2023

Indian Power Market

Short-term Power Market

training material

PTC | India
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 I. Indian Power Market overview

India is a major electricity consumer and producer with the Demand for Electricity growing every
year. Government of India has taken many steps towards meeting those demands by providing
frameworks and guidelines for both producer and consumers. An overview of current installed
capacity and share of those capacity is shown below.

Installed Capacity in India Share of Capacity in India

Total Generation (2022): 1492 BU

Capacity in GW

The
402 Fossil Fuels
392
Non-Fossil Fuels
370
356
344
Y Y Y Y Y 41%
2018 2019 2020 2021 2022
59%

ShareYear
of Market Segments in Total
Electricity Generation (2021-22)
6.80% 2.60%
1.40%
1.70%

87.50%

Power Exchange Transaction Bilateral Transaction through Traders

Bilateral Transaction between DISCOMs DSM Transaction
Long-term Transaction
market for short-term power trading has evolved significantly. Short-term trading volumes
were 186.75 BUs in 2021-22, with power exchanges accounting for 54.3 percent with an all-
time high volume of 101.45 BUs. This represents a significant shift in the Indian power
market, which has previously been dominated by bilateral agreements.

II. Short-term power trading overview

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The short-term power market has evolved over the years, with the introduction of a variety of
products that have increased liquidity and efficient price discovery. Developers can now sell
in the short-term market to diversify their risk and earn more revenue by selling during peak
demand hours. Discoms can also procure electricity in a transparent and cost-competitive
manner through the short-term market. This helps them to match demand and supply at all
time intervals, which provides flexibility and savings.
Historically, long-term power contracts have dominated the Indian electricity sector.
However, with the growth of 25-year solar power purchase agreements (PPAs), these long-
term contracts have become inefficient and costly. The short-term power trading market has
emerged as a necessary tool for merchant and stressed power plants to maximize their
revenues.

For consumers, especially commercial and industrial, sourcing power through the short-term
route can result in significant cost savings. This is because they can avoid the high cross-
subsidy charges imposed by discoms. In addition to competitive prices, the power exchanges
offer a highly liquid and transparent mechanism. This has led industrial consumers to turn to
the exchanges over the years.

Share of Market Segments in Short-

term Transaction (2021-22)
13.50%
11.00%

54.30%
21.10%

Power Exchange Transaction Bilateral Transaction through Traders

Bilateral Transaction between DISCOMs DSM Transaction

The short-term power market in India saw a significant increase in trading volumes in 2021-
22, with a total of 186.75 billion units (BUs) traded. This was a 27.9% increase over the
previous year, when 146.01 BUs were traded.

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III. Transition Towards a Competitive Market

Enactment of Electricity Act 2003

200
3

National Tariff Plan

200 Guidelines for Competitive Bidding
6

Guidelines for Scheduling and Collective Transaction on Power Exchange

200 Open Access Regulation Introduced
8

Trading Licence Regulation Introduced

200 DSM Regulation Introduced
9

Electricity Grid Code Regulation Introduced

Renewable Energy Certificate was Introduced
201
0 Trading Margin Regulation Introduced

Ancillary Service Operation Regulation Introduced

201
5

Real Time Market Introduced

202 Cross Border Electricity Trade Started
1

General Network Access Introduced

202
2

Hindustan Power Exchange was Established

202
3

More in-depth read is available at below link

https://cercind.gov.in/report_MM.html

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IV. Types of Power Trading

Bilateral

• The two contract counterparts directly negotiate contracts.

• Contracts are frequently longer in duration and highly customised.
• Trading partners are familiar with one another.
• The price is unclear
• Execution takes time and costs money.

Exchange
• Contracts are highly standardised and transactions are conducted through a
multilateral power exchange
• Trading is private.
• Pricing is transparent and upfront.
• Execution is quick and affordable.
• Processes are frequently used to protect market integrity.

