INTERVIEW

Mr. Jayant Deo, MD&CEO, Indian Energy Exchange (IEX)

Huge untapped potential for Power Trading in India

a lot of hydro power potential. Whereas, the western and northern regions of the country suffer from a heavy deficit of such power due to their immense industrial and agricultural load. The Indian Energy Exchange has been set up with the precise motto of making optimal use of the available resources to fuel further growth in the economy. The Exchange provides a non-discriminatory market place, national-level access to all buyers and sellers for transparent price discovery. In India open access is impeded by the differences of state regulatory authorities and Central regulatory authorities. To break the deadlock what Indian Energy Exchange can do? Open access in India is an important concern. However, IEX cannot play much of role in the same, apart from promoting awareness in the sector. IEX has been seeking a number of central and state level regulatory initiatives to develop and strengthen open access rules. This will help in attracting additional capacity and development of competitive market and benefit the consumers. Some of the progressive states have allowed open access as required. We would like to have more such states opening up and allowing their small generators to tap regional and national markets. The denial of Karnataka and Tamil Nadu governments for open excess is stalling progress. What steps could be initiated to persuade the two governments to allow the open access? The Scheme of the things envisaged in the Electricity Act, 2003 for developing market and the open access has not been understood in its true dimensions. The states will
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The power market is in a nascent stage and it requires a lot of nurturing and incubation to grow successfully. IEX has been putting in a lot of ground work, and has created awareness and capacity building for converting the concept of power exchange into reality. In order to propel growth and unlock the potential of the Power sector, certain key clauses of Electricity Act, 2003 needs to be understood and implemented.
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dia? What is the motto behind developing the power market? In India the scope of trading power is huge even with its current power shortage scenario. The power sector has come a long way from being a bilateral contract driven long-term market to one which is also driven by short-term trades. There has been a steady growth in the number of short-term power trades, with the number of participating utilities in short-term open access (STOA) increasing steadily. Presently, there is an imbalanced disposition of resources within the country. On the one hand, the eastern region is rich in coal sources and so a lot of pit head based load plants have been set up there. The north eastern region also holds

INTERVIEW

be happier and the retail consumers will be the highest beneficiaries if the open access consumer category tariff is not determined as per the Electricity Act, 2003. Clause 86.1 (a) proviso: which shifts Open Access permitted categories of consumers under Section 42, from regulated tariff to market prices. Section 49: Permits Open Access consumers to make an agreement for sale/purchase (including tariff) with any person. Developed countries followed this model of compulsory shifting of large consumers in phased manner to market prices. This model ensures additional capacity/investment in power sector from large users. The existing generation capacity to be utilized for meeting the requirement of small and retail consumers. This will ensure economic pricing of the power for retail consumers. This will also ensure lesser pressure on State treasury for subsidy. The large consumers have not yet invested sufficiently into captive and/or mer-

chant power plants, which have been liberalized in Electricity Act, 2003. This is so because of non-implementation of clause 86.1 (Proviso). Unless the above model for which the Act has enabling provisions is implemented, India can not meet the requirement of 8 Lac MW by the year 2030. The competitive market forces will ensure optimum capacity, apart from energy conservation. What is the impact of Electricity Act 2003? Do you observe any change in the power sector after imposition of the Act? What steps should be initiated to enforce implementation of the Act? The most important contribution of Electricity Act, 2003 has made the entire society to look at the shortage scenario more seriously. Yes, lot many things have happened for development of Merchant power plants, ultra mega power projects, accelerated distribution reforms scheme, market development including power ex-

change even in the scenario of shortages. All countries having power exchanges have positive spinning reserve except India. Does your exchange ensure energy efficiency credits? We are planning to start trading of white certificate and green certificate on our exchange. How do you decide price tag for electricity exchange? During the bid call period (10 am to 12 pm) bids and offers from prospective buyers and sellers will be submitted for each hour of the next day (hourly contracts) to IEX, and the same will be displayed on the screens of the IEX trading work stations (TWS). Trades matched by the exchange mechanism will be settled at a uniform market clearing price (MCP), and flow of electricity will be arranged through the inter-state transmission system (regional grids).

