Role of Power Traders in enhancing market dynamics Date: 08 th March 2011 Sunil Agrawal (Head GMR Energy Trading) & Tanmay Pramanik (Assoc. Mgr GMR Energy Trading)
Evolution of Power Trading business Internationally Reforms in power sector started in 1990s in various countries like Norway, California, UK, South Africa, America & Northern American countries. During evolution of electricity market, developing a common platform for trade was required to organize fair and efficient competition for development on long run basis. Trading to facilitate in efficient utilization of generation & transmission assets and to provide a transparent mechanism of price discovery. Innovative methods of price discovery were brought for market development. New Regulations were brought to govern Electricity market world wide. System operators were given independence and authorized for grid security. Electricity trading is essential for meeting peak demand and overall resource optimization.
Traders and their paraphernalia of services in India Framework: - As defined in Electricity Act 2003, trading means purchase of electricity for resale thereof and the expression "trade" shall be construed accordingly. Central Electricity Regulatory Commission (CERC) has notified Procedure, Terms & Conditions for grant of Trading License and other related matters Regulations, 2009, dated 16.2.2009. As on 31 st March 2010, the Commission has awarded 45 trading licenses In this evolving Indian electricity framework, the grid code is being updated every 2 years while the transmission and scheduling procedure have been updated almost every year to accommodate the market dynamics and pace up development. For progressive development of the sector, the transmission pricing is being rationalized from simple & practicable method to precise and more accurate method. To increase the participation, the category of traders have been increased from three to four depending upon the volume of trade for an year ranging from 100 MUs to no limit.
Traders and their paraphernalia of services (Cont.) Services provided by traders: - Facilitating to reduce geographical, seasonal & daily gap between demand and supply thereby encouraging sweating of existing assets. Three months to week ahead forward contracts are available with assured physical delivery based on available transmission corridors. Customers Suppliers: - State/Private Utilities, CPPs/IPPs/MPPs, Renewable Sources Buyers: - State/Private Utilities, Direct Open Access Customers (Industrial & Commercial Consumers) Short term/ medium term bilateral contracts Bilateral power trading contracts between generators, traders and customers for duration 15 min to 3 year Co-ordination with various intervening agencies e.g. Central & State Transmission Utility, Load Despatch Centers and regulators. Payment security mechanisms as per contract Portfolio Management (Collective scheduling/sale of CPP power of States) Contract Management
Traders and their paraphernalia of services (Cont.) Long Term Bilateral Contracts Bilateral power trading contracts between generators, traders and customers for duration 12 years to 25 years based on standard guidelines from Ministry of Power (MoP) or concerned Regulator (Central or State) for mutual benefit of both trader and the customer Minimize off-take risks with the right mix of power sale in long/ medium/ short term Contract Management Power Exchanges Two power exchanges viz. Indian Energy Exchange (IEX) and Power Exchange of India(PXI) are already operational, while the third exchange i.e., National Power Exchange (NPEX) is approved by regulators and is in the pipeline. Trading of Electricity through Power exchanges for sellers as well as buyers on day ahead market/ term ahead market (Currently weekly contracts) Financial settlement with customers and exchanges
Capacity Enhancement and preparedness of power traders 45% Total Trade Vs. Annual Growth (%) 6.00% 900 Total Generation Vs. Volume Traded 45.00 40% 35% 30% 25% 20% 15% 10% 5% 0% 20% 2.12% 2.16% 2.45% 7% 0% 2.41% 6% 40% 3.15% 3.70% 24% 5.12% 33.40% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 800 700 600 500 400 300 200 100 0 519 11.00 548 11.84 578 14.16 624 15.04 666 20.98 702 25.97 764 39.12 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 % of Trading to Total Gen. Annual Growth in Volume Trade Linear (Annual Growth in Volume Trade) Total Generation (BU's) Volume Traded ( BU's) Linear (Volume Traded ( BU's)) Total Inter Regional Transmission capacity as on Nov 2010 stands at 22400 MW. Over drawl volume from all five grids is around 3.0 % while purchase of power through short term trade is around 5.0% of total generation.
