The ensuing real-time market mechanism, where power can be traded on a real-time basis, is expected to provide a fillip to the electricity exchanges with a likely spurt in trading volume. Currently, the most popular form of spot power transaction is the day-ahead-market (DAM) mechanism where distribution companies (discoms) bid for power supply for the next day.
The real-time mechanism is seen to significantly reduce the time of delivery to just over an hour.
"The real time market will provide 48 auction windows through the day on the power exchange platforms and such auctions will provide an opportunity to gencos and discoms to reduce reliance on the deviation settlement mechanism (DSM)-based trades, and instead opt for the competitive, transparent, and structured trade on the exchange platform," Shruti Bhatia, vice-president-regulatory affairs, Indian Energy Exchange, told FE.
Existing models for intra-day power trading include DSM, ancillary services and contingency, which are not adequate to address emerging needs of time and have thrown up challenges that call for changes in market design. In September, only 3.3% of the total electricity generated was transacted through the day-ahead market on power exchanges and 1.9% through the DSM.
Nearly 70 million units (MU) of electricity are traded through DSM every day. Prabhajit Sarkar, CEO of Power Exchange India (PXIL), believes that a significant chunk of this volume would be up for trade in the exchanges after the implementation of the real-time market mechanism. "The system will address the last minute changes in power procurement portfolio without negatively affecting any party, while helping in the better integration of renewable energy into the grid."
The mechanism would give more operational flexibility to thermal generators, who can sell additional power in the spot market when discoms procure lower volumes of electricity than what was scheduled by them earlier. To their benefit, discoms will also have the option of buying power through real-time market when renewable sources are not able to supply as promised due to vagaries of nature.
PK Pujari, chairman of the Central Electricity Regulatory Commission, said earlier last week the role of market-based electricity transactions is going to become more crucial in near future and the share of long-term power purchase agreements - which currently constitute 90% of power procurement portfolio of discoms - will gradually reduce going forward.