POWER TRADING

Shilpi Mukherjee

Introduction
In economic terms, electricity is a commodity capable of being bought, sold and traded. As defined in Electricity Act 2003, Trading means purchase of electricity for resale thereof and the expression "trade" shall be construed accordingly. Trading is a licensed and regulated business as per Electricity Act 2003 CERC notifies procedures, terms and conditions

for power trading

Evolution of Power Market

India being predominantly agrarian economy,

some states experience seasonal surpluses of power while some face deficit. Interstate Transmission became need of the hour. RLDCs were formed to facilitate such transfer of electricity. Contracts were mostly of long duration i.e. 25 yrs or more.

Evolution of Power Market

To meet short term demand the states

resorted to trading of power through bilateral trading agreements. States resorted to energy banking where in surplus state would supply energy to a deficit state and in deficit situation vice versa. But when both the states were deficit it gave rise to complications.

Benefits provided by power exchanges

Common platform for trade of electricity
Transparent mechanism of price discovery Meeting peak demand Overall Demand Optimization

Benefits provided by power exchanges

No need to search for buyers and sellers, thus

eliminates search cost. Sell / Buy all across the nation. No need to negotiate for the prices unlike in Bilateral Contracts. Power exchanges act as counterparty, thus a participant need not to assess the risk profile of the other participant

Services provided by traders

Facilitation to reduce geographical, seasonal

and daily gap between demand and supply thereby encouraging optimum use of existing assets. Assured physical delivery based on available transmission corridors.

PROVISIONS IN THE ELECTRICITY ACT 2003 FOR POWER TRADING

Sectio

PROVISION

n
2(26) "electricity trader" means a person who has been granted a license to undertake trading in electricity under section 12;

2(71)

"trading" means purchase of electricity for resale thereof and the

expression trade shall be construed accordingly;

12

No person shall a) transmit electricity; or b) distribute electricity; or c) undertake trading in electricity, unless he is authorized to do so by a license issued under section 14, or is exempt under section 13:

14

Provided also that a distribution licensee shall not require a license to undertake trading in electricity.

26,27, Provided Regional & State Load Dispatch Centre shall not engage in 31 the business in trading of electricity. 38(1) 39(1) 41 Provided Central Transmission Utility shall not engage in the business in trading of electricity. Provided State Transmission Utility shall not engage in the business in trading of electricity. Provided also that no transmission licensee shall enter into any contract

or otherwise engage in the business of trading in electricity.

79(1)(j) The Central Commission shall discharge the following functions, namely: to fix the trading margin in the inter-State trading of electricity, if considered, necessary 86(1)(j) The State Commission shall discharge the following functions, namely: fix the trading margin in the intra-state trading of electricity, if considered, necessary;

Features Of Electricity Act 2003 Facilitating Power Trading

With enactment of the Electricity Act 2003 the potential of trading would increase further on account of the reasons stated below. The key features of the Act likely to facilitate power trading are Mandatory and non-discriminatory open access De-licensing of generation Specific provisions for trading of power and market evolution Emphasis on non-conventional energy trading STU's not allowed to trade in power Phasing out of surcharge/cross-subsidy both on open access and on retail tariffs

Customers for Power Exchanges

Suppliers: State/ Private Utilities,

CPPs/IPPs/MPPs, Renewable Sources Buyers: State/ Private Utilities, Direct Open Access Customers (Industrial and Commercial Consumers)

Collective Transaction
Exchange is a platform on which buyers and

sellers gather to trade in a commodity. The buyer does not come to know who the seller is and the seller does not come to know who the buyer is. The buyers and sellers remain anonymous to each other, so that the bigger players will not be in a position to influence the smaller players. In this a there will a level playing field for all the participants.

