Trading

A Snapshot of Power Trading in India

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Power Trading has come a long way since trading has been recognized as a distinct entity in Electricity Act, 2003.

What is Power Trading?
Basically, Power trading is an activity of buying and selling of power at Power Exchanges, which are approved by Central Electricity Regulatory Commission (CERC)and moreover standardized Products are offered to buy and sell power. Thus Power is traded like a commodity at Power Exchanges like IEX (India Energy Exchange), PXIL(Power Exchange India Ltd.) Likewise shares trading are done on SENSEX etc & commodity trading at NCDEX etc.

What is Open Access?
Open Access allows large users of power having a connected load of 1 Megawatt (1MW) to buy cheaper power from the market.

Acc. To EA 2003 Sec 2(47) : “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;

Types of Open Access:
• Inter State Open Access: When buying and selling entity belong to different states.
• Intra State Open Access : When buying and selling entity belong to same state.
Types of Power Trading?

Broadly Power trading can be sub classified on the basis of duration of contracts and energy trading platform.

Types of Exchange
Types of Exchange

What are the statutory requirements for Power Trading?
Some of statutory requirements notified by CERC are:
• Demand should be atleast 1000KVAH
• Connected to atleast 11KV line
• Should have 0.2S class CT/PT
• Should have 0.2S class ABT meter
• Consent from DISCOMs/SLDC to trade power.

List of Power Trading Licensee?

Acc. to CERC’s latest MMC report(08/11/2013),there are 65 Power trading licensees in power market, some of active ones are:
• Tata Power Trading Company Ltd.
• Jaypee Group
• Adani Enterprises Ltd.
• PTC India Ltd.
• Reliance Energy Trading Ltd.
• JSW Power Trading Corp.
• NVVN
• NETS (Lanco)
• MMTC Ltd.
• DLF Power Ltd.
• Jindal Steel and power Ltd.
• GMR Trading Ltd.

What are various Bid areas on Energy Exchange?

Bid Areas

What is HHI & its relevance in power market?

HHI stands for Herfindahl-Hirschman Index
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000.In case of p
For the year 2012-13, HHI was 0.1437

Some Facts about Power Trading (Ref from CERC’s MMC Report)
• In 2011-12, Weighted Average price of electricity traded through Power Exchanges Rs 3.67 / unit and through trading licensees Rs 4.33 /unit.
• During the year 2012-13, 89% of the volume of electricity in IEX and 94% of the volume of electricity in PXIL was transacted at less than 6/kWh. 70% of the volume in IEX and 73% of the volume in PXIL was transacted at less than 4/kWh
• During 2012-13, only 179 million units of electricity was exclusively bought during peak hours under bilateral transactions from traders (exclusive of banking). This was 0.79% of the total electricity bought under bilateral transaction from traders (excluding banking). A major part of this, 93.24%, was bought on round the clock (RTC) basis, followed by 5.97% exclusively bought in periods other than peak periods. The per unit price of electricity procured on round the clock (RTC) basis was the cheapest (4.29/kWh), followed by electricity exclusively procured during non-peak hours (4.66/kWh) and electricity exclusively procured during peak hours (4.97/kWh).

Trend of Electricity

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RPO(Renewable Purchase Obligations)- Where are we??

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Microsoft Word - 2.doc
Introduction of REC(https://www.recregistryindia.nic.in/index.php/general/publics/AboutREC) trading framework has been a significant step in 2010,transforming the renewable energy market to go for market based modelled approach. Success/ Failure of the REC Trading framework can be gauged from the inventory being built up in monthly trading sessions. Of the 712792 RECs put up for sale in the two power exchanges in Sep 2012 session, about 450000 remained unsold and moreover 37% of the REC holders didn’t participate in the trading session at that time. This growing demand supply mismatch is giving alarming bells to the project developers and various potential investors who are eager to invest in RE sector in the near future.
REC mechanism seeks to expand its horizon from resource rich states to the deficit states but the key factor which will lead to success of REC is the RPOs by various obligated entities. Nonetheless state power regulators need to play a proactive role in the development of REC market. Till date all states except Arunachal Pradesh and Sikkim have declared their RPOs explicitly(http://ceew.in/pdf/Appendix_F-Renewable_Purchase_Obligation_for_States.pdf).
A survey was conducted to gauge the total renewable energy capacity of states,RPOs declared by them, CUFs of various renewable sources of energy. It has been analysed that only 4 states -Tamil Nadu, Gujarat, Karnataka and Maharashtra have significant wind power installations and RPOs higher than those required in 2010-11 and 2011-12.For eg Tamil Nadu needed about 4000MW of renewable energy capacity to meet its RPO of 14 % and it has already installed capacity of 4908MW.Except these states, rest of them were unable to meet their solar RPOs.

