Recent Trends in Power Trading

&
Power Market Development

Rakesh Kumar
PTC India Ltd.
Power Summit 2008, Kathmandu
24 September 2008
2
Indian Power Sector : Key Statistics

Indian power sector is the third largest in Asia after China and Japan

Installed Capacity: 1,45,588 MW (as on 31
st
March 2008)

Peak Demand: 108,866 MW

Demand Met : 90,793 MW

Peak Deficit: 16.6%

Energy Requirement : ~ 740 BU

Energy Availability: ~ 666 BU

Energy Deficit: 9.9%

The per capita electricity consumption for 2005-06 at 631^ kWh (CEA General
Review 2006), remains far below the world average of 2,429 kWh.

3
An Overview of Indian Power Sector (1)

Coal-dominated fuel mix:

Coal : 53%
Hydro : 25%
Gas : 10%
Renewable : 8%
Nuclear : 3%
Oil : 1%

Share of hydro declining in the generation mix

Unmet planned targets in generation capacity
addition
In last 3 Plan periods, target versus
achievement ~ 50%

11
th
Plan (2007-2012) Target: 78577 MW


4
An Overview of Indian Power Sector (2)


Regional Demand-Supply Deficit (2007-08)
Deficit
Northern Region: 9.1%
Western Region : 23.2%
Southern Region: 9.0%
Eastern Region: 11.0%
North-Eastern Region: 23.0%

Aims for Power to All by the year 2012
Domestic energy resources not adequate to meet
the total requirement

Need for diversification of energy resources and
regional cooperation - for energy security
5



Scene prior to introduction of power market
concept (1)

Monopoly Suppliers (SEBs, Private Licensees)
Generators (CGSs, IPPs and SEBs) with capacity fully tied up
Each SEB had an allocated share in a Central/ Jointly owned station
Price setting by Central/ State Governments SEBs hardly having any say
Entire sector developed on fixed rate return
Interplay of market forces remained non-existent
Utilities would back-down in case of low demand and resort to load
shedding in case of excess demand
Power as a resource for earning revenue did not exist in this cost based
regime

6
Scene prior to introduction of power market
concept (2)
Prior to power trading as a business concept:
power exchanges between the States/vertically
integrated utilities were characterized by:
Small , Intermittent volumes
Mostly in the nature of emergency support
Without any commercial arrangements
Non-payment or payment delays with resultant
disputes
The exchanges were further limited due to lack
of transmission inter-connections
Sustained shortages, both in energy and peak
demand, discouraged initiatives
Skepticism about success of trading was
widespread

7
Genesis of power trading in India
PTC was formed in 1999 as a Government of India initiative for development
of power market and incentivising market based investments to the Power
Sector, specially from the private sector:








Pioneer Role : Initiated development of short term power market and
introduced innovative products for customers
Efforts lead to beginning of sustained trading during 2000-01 (1.6 Billion
units ) and also optimum utilization of existing resources
Exponential growth established the viability of trading as a business concept
Facilitate development of Power Projects particularly through private
investment
Promote Power Trading to optimally utilize the existing resources
Develop power market for market based investments into the Indian Power
Sector
Promote exchange of power with neighbouring countries
8
Short & Medium Term transactions for peak/off-peak load balancing:
different products brought in the market
Duration of Transactions (Few hours to 3 years)
Hours of Supply
Round the Clock
Evening Peak / Morning Peak
Night Off Peak / After Noon Off Peak
As and When Available Power for balancing Scheduled Interchanges
Weekend / Holiday Power
Banking of Power

Introduction of New Products
Continuous
development of
new products as per
market requirements

9
PTC India Key achievements
Established the viability of concept
Power market can play key role in growth of sector
Credible intermediary
Payment Security Mechanism
Weekly billing to reduce credit risks
Right to divert in case of default
Relationship of trust, transparency
Comfort to developer of power projects by addressing market risks
Comfort to lender by addressing credit risks
A catalyst for private investment in the sector
10
Customer
Customer
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Customer
TRADER
Emerging Industry Structure
DISCOM
DISCOM DISCOM
GENCO GENCO GENCO
OPEN ACCESS : Distribution
OPEN ACCESS : Transmission
TRADER
11
EA 2003 and enabling provisions on Power Market
Electricity Act 2003
The intent and object of the EA 2003 is to develop power market through
increased competition, more players and protect consumer interests
Development of Power Market EA 2003, Section 66, The Appropriate
Commission shall endeavor to promote the development of power
market, guided by the National Electricity Policy
Suitable safeguards to prevent adverse effect on competition
Recognized Trading as a distinct activity
Definition under section(2) (47): Purchase of electricity for resale
thereof
Adequate and progressive provisions governing open access both :
to transmission networks (inter-state and intra-state) and
to distribution networks

