CERC proposes month-ahead contracts on power exchanges

To address the issue of uncertainty in getting power on exchanges on a daily basis, an advisory committee of the Central Electricity Regulatory Commission (CERC) today proposed introduction of monthly contracts on the exchanges.

At present, monthly contracts through the traders are done at much higher prices, compared to prices discovered on the Indian Energy Exchange (IEX) and the Power Exchange India (PXI). If the trade is made within 11 days of the start of delivery, then those contracts are called ‘spot contracts’ that will be regulated by CERC and not by the Forward Markets Commission (FMC).

These 11 days would be extended to 30 days as proposed in the Bill to amend the Forward Contracts Regulation Act.

The committee, which comprises power exchanges, distribution companies, load despatch centres and consumer representatives, was unanimous in today’s meeting on the proposal to launch month-ahead monthly delivery contracts on the exchanges.

The month-ahead monthly delivery contracts would be regional contracts traded a month in advance and for a delivery period of one month.

Currently, IEX and PXI have launched contracts in intra-day, day-ahead, month-ahead and weekly ahead markets.

The scheduling of power would be similar to the bilateral transactions scheduling. The price discovery methodology for these could be open or closed auction, or continuous trading. This would be decided based on the expected liquidity in such contracts.

“IEX and PXI are unable to get adequate weekly-ahead contracts. CERC will try to remove impediments so that these contracts will be traded on exchanges. Similarly, the advisory committee proposed launching month-ahead monthly delivery contracts. This is being considered, especially when volume is increasing and there is a stabilisation in electricity prices. This is one of the many such products that can be introduced in future,” CERC Chairman Pramod Deo told Business Standard.

A managing director of a state distribution company, who did not want to be quoted, said distribution companies were demanding contracts for a longer duration and well in advance. The introduction of month-ahead contracts would help distribution companies in planning their procurement more efficiently.

“The introduction of the month-ahead contract will be very useful for the direct consumers having more than one megawatt load. The consumers can now plan for the whole month to ride over load-shedding in their states,” IEX CEO and Managing Director Jayant Deo said.