Trading Challenges in Indian Power Sector Scenario

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Power Trading has been a subject of discussion right from the very first day of its existence.Initially,in 2002 when trading was introduced,people who were in to power sector were quite skeptical about its existence in the near future.There has been a number of roadblocks in the path of power trading in Indian power Sector scenario.Some of the major causes about the dilemma about the germination of power trading are low creditworthiness of the distribution utilities,open access restrictions,rising fuel costs,low liquidity in the market etc.

  • The sorrow plight of the DISCOMs is known to everyone who is directly or indirectly related to the power sector.Huge debt of distribution utilities are creating a wider gap between the various development aspects of the Power sector.IPPs and various other GENCOs are not ready to wait for the   over due payments from the DISCOMs.Moreover Traders have not any option to disconnect the supply once the deal has been finalized.Supplying power without ensuring an adequate payment security mechanism is a violation of trading license.
  • Trading margin involves a thin percentage of around 1 % & with the current picture of cash flows of DISCOMs,many traders may exit the business of trading. i.e Working capital of traders > Total capitalization

Limited implementation of Open Access like various states (Tamil Nadu,Orissa etc) are restraining from Open Access (by invoking section 11 of EA 2003)                                                           {Section 11. (Directions to generating companies): — (1) Appropriate 

Government may specify that a generating company shall, in extraordinary
circumstances operate and maintain any generating station in accordance with
the directions of that Government.
Explanation. – For the purposes of this section, the expression “extraordinary
circumstances” means circumstances arising out of threat to security of the
State, public order or a natural calamity or such other circumstances arising in
the public interest.
(2) The Appropriate Commission may offset the adverse financial impact of
the directions referred to in sub-section (1) on any generating company in such
manner as it considers appropriate.}

Imposition of high cross subsidy charges are also coming as hindrance in the roads of Open access implantation.{“Open access means the non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission.”}

  • Another problem of large volume of unscheduled interchange (Unscheduled Interchange (UI) is the mechanism developed to improve grid efficiency, grid discipline,
    accountability and responsibility by imposing charges on those who defer from their scheduled
    generation or drawal. Unscheduled generation and drawal of electricity puts the whole grid and many
    other electrical equipment in to danger by dumping large fluctuations in frequencies. Unscheduled
    Interchange is a part of three part tariff put forward by GoI in the name of Availability Based Tariff
    on 4
    January 2000 at inter-state level. A proposal for ABT, as a three-part tariff, was first mooted in
    the year 1994 in a report submitted by an International Consultant (ECC Report) to the Government
    of India. The Government then constituted a National Task Force (NTF) as well as Regional Task
    Force (RTFs) to debate on various issues in the introduction of ABT for bulk power. Based on the
    recommendation of NTF, Central Government has prepared a draft notification and submitted to
    Central Electricity Regulatory Commission (CERC) for finalisation.)

    arising in consideration with ABT.Suppliers and distribution companies are using this as a commercial mechanism nowadays to use this power illegally in literal terms.Appropriate steps are needed to be taken to reduce UI margins below 1% of the total power generated(currently its around 2-3 %)

  • Another road block is the reduction in availability of power from the generating companies in terms of volume.IPPs and captive power producers have taken a back foot in this scenario.
  • Although trading licenses have been issued to no of power traders but in actual terms there are very power traders thereby creating a situation of monopolistic markets.

Solutions Proposed:

  • There is a strong need of power tariff revision in order to address  these issues.Regulators need to more practical while implementing tariff revision steps.
  • More transparency is required in power market including comprehensive information about the fuel availability.
  • Hydro capacity should be ramped to significant levels in order to bridge the demand supply gap of power.
  • Demand predictions should be made at least for four to seven years.

Power trading can ultimately become a tool for efficient power generation in the country.


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