Price and Volume Determination in an exchange-

ILLUSTRATION OF CLOSED AUCTION BIDDING

PARTICIPATING SELLERS Sl No 1 2 3 4 5 6 Seller S1 S2 S3 S4 S5 S6 Sale Bid 50 MW at Rs 5,500 10 MW at Rs 6,000 40 MW at Rs 7,000 50 MW at Rs 8000 50 MW at Rs 9,000 50 MW at Rs 10,000

ILLUSTRATION OF CLOSED AUCTION BIDDING

PARTICIPATING BUYERS Sl No 1 2 3 4 5 6 7 Buyer B1 B2 B3 B4 B5 B6 B7 Purchase Bid 10 MW at Rs 10,000 40 MW at Rs 9,000 50 MW at Rs 8,000 25 MW at Rs 8,000 25 MW at Rs 7000 50 MW at Rs 6000 50 MW at Rs 5,500

MCP :Rs 8000/MWh Volume: 125 MW Selected Buyers : B1,B2,B3,B4 The Buyers Trade Selected Sellers Matched Sellers : S1,S2,S3,S4 (partial)
10 MW @ Rs 6,000 50 MW @ Rs 5,500 40 MW @ Rs 7,000 50 MW @ Rs 8,000 50 MW @ Rs 9,000 50 MW @ Rs 10,000

S1

S2

S3

S4

S5

S6

B1

B2
40 MW @ Rs 9,000

B3
50 MW @ Rs 8,0a00

B4
25 MW @ Rs
8,000

B5

25 MW @ Rs
7,000

B6
50 MW @ Rs 6,000

B7
50 MW @ Rs 5,500

10 MW @ Rs 10,000

125

SELECTED SELLERS AND BUYERS

SUCCESSFUL SELLERS Sl No 1 2 3 Seller S1 S2 S3 Cleared quantum 50 MW at Rs 8,000 10 MW at Rs 8,000 40 MW at Rs 8,000

S4
SUCCESSFUL BUYERS

25 MW at Rs 8,000

Sl No

Buyer

Cleared quantum

1 2
3 4

B1 B2
B3 B4

10 MW at Rs 8,000 40 MW at Rs 8,000
50 MW at Rs 8,000 25 MW at Rs 8,000

Conditions for Trading

Multi buyer and seller model Responsiveness of demand and supply to

prices. Equal access to essential facilities like transmission and distribution. Efficient marketplaces.

Factors affecting electricity prices

Effect of Demand on Price Effect of ATC & Congestion on prices Effect of external factors on prices Effect of UI charges on prices Effect of holidays on prices Effect of Weather on Prices

Categories of Traders
Sr. No Category of the Trading License Volume of Electricity proposed to be traded in a year No limit Net Worth (Rs. in Cr)

Category I

50.00

Category II

Not more than 1500 Million units

15.00

Category III

Not more than 500 Million units Not more than 100 Million units

5.00

Category III

1.00

Electricity Market Segments

Short-term market (8%)

Long-term market (92%)

Central Sector generation
Pvt Sector Generation State Sector generation

37 %

45 %

9%
5% 4%
UI

Short-term Market
(39 %)
IEX (5%)

UI market Bilateral+IEX trading market

Bilateral Market (56%)

Direct Trading
Through Traders

13 %

43%

Effect of Demand on Price

More is the demand, More is the price
40000

20.00

Sale Bids

35000

30000

Max MCP(Rs/unit)
15.00 25000

Rs/unit

Purchase Bids

MWh
20000

10.00 15000

10000 5.00 5000

0.00

01-08 May

09-15 May

16-23 May

24-31 May

01-08 Jun

09-15 Jun

16-23 Jun

24-30 Jun

Source: IEX

Max MCP(Rs)

Av MCP(Rs)

Purchase Bid

Sale Bid

MCV(Mwh)

Growth In Short Term Market

Growth in Short Term Market
10500
No of Transactions (Unit)

35000 30000 25000 20000 15000 10000 5000 0 FY 04-05 FY 05-06 FY 06-07 Year No of Transactions (Unit) Approved Energy (MUs) FY 07-08 Upto Oct'08
Approved Energy (MUs)

9000 7500 6000 4500 3000 1500 0

Thank You