Power Exchange based Trade

Electricity can be bought and sold in a power market, in either megawatts (MW) or million-
units (MU). Power transactions involve a buyer and seller, who must maintain a balance in
the national electricity grid. Power trading helps maintain balance, security, and cost
effectiveness of electricity in the grid. The need was felt for an organised power market to
enable price discovery in a transparent manner, leading to the establishment of Power
Exchanges (PXs).

In 2008, Indian Energy Exchange (IEX) and Power Exchange India Ltd. (PXIL) have been
established to promote transparent trading of electricity, a larger market spectrum and allows
the participation of other players in the market. Later in 2018, Hindustan Power Exchange
Limited (HPX) was formed. Currently, the PXs accounts for approximately 29% of the
STPM

During 2021-22, an aggregate volume of 101.45 BUs was transacted on the two power
exchanges, recording an increase of 27.5 per cent over the previous year. Of the total volume,
95.55 BUs was transacted on the Indian Energy Exchange (IEX) while 5.90 BUs was

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transacted on Power Exchange India Limited (PXIL). The aggregate trading volume on the
two exchanges has grown at a CAGR of over 19.8 per cent from 2016-17 to 2021-22.

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V. Flow of Power Trading

First the Trader has to find a buyer of electricity and discuss with him the

quantity, price and timing for delivery after that the traders has to find a

generator who is ready to sell the asked quantity in the asked price at the

given date, after negotiating a deal the trader has to book the transmission

access for the flow of electricity from one end to another, once the electricity

is transferred the settlement of contract has to be done.

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VI. Products in Power Exchanges

1. Day ahead market (DAM)

Introduction

Day-Ahead-Market (DAM) is a physical electricity trading market for deliveries for

any/some/all 15-minute time blocks in 24 hours of next day starting from midnight. The
prices and quantum of electricity to be traded are determined through a double-sided closed
auction bidding process.

In the day-ahead market, market participants such as generators, retailers, and other
intermediaries submit their bids and offers for electricity for each hour of the next day. These
bids and offers typically include the quantity of electricity they are willing to buy or sell and
the price at which they are willing to transact. The clearing price is the price at which the
total supply matches the total demand, ensuring that the market is balanced. The day-ahead
market allows market participants to plan their electricity purchases and sales in advance,
providing them with price signals and allowing them to manage their generation and
consumption accordingly.

Types of Bid

Single Bid: Block Bid:

In a single bid strategy, market participants
submit individual bids or offers for each
hour of the next day separately. For
example, if a market participant wants to
buy or sell electricity for 24 hours, they
would submit 24 separate bids, each
specifying the quantity and price for a
specific hour. Single bidding allows for
A block bid, also known as a block order or
aggregated bid, involves submitting a single bid
or offer that covers multiple consecutive hours
or time blocks. Instead of submitting separate
bids for each hour, the market participant
combines their desired quantity and price for a
range of hours or a specific time block. For
example, a block bid may cover a period of 4

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 more granular control over pricing and hours, such as 10:00 AM to 2:00 PM, with a
quantity preferences for each hour. single price and quantity

Market Split in day ahead market

In the day-ahead market, the concept of market split refers to the division of the market into
different geographical or operational segments. The specific market split arrangements can
vary across different electricity markets and countries.

1) Regional Market Split: In some cases, the day-ahead market may be split into regional
segments based on geographical boundaries or regional transmission network
configurations.

2) Nodal Market Split: In more advanced electricity markets, such as those with nodal
market designs, the day-ahead market can be split into nodal areas.

Quantum and price trends in DAM

1) The price of electricity is generally higher during peak demand hours than off-peak
hours. This is because there is more demand for electricity during peak hours, and
therefore less supply.
2) The price of electricity is also affected by the weather. When the weather is hot, there
is more demand for electricity for air conditioning, which can drive up prices.
3) The price of electricity is also affected by the cost of fuel. The majority of electricity
is generated by burning fossil fuels, so when the price of fuel goes up, the price of
electricity goes up.

