Larger unit sizes and more efficientgeneration capacity will be possible

Load shapes and time differences can be

effectively utilised

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B f f R l


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Benefits of Regional cooperation

-Economic Intermittent resources will be supported

(e.g. Sri Lanka)

Interconnections unlikely to be expensive

in relative terms Hydro dominated nations (particularly

Nepal) will gain from thermal power in

lean seasons and peak hours) The markets will help utilise the power

when the economic value is the highest

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B fi f R i l i


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. Benefits of Regional cooperation

-Investment factors Markets create a mechanism to address

governance issues that otherwise dog

capacity procurement decisions

Market access likely to attract privatecapital on much larger scale

Transparent market prices provide an

effective reference Renewable energy (intermittent

renewable resources like wind can be

harnessed through the markets)6/25/2012 51

Ground Rules


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Ground Rules

1.Home country interests must be defined and

protected A certain basic share of the power must be

designated for the home country for internal

needs

In event of surplus from this share the home

country should be able to market the power

into the market

2. Transit Costs must be kept reasonable and asper appropriate economic principles that relate to

actual transit costs. India has a new emerging

framework which can be expanded in scope to

include transit (POC mechanism 6/25/2012 52


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Ground Rules

3. A regional power pool is advisable.However provide a start the mechanisms can

initially be restricted to bilateral (but market

based) transactions. The mechanism can beexpanded subsequently

4. There would be other practical ground

rules that would need to be evolved. Inparticular technical codes, institutional andcommercial arrangements between countries

must be aligned. This must start NOW.6/25/2012 53

BARRIERSTO CROSS


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BARRIERS TO CROSS

BORDER TRADING

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a) Poor performance of many of the state-

owned utilities, rendering them unable to fully

conduct normal commercial activities.

b) Long distances involved, and thechallenging geographical and natural

environment.

c) Disparity in the countries power sector

size.d) Weaknesses of the national grids, which

require strengthening (and hence investment)

before trading is possible.

BARRIERSTO CROSS


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BARRIERS TO CROSS

BORDER TRADING

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e) Lack of infrastructure, such as powertransmission interconnections, regional/

interregional co-ordination centers or control

centers.

f) Energy strategies that rely on self-sufficiency.

g) Difficulty in obtaining project financing for

crossborder transmission interconnections,

and the difficulty (and complexity) of raising

government guarantees for cross-border deals.

.

Not Economically

efficient

BARRIERSTO CROSS


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BARRIERS TO CROSS

BORDER TRADING

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h) Lack of a (commercial/legal/regulatory) framework for

transactions to take place.

i) Lack of agreement on the tariff system to remunerate

the use of transmission infrastructure.

j) Lack of institutions to give regional trading political

legitimacy and to play the co-coordinating and energy

trade enhancement role. In some cases exactly the

opposite happens and there exist several institutions

with overlapping interests and fields of intervention that

require coordination.

BARRIERSTO CROSS


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BARRIERS TO CROSS

BORDER TRADING

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k) Lack or non coordinated legal framework forenergy trade.

l) Lack of general harmonization of technical

codes, specifications and standards.

m) Lack of trading mechanisms in the energy

sector, which is much more complex than

trading of other goods or commodities.n) Lack or scarcity of qualified human

resources to manage technical / commercial

/regulatory aspects of cross border trading.


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Mitigation Measures

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Barriers MeasuresA. Regulatory

1.Non

discriminatory

open access to

spare capacity of

transmission,

2.Remuneration

of transmissionservices,

3.Licenses.

In India, already

Implemented through

Regulations on Open

access, Trading Licenses

and Sharing of

Transmission ChargesRegulation.


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Mitigation Measures

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Barriers Measures

Geographical region and power sector sizes

long distances, several

countries, difficultlandscape, power

sectors with different

size and different

degrees of development

Coordinated

Regional Planning.Yet to be

institutionalized to

take care and

integrate it withdomestic planning.

Mitigation Measures


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Mitigation Measures

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Barriers Measures

Lack of infrastructurefew and weak existing

interconnectors;

domestic transmission

systems with difficultiesto host transit flows

Existing with Bhutan,

Nepal, Developing with

Bangladesh and Sri

Lanka.Need to develop

regional standards ,

methodologies and

instruments for

planning.

Eleven High capacity

domestic Corridors


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Mitigation Measures

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Barriers MeasuresInstitutional basis and Government Commitment

Need of a regional

institution to take the

responsibility ofcoordinating and

promoting regional

power trade;

governmental

commitment with power

trade.

Govt of Indias supportand commitment

available.Need to create

Regional institute with

the capacity and

objective to coordinate

and promote the

process.


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Mitigation Measures

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Barriers MeasuresFinancing cross border Interconnection

Counties considered as

high risk for credit,

utilities not creditworthy, bad performance

of utilities and vicious

circle (low tariffs,

lack of investment,

lack of credit

worthiness to develop

investment)

India: Regulatory

approval process exist,

private sectorparticipation already

started, Transparent

tariff process ,

Payment security

arrangement exist.

Standard Bidding

Documents.

Mitigation Measures


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Mitigation Measures

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Barriers Measures

Domination of one or few countriesExercise of dominant

position during trade

or during decision

making process.

The regional regulator

should perform market

surveillance.

2. Proceed by writtenrules

3. Establish a

decision making

process that

minimizes the possibility of

domination during

the process itself by one or

few countries

C B d T d L i f


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Security of supply concerns need to be explicitly addressed andunderstood by the parties to proposed cross-border transactions

Regional entities need to be empowered to make decisions based on

legally enforceable national government commitments, particularly in

relation to planning, pricing, and settlement rules

Bilateral trading provides a basis for expanding trading volumes, both

through constructing the physical infrastructure that future deals will use

and by establishing workable legal and regulatory frameworks

Power pools will help to generate sustained increases in cross-bordertrading along with other regional trading arrangements, particularly in

power systems with several interconnections

The substance and process of regulatory reviews in importing and

exporting countries must be clear to create sufficient investment certainty.

Cross Border Trade: Learning form

International Experience

Agenda for discussion


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Possibility of more interconnections.

Regional Institute to take processforward.

Planning process coordination and

transparent information sharing.Possibility of power pool.

Capacity Building in Regulatory affairs.

Capacity Building in system Operation.

Renewable integration by extending

control area.

Participation in Ancillary market by

Agenda for discussion

R f


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Central Electricity Authority, India Reports.

CERC India Market Monitoring Reports. POSOCO Indian system Power Operators

Reports.

Castalia Limited, International Experience with

Cross-border Power Trading Report to the

Regional Electricity Regulators Association

(RERA) and the World Bank,September2009

Mercadoes Energy Market International report

Institutional, Regulatory and cooperative

framework model for the Nile Basin power

trade- .October,2007

Reference:


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Thank You for listening and

thinking.

Vijay MenghaniJoint Chief(Engg.),

Central Electricity Regulatory Commission, India

[email protected], [email protected]

91-11-233353503,09999035484
mailto:[email protected],[email protected]:[email protected],[email protected]