Weak Links
-There is huge inconsistency in RPO norms across the states. NAPCC,2008 targets 5% of the total grid purchase to be achieved through renewable energy. However in the absence of national level RPOs, states have been fixing their own targets depending upon the availability of renewable energy in that particular area.
-Another risk that is quite prominent as far as REC market is concerned- regulatory capture by the obligated entities which further skews the market against developers and investors. Certain states have been revising their RPOs targets in a downward trend for e.g Tamil Nadu(wind rich state) revised from 14% (2010-11) to 10% (2011-12).According to regulators, unrealistic targets imposed by some state regulators could set a wrong precedent not only for the state. Similarly, in April 2012, MP Power Trading Company Ltd. requested MPERC to waive RPO targets for solar energy for 2011-12 and 2012-13 because no solar power plant has been commissioned in MP and solar RECs were not available for trading on any one of the exchanges.
-RPO setting in most of the states is based on the assessments that are outdated. Therefore, they are set much lower than what could be feasible. Some stake holders are worried about the impact on tariff due to these targets. Like a study conducted by CRISIL along with CERC indicated that compliance with NAPCC target will have a marginal tariff impact of Re 0.01/unit/consumer ,reducing every year to reach Re 0.005/unit/consumer by 2017.
-Another risk that is anticipated by developers is lack of visible long term RPO trajectory. Only 7 states(AP,karnataka, Delhi, HP, Kerela, Maharashtra, Odisha) have declared their RPO trajectory till 2015-16 or beyond.
Limited Focus on CPPs and Open Access consumers
While most of the states have amended their regulations to include open access customers and CPPs under the purview of RPO but still there are some states which have not notified their OA and CPP consumers to meet RPOs. The glim scenario can be seen from the trading of RECs over IEX in which over 90% of the participants are DISCOMs and there have been very few CPPs and Open Access users. But there are states like Karnataka i.e KPTCL directed OA users in the state to fulfill 5% RPO for 2011-12.Similary Chattisgarh has also notified CPPs to provide RPO compliance on monthly basis.
Small Beginnings
Recently Rajasthan high court dismissed an appeal raised by Hindustan Zinc, Ambuja Cements etc that had challenged RPO regulation enacted by RERC. The petitioners stated that RERC did not have authority to pass the RPO regulation and impose a surcharge(penalty) as CPPs and OA were completely de-licensed under EA 2003.However Jaipur bench of High court rejected the petition stating the exact meaning of word ‘total consumption’ as total consumption in the area of distribution licensees in all modes. One of the reason for non compliance is the lack of incentive mechanism to support RPO implementation.
Supportive Measures
-A key stumbling block in the implementation of RPO is the financially strained DISCOMs. Burdened with over 2 trillion of losses, how can one expect DISCOMs buying costly RECs? However a recent development is the Debt restructuring for the DISCOMs(http://powermin.nic.in/whats_new/pdf/Financial_restructuring_of_State_Distribution_Companies_discoms_Oct2012.pdf)
-Another encouraging trend is that several DISCOMs have been facing losses due to their inability to hike tariffs but recently over 17 states have revised their tariffs giving a good signal to the market stabilization for RE.
Need to Improve REC Market Design
-There is lack of visibility in floor and forbearance price beyond the initial five year period because only non PPAs based sales are eligible for RECs.
-REC trading is restricted to auction markets and can be conducted only on a “once through” basis, thereby not permitting forward contracting and liquidity reduction.There is a sheer need of secondary trading market,which both the exchanges as well as industry players have been seeking for some time.
-Finally compliance window has to be shortened to a quarter or half year to ensure that there is continuous procurement action on obligated entities.

Thus,REC markets will fail to bring the desired results unless regulators are empowered to enforce the RPOSs and DISCOMs are allowed to function as independent power utilities rather than as an arm of government.

References: Power Line Magazine,MNRE Website, ICRA report on DISCOM bailout,REC registry,RE Connect etc.