The prices and Quantity shown are averaged to a day, they vary significantly throughout the day.

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 CERC Market Monitoring report 2021-22

Settlement of transactions in day ahead market: -

Settlement of transactions in the day-ahead market is the process of transferring ownership of
energy and payment for that energy between buyers and sellers. The settlement process
begins with the clearing of the market, which occurs at the end of the day-ahead trading day.
The market operator calculates the market-clearing price (MCP), which is the price at which
all transactions are settled. The MCP is determined by the intersection of the supply curve
and the demand curve.

Once the MCP is determined, the market operator sends out schedules to all market
participants. The schedules specify the amount of energy that each market participant is
required to deliver or consume. Market participants must then make arrangements to physical
deliver or consume the energy as specified in their schedules.

The settlement process for the day-ahead market is typically completed within two business
days of the delivery date. Market participants are required to pay for the energy they
consume, and sellers are paid for the energy they deliver. The settlement process is overseen
by the market operator, who ensures that all transactions are settled in a fair and transparent
manner.

Exercise on bid preparations and landed cost in the DAM

The landed cost of energy is the total cost of acquiring and delivering energy to a customer.
The landed cost includes the cost of the energy itself, as well as the cost of transportation,
transmission, and other fees.
In the day-ahead market, the landed cost of energy is typically determined by the market-
clearing price (MCP). The MCP is the price at which all transactions are settled in the day-
ahead market. The MCP is determined by the intersection of the supply curve and the demand
curve.
The supply curve shows the amount of energy that is available for sale at different prices. The
demand curve shows the amount of energy that is demanded by buyers at different prices.
The intersection of the supply curve and the demand curve determines the MCP.

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2. Green Day Ahead market (GDAM)

Introduction

The Green Day Ahead Market (GDAM) is a market segment of the Indian Energy Exchange
(IEX) that enables participants to purchase renewable energy on a day-ahead basis. The
GDAM was launched in October 2021 with the aim of providing additional sales avenues to
existing renewable power projects and helping obligated entities to procure renewable power
at competitive prices.

The GDAM operates in a similar manner to the IEX's existing day-ahead market, with
participants submitting bids for renewable energy in a double-sided auction. The winning
bids are then cleared at the clearing price, which is the price at which all of the available
renewable energy is sold.

The GDAM has been successful in increasing the participation of renewable energy projects
in the Indian power market. In its first year of operation, the GDAM accounted for over 10%
of all renewable energy traded on the IEX. The GDAM is expected to play an increasingly
important role in the Indian power market as the country's renewable energy capacity
continues to grow.

Some of the key features of the GDAM

 It is a physical market for trading renewable energy.

 It is a day-ahead market, meaning that participants must submit their bids by
the previous day for delivery the following day.
 It is a competitive market, with participants bidding against each other to
secure the lowest price.
 It is a transparent market, with all bids and prices being made public.

The GDAM is a valuable tool for promoting the growth of renewable energy in India. It
provides a platform for renewable energy projects to sell their electricity at competitive
prices, and it helps obligated entities to meet their renewable purchase obligations. The
GDAM is expected to play an increasingly important role in the Indian power market in the
years to come.

Some of the benefits of the GDAM:

 It provides additional sales avenues for existing renewable power projects.

 It helps obligated entities to procure renewable power at competitive prices.
 It increases the transparency of the renewable energy market.

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  It promotes the growth of renewable energy in India.
3. Real Time Market (RTM)

Introduction

The transaction of electricity in Real Time Market was started in both IEX and PXIL from 1 st
June, 2020 with the approval of the CERC. In the RTM, the electricity is traded in 48 market
session of 15 minutes duration. The trading takes place during even time blocks of the hour
with delivery to be commenced one hour after the closure of trade session. The price
discovery mechanism is similar to that of Day Ahead Market. The RTM enables the trading
entities to buy and sell power for delivery one hour after the closure of trade session, this
helps in meeting unplanned/ unforeseen power requirement or sale of surplus of power.

