CERC staff paper bats for innovation in power trading business

Bundling & unbundling of trading contracts will help provide customised energy solutions

In a bid to further promote development of power market, the Central Electricity Regulatory Commission's (CERC) staff discussion paper has made a pitch for allowing a more liberal interpretation of trading margin applied on short term transactions undertaken by traders and to incentivize traders to innovate in trading business for the larger interest of the markets and the consumers.

The staff paper, which is uploaded on CERC's website seeking feedback from various stake holders, has proposed that a trader be allowed to buy electricity from different generators or sellers at different prices and sell it to a single distribution company (discom) or buyer at one price. Besides, the trader could be allowed to buy electricity from a single generator at one price and sell it to multiple buyers (discom, industrial consumer ) at different prices.

Citing the section 66 of the Electricity Act, 20003 which mandates that the Appopriate Commission shall endavour the development of a market (including trading) in power, the staff paper said allowing aggregation (bundling) and disaggregation (unbundling) of contracts by traders will provide the traders a way to innovate by creating various kinds of products which serve the needs of the buyers and sellers and provide customized energy solutions.

Maharashtra Electricity Regulatory Commission's former member and Indian Energy Exchange's former MD & CEO Jayant Deo welcomed these proposals made in the CERC's staff paper. However, he told Business Standard ''CERC staff paper does not focus on market development. The generation capacity has more than doubled during last five years whereas the short term market has increased only by 50%, and is almost stagnant for last three years. There is a need to make equitable distribution of transmission capacity particularly for short term market. There is a need to remove scheduling and ABT metering for below 10 MW consumers, as per model regulations of FOR.''

Further, MG Raoot, MD & CEO Power Exchange India Ltd said CERC staff paper highlighting the new methodology of deciding the margin for power traders (through aggregation and disaggregation) appears to be lucrative to boost the trading in the power sector and ensure optimal utilization of resources. '' Our power market is an evolving power market. In order to get the perfection in the marketing mechanism we need to constantly explore various methodology and market designs duely supported by regulatory framework,'' he added.

According to the staff paper, with aggregation and disaggregation more customized solutions (combine Round the Clock Contract with Peak to provide "load following contract", combine longer duration contract with seasonal contract) will be possible. Hence the discoms will be able to balance their demand - supply portfolio better and cost effectively, thus follow their load curve more closely, reduce their procurement cost and hence reduce load shedding.

Furthermore, aggregation will help in promoting open access for industrial customers. Traders would be able to buy electricity from a large generator and aggregate a cluster of open access customers to sell the purchased electricity. This way traders will act as a link between wholesale market and retail market. Besides, An arrangement can be created where trader is able to enter into bilateral contracts by aggregating housing societies (where diesel generators are used to supply back up electricity in case of electricity cuts by discoms) to supply electricity in bulk by buying it from various sellers.

Moreover, aggregation and disaggregation can be used by the traders to bundle intermittent renewable electricity with conventional electricity sources and hence provide a new opportunity to renewable generators for selling firm renewable energy directly in the market. Traders can bundle generation from different fuel types gas based generation and hydro based generation. This will help in mixing high cost electricity with electricity from cheaper sources like hydro plants, and this bundled electricity can be sold at moderated prices.