ENERGY SECTOR STRUCTURES, POLICIES AND REGULATIONS
POWER TRADING IN INDIA
Submitted by: Swetabh (P101039)
Prof. Anupam Sircar
Date: 14-Jan-2010 Background
Power trading inherently means a transaction where the price of power is negotiable and options exist about whom to trade with and for what quantum. In India, power trading is in an evolving stage and the volumes of exchange are not huge. All ultimate consumers of electricity are largely served by their respective State Electricity Boards or their successor entities, Power Departments, private licensees etc. and their relationship is primarily that of captive customers versus monopoly suppliers. In India, the generators of electricity like Central Generating Stations (CGSs), Independent Power Producers (IPPs) and State Electricity Boards (SEBs) have all their capacities tied up. Each SEB has an allocated share in central sector/ jointly owned projects and is expected to draw its share without much say about the price. In other words, the suppliers of electricity have little choice about whom to sell the power and the buyers have no choice about whom to purchase their power from. The pricing has primarily been fixed/controlled by the Central and State Governments. However, this is now being done by the Regulatory Commissions at the Centre and also in the States wherever they are already functional. Power generation/ transmission is highly capital intensive and the Fixed Charge component makes up a major part of tariff. India being a predominantly agrarian economy, power demand is seasonal, weather sensitive and there exists substantial difference in demand of power during different hours of the day with variations during peak hours and off peak hours. Further, the geographical spread of India is very large and different parts of the country face different types of climate and different types of loads. Power demand during the rainy seasons is low in the States of Karnataka and Andhra Pradesh and high in Delhi and Punjab. Whereas many of the States face high demand during evening peak hours, cities like Mumbai face high demand during office hours. The Eastern Region has a significant surplus round the clock, and even normally power deficit states with very low agricultural loads like Delhi have surpluses at night. This situation indicates enough opportunities for trading of power. This would improve utilization of existing capacities and reduce the average cost of power to power utilities and consumers. In view of high fixed charges, average tariff becomes sensitive to PLF. Trading of power from surplus State Utilities to deficit ones, through marginal investment in removing grid constraints, could help in deferring or reducing investment for additional generation capacity, in increasing PLF and reducing average cost of energy. Over and above this, the Scheduled exchange of power will increase and un-scheduled exchange will reduce bringing in grid discipline, a familiar problem. Market Development
In the legal framework before enactment of the new Act, the development of market in power was highly constrained as the industry structure was horizontally and vertically integrated. The electricity supply to a customer is through a chain of monopolies earlier regulated by the Government and now by the Regulatory commission. With the new Act, a liberalized market structure is sought to be provided. A customer has a number of choices to get his power. The generators can also compete among themselves for distribution companies/individual customers. There is a provision for surcharge to meet current level of cross subsidy, if a consumer opts to get electricity directly from generator or any source other than his own distribution license and has been allowed open access by the Regulator. However, there is no surcharge when Distribution Company buys power from a generator directly. There is also a provision for bilateral...
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