 48 bid sessions during the day

 Each bid session for a duration of 15 minutes
 First bid session to start at 2245 hrs
 15-minute gap between two consecutive bid sessions

Single and/or block including linked bids:

 Single bids: 15-Minute bids for different price and quantity pairs can be entered
through this type of order. Partial execution of the bids entered is possible.
 Block bids: Block Bid for any 15-min block or series of 15-min blocks during the
same day can be entered. Although no partial execution is possible i.e., either the
entire order will be selected or rejected.
 The bids so entered are stored in the central order book. The bids entered can be
revised or cancelled till gate closure

Overview of RTM Schedule

In RTM 1st bid session starts at 22:45 and ends at 23:00 after which the clearing price and
quantity is decided and the power is scheduled for delivery at 00:00 to 00:30. And this
session continues 48 times in a day as shown below.

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4. Term Ahead Market (TAM)

Introduction

The TAM on the power exchanges is the market for electricity where market participants
buy/sell electricity on a term basis ranging from 3 hours before actual despatch (i.e., intra-
day) and up to 11 days in advance. Currently there are four types of contracts in TAM,
namely; Intra-day, Day Ahead Contingency, Daily/ Any Day and Weekly, which helps the
participants to manage their electricity portfolio for different durations. Thus, the TAM
provides a range of products allowing participants to buy/sell electricity.

Intra-day Contract
Region specific 20 hourly intra-day contracts for delivery on the same day. The contracts are
available for trading from 00:30 hrs to 20:00 hrs on a daily basis through continuous trading
process

Day Ahead Contingency

24 contracts of one hour each for delivery on the next day. The contracts are available for
trading from 15:00 hrs to 23:00 hrs on daily basis through continuous trading process

Daily Contracts
Daily contracts are region specific contracts for all the five regions for different block of
hours. The contracts are available for trading on a rolling basis i.e., everyday eight daily
contracts of the following week will be available to members for trading.

Week Contracts
Weekly contracts are region specific contracts for all the five regions for different block of
hours. Trading in such contracts is through open auction on every Wednesday, Thursday and
Friday of the month with delivery starting at T+5 and concluding at T+11 when trades are on
Wednesday and on T+4 and T+10 respectively when trades take place on Thursday.

5. Green Term Ahead Market (GTAM)

The transaction of electricity in GTAM (Solar and Non-solar) is Similar to TAM, the GTAM
on the power exchanges is the market for trading renewable energy (Solar and Non-Solar)
under the four contracts Intra-day, Day Ahead Contingency, Daily/ Any Day and Weekly.
Trading in GTAM is continuous

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6. Renewable Energy Certificate (Rec)
REC Mechanism was introduced in 2010 as a market-based instrument in India to provide a
means to provide national market to the dispersed renewable energy sources across the
country. It separates the “green” component from the “electricity” component and facilitates
Renewable Purchase Obligation (RPO) compliance by the obligated entities. A pan-India
market has been created for trading in RECs through the Power Exchanges. 1 REC = 1 MWH

The government of India has introduced the Renewable Purchase Obligation (RPO) and
Renewable Energy Certificate (REC). RPO requires companies to purchase a minimum
number of units produced through renewable sources, while RECs require companies to
produce or possess their own plants or purchase RECs from other companies involved in
producing energy through renewable sources.

7. Energy Savings Certificate (ESCerts)

In order to promote energy efficiency, Government of India notified Energy Conservation
Rules, 2012 for the development of market in energy for exchange of transferable and
saleable ESCerts between the Eligible Entities who have been issued ESCerts and the
Eligible Entities who shall comply with the prescribed energy norms and standards for the
current and subsequent cycles.