12
National Electricity Policy on Power Market
National Electricity Policy 2005 Para 5.7
To promote market development, 15% of the new generating capacities, be
sold outside long term PPAs.
-As the power markets develop, it would be feasible to finance projects with
competitive generation costs outside the long term PPAs.this will increase the
depth of power markets.and in long run would lead to reduction in tariff

Ministry of Power
A progressive Merchant Power Policy with a view to add 15,000 MW
capacity by 2011-12
13
Power Trading Scenario In India
Inter-state trading licenses (25
Years validity) in the purview of
CERC
Twenty Six (26) Trading licenses
issued by CERC
Volume of bilateral exchanges is
still low (about 2.5% to 3% of
energy generation)
Total short term market
approximately 21 billion units* in
2007-08
* Includes cross- border
Trading Volumes (in MUs)
11029
11846
14188
15023
21301
0
5000
10000
15000
20000
25000
FY 04 FY 05 FY 06 FY 07 FY 08
14
Key Players and Market Share (2007-08)
Market Share 2007-08
46%
16%
6%
8%
7%
4%
12%
1%
PTC
NVVN
Adani
Tata Power
JSW
Reliance Energy
Lanco
Others
Trading
Licensees
Volumes (MU)
PTC # 9889
NVVN 3324
Adani 1322
Tata Power 1682
JSW 1479
Reliance Energy 776
Lanco 2600
Others 229
Total 21301
15

Increasing realization among utilities of power as a source for revenue earning
Improved PLF, particularly of State Power Utilities
An example: DVC - a rise of 5% in PLF
No backing down
Reduction in load shedding

Benefits of Trading (1)
Trading results in optimization of resource utilization
82
74
75
73
72
69
70
60
65
70
75
80
85
2001 2002 2003 2004 2005 2006 2007
16
Benefits of Trading (2)
The short term market has created value for power. There is a distinct shift
towards higher revenue realization
Price volume break up (%)
98
36
9
2
59
12
5
48
26
FY 05 FY 06 FY 07
Rs 1-3 Rs 3-4 Rs 4-5 Rs 5-6
Power as a resource for earning revenue did not exist
17

Encouraged IPPs to invest in generating assets- spurt in investment based on
competitive tariff due to widening demand supply gap
Market-based returns
No sovereign/government guarantee
Large merchant capacity is being funded
States Governments of Chhattisgarh, Jharkhand, Orissa, Himachal Pradesh, J&K,
Uttaranchal, etc. have recognized Power as Resource
Planned rapid capacity additions have devised policies to become Power Hubs
MoU with developers for Capacity addition
Jharkhand 9,110 MW
Chhattisgarh 30,000 MW
Orissa 17,000 MW
Tamil Nadu 10,000 MW

Benefits of Trading (3)
A paradigm shift from Cost plus return regime to market determined returns
18
Bilateral Electricity Trading with Bhutan
Salient Features:

Nodal agency for exchange of power with
Bhutan
PTC entered into long term power purchase
agreement with Department of Energy,
Bhutan
PTC purchasing surplus power on long term
basis from following three projects in Bhutan:
Chhukha HEP (336 MW)
Kurichhu HEP (60 MW)
Tala HEP (1020 MW)
Run-of the River Projects
4 Hours peaking


19
Indo-Bhutan Power Exchange
Year Energy
export to
India (MUs)
Revenue to
RGoB
(Nu. Million)
2003-04 1751 2691
2004-05 1735 2708
2005-06 1762 3452
2006-07 2963 5695
2007-08 5234 9778
20
Indo- Nepal Power Exchange

PTC - an active member of Indo-Nepal Power
Exchange Committee

Pursuing opportunities for short term and long term
trade in electricity for mutual benefits

Acting as facilitator for transmission inter-connection
between the two countries- Investment in
transmission capacity

Arranged 25 MW RTC power to NEA

Initialed PPA with SMEC West Seti for purchase of
750 MW power and MoU with Braspower for
purchase of 309 MW power from Arun III HEP

Proposing to facilitate formation and partner in a
company in Nepal for accelerating hydro power
development.
21
West Seti Project- Salient Features
West Seti HEP of 750 MW (5 Units of 150 MW)
is a reservoir type hydro project located in
western part of Nepal

Being developed by SMEC West Seti
Hydroelectric Power Corporation Ltd. as an
Export Project- financial closure expected
shortly

