An Overview of India’s Current Power Market Structure PTC India Ltd. Kathmandu, Nepal August 2008
Overview of Indian Power Situation Indian power sector is the third largest in Asia after China and Japan 9% energy shortage and 15% peak demand shortage Unmet planned targets in generation capacity addition In last 3 Plan periods, target versus achievement ~ 50% Share of hydro declining in the generation mix 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 2
Installed Capacity and Mix 31.03.2007 Total Installed Capacity: 132330 MW 3
Historical Perspective of Power Market 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 4
Emerging Industry Structure Generation GENCO GENCO GENCO TRADER Transmission OPEN ACCESS : Transmission DISCOM DISCOM DISCOM CRITICAL ISSUE Distribution OPEN ACCESS : Distribution It is still Evolving . TRADER Customer Customer Customer 5
What is Electricity Trading?? Trading as per Electricity Act 2003 is defined as “Purchase of electricity for resale thereof”. Short Term Trading of Electricity Power system in india developed on state/regional basis. Eastern/ North Eastern /Northern /Southern /Western region. Surplus Power in Eastern and North Eastern region almost through out the year. Southern region is surplus for some part of the year at least in off peak hours, Western Region is surplus during monsoon period. Deficit in other regions Seasonal surpluses exist in almost all regions Due to demand diversity, possibility of short-term trading 6
Power Trading Scenario In India Trading as per EA 2003 is a licensed activity Inter-state trading licenses (25 Traded Volumes (in MUs) Years validity) in the purview of CERC 16000 15023 15000 Twenty Six (26) Trading licenses 14188 14000 issued by CERC 13000 Volume of exchanges is very 12000 11846 low (about 3% of energy 11029 11000 generation) 10000 FY 04 FY 05 FY 06 FY 07 Total short term market approximately 21 billion units in 2007-08 7
Key Players and Market Share (2006-07) Trading Market Share 2006-07 Volumes (MU) Licensees PTC # 9538 PTC 4% 1% 5% NVVN 2663 NVVN 5% 7% Adani 1844 Adani Tata Power 1206 Tata Power JSW 967 JSW 53% 10% Reliance Energy 878 Reliance Energy Lanco 744 15% Lanco Others 143 Others Total 17983 # Including Cross Border Trade Volumes – 3 BUs 8
EA 2003 and National Policy on Power Market EA 2003 Recognized Trading as a distinct activity Development of Power Market – Electricity Act 2003, Section 66, “The Appropriate Commission shall endeavor to promote the development of power market…”, guided by the National Electricity Policy National Electricity Policy 2005 – Para 5.7 “ To promote market development, a part of the new generating capacities, say 15% may 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 ” 9
Introduction of New Products • Short & Medium Term transactions for peak/off-peak load balancing: different products brought in the market • Duration of Transactions (Few hours to 3 years) Continuous • Hours of Supply development of • Round the Clock new products as per • Evening Peak / Morning Peak market requirements • Night Off Peak / After Noon Off Peak • “As and When Available” Power for balancing Scheduled Interchanges • “Weekend / Holiday Power” • Banking of Power Continuously evolve innovative products for short term market e.g. HP Model – � Portfolio Management Other States/Utilities adopting this Model: Chattishgarh, NDMC, WB, J&K � 10
Benefits of Trading (1) 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 85 82 • Reduction in load shedding 80 Rapid capacity build-up 75 75 72 74 73 70 70 69 65 60 2001 2002 2003 2004 2005 2006 2007 All this results in optimization of resource utilization 11
Benefits of Trading (2) The short term market has created “value” for power. There is a distinct shift towards higher revenue realization Traded volumes are rising (3% of total energy generation in the country) Price volume break up (%) 98 59 48 36 26 12 9 5 2 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 12
Benefits of Trading (3) • 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 + A paradigm shift from Cost plus return regime to “market determined returns” 13
Current Status and Issues A fledgling, nascent market – needs to be nurtured Limited growth of volumes of short term traded market due to Overall deficit scenario Limited number of active players Liquidity crunch During the initial phase of growth and deepening process, market has to undergo: Pains Distortions Abuses 14
Challenges Market depth to be increased Power Exchange Open Access Implementation New Segment of prospective participants need to be included in this market such as � Industry � HT consumers � Group Captives � Merchant generators Capacity building of manpower- much needs to be done Limited transmission corridor, transmission pricing issue-pan-caking 15
Steps to overcome the challenges Reform in power sector to continue (unbundling of SEBs, Intra-state ABT ) thereby providing easy access to all segments in the sector High traded volumes in power exchange Real open access ( target up to 1 MW by January 2009 – Industry, SEZ, Malls etc.) Accelerated generation capacity addition More Participants Price signal Liquidity New Products – week ahead, fortnight- ahead, month-ahead, year ahead etc Sufficient transmission capacities required for a vibrant power market Government to initially support through ‘viability gap funding’ Direct bi-laterals and PX to co-exist to serve the power market well 16
Cross Border Power Trade PTC India Ltd Kathmandu August 2008
Cross Border Trading Govt of India has nominated PTC as a Nodal agency for exchange of power with Bhutan and Nepal PTC enters into contracts with the concerned organizations in the neighboring countries on commercial basis PTC also co-ordinates with Central Transmission Utility, generating companies and state utilities in India, which are bulk customers of power PTC is supportive of cooperation in regional energy trade in terms of optimizing the installed capacity by way of utilizing the diversity in peak demand, sharing the spinning reserve, optimizing the overall generation mix as also addressing energy security issues. 18
Indo-Bhutan Power Exchange PTC purchasing surplus power from following three projects in Bhutan: • Chhukha HEP • Kurichhu HEP • Tala HEP An illustrative case: 1020 MW Tala Hydro-Electric Project Agreement signed between the two Governments on 5 th March 1996 Validity of PPA : 35 years The Agreement provides for: • Surplus power i.e. all the power over & above that required for use in Bhutan shall be sold to Government of India (GOI) and GOI is committed to purchase all the surplus power • Initial tariff determined based on mutually agreed terms and conditions • The tariff to be reviewed at the end of each 3 year period 19
Tala Project: Salient Features Installed Capacity: 6X170 MW (1020 MW) Allocation of power (85% of 1020 MW) is as under: Run of the River Scheme West Bengal : 45% Bihar : 30% Peaking Power Availability: 4 Hrs Jharkhand :13.48% DVC :6.52% Annual Energy Injection: 3962 MUs Orissa :5% 15% unallocated share is being given to Transmission Interconnection: 400 NR States in India kV( Two Double Ckts.) 20
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