An ESCert is an instrument issued by an authorised body guaranteeing that a stipulated

amount of energy savings has been achieved and has entered the Indian Energy Efficiency
Mandate under the PAT (Perform, Achieve and Trade) scheme. Each certificate is a unique
tradable commodity that gives property rights over additional units of an intangible bundle of
societal and environmental benefits created by energy saved over and above the baseline
level.

For further readings on product please refer to below link https://www.iexindia.com/#?id=AxYp2%2fiBEmk%3d&mid=gVO8GRQ%2b6is

%3d

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VII. Regulatory Mechanism in Power Market

1. Open Access (OA)

The OA power market under IEA 2003 is defined as “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 a generation by the regulations
specified by the Appropriate Commission” (GOI, IEA, 2003).

Following are the main issues covered in OA; sovereignty to purchase/trade, and right to use
the market, the acceptability of prevailing transmission, transmission/wheeling charges,
handling of transmission losses, energy secretarial, scheduling, metering, and UI settlement.
To solve the issues related to the interaction of various state regulatory commissions, the OA
has been categorized as intrastate (purchasing and selling entity belongs to same states) and
interstate (purchasing and selling entity belongs to different states) OA market.

Further, both kinds of market include long-term OA for 12–25 years, medium-term OA from
3 months to 3 years, and short time OA from intraday to 3 months

General Network Access (GNA)

Introduced in 2022, GNA stands for "open access" to the interstate communications network.
The idea of "one nation, one grid" remains intact by this. In terms of scheduling, the GNA as
a transmission service gives buyers and sellers of power more flexibility and the potential for
open access, subject to grid constraints, and does not experience the rigidity of the current
point-to-point open access mechanism.

GNA gives generators more flexibility by granting them open access rights without requiring
them to specify the injection point and drawl point, contrary to the current ISTS open access
system, which requires generators to identify a consumer before being granted open access.
(However, when applying for connectivity to the ISTS, the applicant must indicate the

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preferred point of connection with the ISTS along with the maximum quantum of power
proposed to be exchanged.)

2. Deviation Settlement Mechanism (DSM)

Any electricity demand-supply imbalance causes a deviation in grid frequency from the
standard value, which is set at 50 Hertz (Hz) in India. A significant decrease or increase in
frequency could result in a power outage. As a result, the Indian Electricity Grid Code
(IEGC) 2010 limits the operating frequency to 49.90 to 50.05 Hz. To keep the frequency
within the band, power distribution companies must accurately predict demand and schedule
supply.

Uncertainties in a large electricity system, such as that of UP, are inevitable. In 2021-22, UP
had the second-highest electricity requirement in the country and contributed 12.3 percent of
the national peak demand. In such a large-scale system, consumer behaviour or the tripping
of a transmission line can be hard to predict. Therefore, the use of ancillary services cannot
be avoided. However, it can be minimised if demand and generation are forecast as
accurately as possible and all suppliers or generators stick to their given schedules. The
DSM instils discipline on these two fronts through penalties and incentives. Grid operators
rely on ancillary services to maintain grid frequency and system security at all times, as well
as to restore system security in real time. As a result, ancillary services are inherently more
expensive than the energy that would otherwise flow.

Hence, the Central Electricity Regulatory Commission (CERC) notified DSM regulations in
2014 (referred to as DSM 2014). The charges, payable to or receivable by states, are managed
through a common DSM pool. This pool of money is used to procure the ancillary services
needed to balance the system.

For further readings of DSM please refer to below link

https://cercind.gov.in/Regulations/168_reg.pdf

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References

www.iexindia.com For, products available in power trading with price and quantity.

www.ptcindia.com For, how the Power trading mechanism is flowing.

www.posoco.in For, Regulatory Mechanism

www.cercind.gov.in For, Current Market scenario

www.hpxindia.com For, Products available and quantity trading.

www.powerexindia.in For, Products available and quantity trading.

www.sarepenergy.net For, Cross Border transaction of electricity in South Asia Region

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