To generate average energy of 3300 GWh per
annum

Full off-take by PTC

Reservoir Capacity Equivalent to one full
month generation-which could provide peaking
power for about 8 Hrs at full capacity round the
year


Market values such power highly due to peaking support and flexibility !
22
Power Market Facilitating Private Investments

The market determined prices in the short term market has
encouraged IPPS and merchant generators to look at the sector with
renewed vigour and as an investment destination
An evidence of this is that PTC has entered into PPAs to procure long
term power with IPPS for more than 10,000 MW and / MoUs for
around 30,000 MW
Power market has in fact become a catalyst for private investment in
power sector
75,000 MW under development by IPPs without any Government
support
Rs. 40,000 to Rs. 45,000 Crores investment already committed
23
Power Market: Salient Features
The wholesale market for electricity in India is completely voluntary by
design - that none of the market participants are obliged to operate through
a restricted and compulsory market.
This is because the buyer is free to choose from any of the following options:
Long term PPA based mechanisms
Medium Term
Short term bilateral trades
Day ahead market (through the power exchange)
Real time mechanisms (UI)
Even the real time arrangements are completely voluntary, since the UI
mechanism permits frequency to float within a range, providing tremendous
flexibility to market participants.
Further, the rules regarding standards of supply are more liberal, permitting
greater flexibility to utilities on demand side response.
24
Current Status of Power Market
A fledgling, nascent market

Limited growth of volumes of short
term traded market due to
Overall deficit scenario
Limited number of active players and
resultant liquidity crunch
Transmission constraints/congestion

Rising cost of traded power: (The
average cost Rs. 4.50/kWh in 2007-08)
Due to overall shortage situation
(widening demand-supply gap)
Lack of capacity additions
Linkage with UI rates and
Rising fuel prices


1.90%
2.00%
2.10%
2.20%
2.30%
2.40%
2.50%
(%)
2003-04 2004-05 2005-06 2006-07 2007-08
(Period)
Volume of Electricity Traded by the Trading Licensees in Total
Generation (%)
25
Power Exchange : Some Interesting Trends
IEX commenced operation with effect from 28th June, 2008

The data up to 20th August, 2008 reflects that the average purchase
bids received (in MUs) are about four times the average sale bids
received (in MUs)

Even more interesting is that whatever is on offer by the sellers at
perceived high prices are not being accepted by the buyers and less
than 50% sales bid has actually been cleared by the market at market
clearing price.

This data, interalia, establishes without doubt that the buyers are
exercising their choice to procure prudently, keeping in mind
affordability and prudence-checks to voluntarily not off-take
power from sellers what they perceive as high cost.

Integrated Energy Policy:
26
Key Challenges

Market depth to be increased more players, regional participation
Open Access Implementation
New Segment of prospective participants
Industry
SEZs
HT consumers
Group Captives
Merchant generators

Sufficient transmission capacities required for a vibrant power
market
Government to initially support through viability gap funding


27
Power Market Development Next Steps
Main thrust of the Electricity Act 2003 is competition, and power market
development- it has many enabling provisions. Strict Implementation of EA
2003 enabling provisions is essential
Efforts are on to further deepen the market by introducing new trading
products, easing open access and trade through Power Exchange
1st National Level Power Exchange in India i.e., Indian Energy Exchange
(IEX) has become operational since June 2008
Power Exchange has started giving transparent signals on:
Price
Demand
Liquidity

New Products on anvil week ahead, fortnight- ahead, month-ahead, year
ahead etc

Regional Energy Cooperation
28
Integrated Energy Policy Projections

India - Installed Capacity
153
220
306
425
575
778
155
233
337
488
685
960
0
200
400
600
800
1000
1200
2006-07 2011-12 2016-17 2021-22 2026-27 2031-32
G
W
8% GDP Growth 9% GDP growth
Generation Mix 2031-32 (8% GDP growth)
24 BU
1%
401 BU
11%
375 BU
10%
2828 BU
78%
Hydro Nuclear Thermal RE
Source: Integrated Energy Policy Total 3628 BU
Generation Mix 2031-32 (8% GDP )
India Installed Capacity
29
Window of Opportunities
Nepal is rich in hydro potential
> 43000 MW techno-economic

Indian Power Market is a voluntary
market tariff competitiveness is key

Nepal Power Projects, due to moderate
transmission distance involved up to
load centers could be competitive

Integrated Energy Policy of India
encourages hydro power from Nepal

A huge market next door, waiting to be
tapped!
30
Power Market Ripple Effect
Power trading share is 2.5% of Indias total energy generated but
its indirect impact on the power sector is several times bigger
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