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Is your exchange open for small time players as well? Yes. IEX has introduced 1 Mega Watt contracts. With this, volume of even 1000 KW can be traded for as low as 1 hour, costing few thousands of rupees. The main objective of introducing 1 Mega Watt contract is that it broadens and deepens the Energy market and attracts smaller players. Captive generators, Sugar Cooperatives etc who have surplus power from their co-generative plants are able to trade on the Energy Exchange and get better price benefits. The lowering of the contract size opens up a whole lot of avenues for the smaller players and facilitates more liquidity in the Exchange as well. We have also applied for approval of term-ahead contracts which will add impetus and push up the volumes on the Exchange. What steps you could suggest to stimulate the power market in the country? And how competition would ensure growth in the power sector? If open access category consumers are not covered under regulatory tariff, as required under the Act, then many of them will go for market or group captive or subscribe to merchant power plant capacity. In order to maximize utilization and minimize fixed cost, they will be selling underutilized capacity through the exchange. This will cre-

ate islands of excellence in choosing technology, fuel, systems and operations. To my mind the power sector will follow the housing sector in this country. Three decades ago the housing stock was unavailable. At some point of time government started constructing like DDA Housing Board. But gradually the broker/builder/ developer community got engaged along with self help group (Cooperative societies). Today, promoters are developing new cities in the most competitive manner rather than just constructing one building. The power sector will also follow the same route. IEX has more than 100 members right now? Where it would be five years down the line? The concept behind this exchange in the shortage scenario was for attracting capacity addition and investment in this sector. The same objective will be continued. New concepts such as green power development, retailing of investment and dissemination of knowledge will see IEX with overwhelming number of members and with significant market share. IEX commands an overwhelming majority of the market share and has really achieved the dawn of a new era in India. There are some noteworthy factors that have contributed to the successful functioning of the exchange. These are:

Adherence to the agreed power schedule for bidding, payment and power scheduling with clock work precision by the Exchange (IEX) and its members, many of whom are from the government sector, deserve special mention and credit. Our settlement banks; SBI (Indias leading nationalized bank), two private banks namely, HDFC & IndusInd Bank have devised new banking products for enabling participants to take active part in the exchange. These innovative banking products are commendable. The cost of working capital has come down substantially on account of daily cycle of payment vis--vis the earlier settlement of a few months, which the trade was using previously. There are 365 annual cycles of working capital available against the norm of 3 or 4 in the trade. IEX has a wide base of members which includes, Generators, State Utilities, Distribution licenses, CPP, etc. They are very happy with the Exchange platform that guarantees payment upon execution of trade.

Mr. Jayant Deo, personal profile

Mr. Deo believes that the Regulatory framework is essential for democratic workingnamely community participation in collective decision-making. Hence he advocated for introduction of ERCs in India. He understood the strong linkage between energy, Economy and Ecology and considers Tariff Making as a potent tool for ensuring sustainable development. His belief is reflected in contributions he made in operationalising MERC and in initiating several innovative measures in tariff matters. Mr. Jayant Deo played an important role in rationalizing electricity tariffs and in 2000 introduced successfully new concepts like Time Of Day tariff, Power factor, Load factor and prompt payment Incentives along with bulk discounts. For the first time increasing Industrial tariffs in Maharashtra, were brought down to the lowest level in India. MSEB was made accountable to consumers through transparent public hearing process. Since 1979, Mr. Deo has been providing Resource Optimization Services to Industry, Government and NGOs in the name of Deo & Associates. As an Industrial Engineer, he has handled many landmark assignments in manufacturing, Transport and Energy management field. Recently his paper on Power Sector Reforms-is included in a book titled Mumbai vision 2015 and published by Macmillan & Co.

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