Traders preparedness in increasing width and depth in the market (Cont.) Consumer Oriented : - Creating awareness of cost to customer by hand holding of small generators and open access consumers regarding regulatory framework, procedural requirement, electricity requirement and market dynamics. Creating awareness among buyers and sellers to mitigate their volume and price risks (market volatility) by portfolio management by mixing long term, medium and short term supply Creating commercial viability of R&M activities at old plants Portfolio aggregator with large number of diversified buyers and sellers in the markets. OA consumer with capacity of 1 MW and above. Buyer and Sellers ranging from DISCOMS to Small industrial consumers/cpps/ipps Facilitating energy contracts along with transmission corridor booking on behalf of clients Providing comfort to sellers of electricity by providing counter party credit guarantee In near future, traders would be ready for standby supply arrangement at short notice.
Traders preparedness in increasing width and depth in the market (Cont.) Market Oriented : - Role of Power Traders in enhancing market dynamics Participating in the market by portfolio management of the tradable capacity with them Mitigating buyers / sellers risks though presently the trading margins are capped Supply agreements with Buyers/Sellers (bilateral contract) on long and medium term basis (this segment is yet to grow). Facilitating financial closure of the project by bankers. Stabilizing short term volatility of present market prices by long term tie-up. Trader can play a role of forward market operator (presently forward contracts are limited to three months of assured physical deliveries due to limited spare transmission capacity. Ready to trade associated items of electricity such as Renewable Energy Certificate (REC) trades Other tradable instruments (provided adequate spare transmission capacity is available) Emergency assistance / standby power (diesel / naphtha / liquid fuel based generators). Black Start support & Spinning Reserves Purchase financial transmission rights to hedge the risk of transmission congestion
Across the world all power markets are developing and so does Indian. A comparative table stating the development of Indian electricity market. Power Trading region Exchange Name Electricity Reform Start Operation of Exchange Participating Region / Area Market segments Products Available for trade Norwegian NPS (Nord Pool) Pennsylvania-New Jersey- Maryland PJM (Pennsylvania-New Jersey-Maryland) UK Power Market APX-ENDEX Indian IEX and PXIL 1991 1927 2001 (NETA) 2003 1993 1993 1999 2008 Finland Pennsylvania United Kingdom Eastern India Denmark New Jersey Netherlands North Eastern India Norway Maryland Northern India Belgium Sweden District of Columbia Southern India 1. Elspot Market (Day 1. Day Ahead Energy Ahead) Market 1. Day Ahead market 1. Day Ahead (DAM) 2. Elbas Market (Intra Day) 2. Real Time Energy 2. Spot 2. Term Ahead (TAM) 3. Day Ahead Scheduling 3. Financial 3. Prompt 3. Renewable Energy Reserve Market Certificate (REC) 4. Financial Transmission 4. Forward Market 4. Future Markets Rights (FTR) 1. Hourly Day Ahead 1. Hourly Day ahead 1. Day Ahead 1. Day Ahead 2. Flexible Day Ahead 2. Base, Peak, & Off- 2. Intra day Contingency Peak 2. Spot trade 3. Intraday Hourly 3. Industrial, Extended 3. Day Ahead Peak & Off-Peak Contingency 4. Intraday across borders 3. Financial Transmission 4. Intraday & Strips 4. Daily 5. Contract for Difference Rights (FTR) 5. Monthly & Quarterly 5. Week Ahead Base
Cont. Power Trading region Norwegian Pennsylvania-New Jersey-Maryland UK Power Market Indian System Operator Transmission System Operators (TSO) Regional Transmission Organization (RTO) National Grid (NGC) Power System Operation Corporation Ltd. (POSOCO) Auction type Continuous Price Setting Mechanism (Implicit & Explicit Auction) Reliability Pricing Model One side bid Double Sided Blind Auction Closed Double sided Auction (DAM) Continuous Auction (TAM) Uniform Price Step Auction (TAM) Call Auction (TAM) Market Clearing Mechanism Market Price Formation Locational Marginal pricing principle System Marginal price and Capacity payment Hourly Aggregate Demand & Supply matching Financial Transmission Rights (FTR) No. Participants / Portfolios Balancing Mechanism No. of Years of Exchange Operation Not Traded Available Not Traded Not Traded More than 338 More than 500 More than 340 More than 600 Balancing Power with TSO Market Based Regulation Balancing Services with GB Transmission System Unscheduled Interchange (UI) balancing with POSOCO 17 17 11 2
Thank You Contact us: Tanmay Pramanik (Assoc. Mgr GMR Energy Trading) Email: - Tanmay.Pramanik@gmrgroup.in Mob: - +919741399394 Sunil Agrawal (Head GMR Energy Trading) Email : - Sunil.Agrawal@gmrgroup.in Mob: - +919008302168