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Electricity Act, 2003: Marking the era of competition?. Rajesh K Mediratta Director (B.D.), IEX. In this presentation. Elements of Competition in EA 2003 Spot Power market - Status Open access- Status 10-year EA Score Card. Essentials of Competition EAct,2003. - PowerPoint PPT Presentation
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Electricity Act, 2003: Marking the era of
competition?
Rajesh K MedirattaDirector (B.D.), IEX
In this presentation
• Elements of Competition in EA 2003• Spot Power market - Status • Open access- Status • 10-year EA Score Card
Essentials of Competition EAct,2003
Key Elements COMPETITION
Objectives
1.Privatisation To create incentives for improved performancePreventers: Political will
2, Unbundling Separate competitive businesses from regulated business. Prevent cross-subsidisationCompetitive suppliers should be able to access T&D in non-discriminatory manner
3. Competitive Generation
Adequate number of generators to be competitive
4, Non-discriminatory Open Access
•No barriers to flow of power on ecoonomic principles without any regard to ownership of transmission
Essentials of Competition EAct,2003
Key Elements COMPETITION
Objective
5. Voluntary Spot Wholesale Market
•Support near real-time managing systems• Allocates scarce generation/transmission resources• Discovers price• Competitive and Transparent Trades• Facilitate economic trading opportunities among buyers and sellers
6. Independent Regulatory Framework
Technically sound with understanding physics and financial sides of power sector. Neutral and unbiased.Objectives decisionmaking.
7. Independent System Operator
SLDC Ringfencing - Separation from all market elements
8. Trading as distinct Activity
• Traders should facilitate economic transactions between generators and consumers. • Act as aggregators
Spot Wholesale market – Status
Electricity Act enabled competition in the sector
Intent of the Act was to promote competition by “freeing” all possible avenues of procurement and sale of power:
• Delicensing of generation• Promoting Captive Generation• Promoting open and non-discriminatory access to
transmission and distribution system (OPEN ACCESS)• Development of Power Market
• Section 66 of the Electricity Act 2003 gives powers to the regulatory commissions to develop the power market including trading
Transition to Wholesale Spot Market
Source: CERC MMC Monthly Reports FY 2012-13
Contribution of Exchanges vis-à-vis total generation
Key statistics: Electricity & REC Market
77%
16 States I 5 UTs
467
>3 million RECsHighest: 3,09,892 RECs
ELECTRICITY REC
97%
27 States I 5 UTs
191
>70,000 MWhHighest : 101,000 MWh
12651900+
IEX Data as on 30th June, 2013
Growth in Volumes & Participation
Increasing Consumers participation
IEX Data as on 30th June, 2013
Key milestones achieved by the exchange
2009 May:100
Participants
2009 Sep: Term-Ahead Market
Launched
2011 Mar REC Market Launched
2009 Aug: 1st
registered Industrial Consumer
2010 May: 100
Consumers
2010 Aug: 1000 MUs Monthly Vol50MU highest daily Vol
2011 May: 1000 +
Participants
2012 Oct: 2000 MU+ Monthly
Volume, 1300 participants,
90 MUs Highest daily trade
2013 June: 2000+ Consumers & 2600+ participants
Spot Market- Wish list
Non-discriminatory Open Access – Status
Status of Open Access
State-wise Open Access Consumers at IEX(As on 30th June 2013)
State-wise OA Consumers at IEXToday almost 2000 plus consumers are availing OA through IEX
State-wise Participation at IEX
OA status in India…is it really open?Northern Region
States Buy Sell
Haryana
Punjab
Rajasthan
HP
J&K
Uttaranchal
Delhi & U.P.
East & North Eastern RegionStates Buy Sell
Assam & Bihar
Manipur & Mizoram
Tripura & Sikkim
Jharkhand
Arunachal Pradesh
Meghalaya
Orissa
West Bengal
Western RegionStates Buy Sell
Madhya Pradesh
DNH & DD-UT
Gujarat
Chhattisgarh
Maharashtra
Southern Region
States Buy Sell
Andhra Pradesh
Karnataka
Tamil Nadu
Kerala
Apr 22, 2023
Barriers to Open Access: Act or its implementation?
• Restrictive Open access regulations across states: Punjab: High wheeling charges are deterrent to OA Haryana: Notification for only RTC & peak hour procurement Tamilnadu: Section 11 West Bengal: Very high OA charges; CSS not determined in consistence
with mechanism in NTP 2006 Maharashtra/UP/Jharkhand/Delhi/ East& NE: Resistance by utility
Open Access: Prevented and denied
Enablers for facilitating implementation of Open Access
•Strengthen Sec 11, 37, 108 to remove ambiguity and facilitate OA
•Sec 11: OA to generators restricted by state government by citing extraordinary circumstances•Sec 37: State governments can direct LDC to restrict power sale outside state in lieu of maintaining smooth and stable supply•Sec 108: Directions of state government will prevail where public interest is involved
•Sec 42(4) : Define uniform methodology of determination of additional surcharge
Strengthen EA 2003 by expanding, restricting and/or clarifying scope under certain statues concerning OA
Legislative Open Access Charges Operational
•Sec 42 (2) :“….Provided also that such surcharge and cross subsidies shall be progressively reduced in the manner as may be specified by the State Commission…”
•Tariff Policy 8.3.2: Tariff to be +/-20% of cost of supply by 2010-11
•NEP, 2005 Sec 5.8.3: “…..the amount of surcharge and additional surcharge levied from consumers who are permitted open access should not become so onerous that it eliminates competition…….”
Implement existing statutes in EA 2003 and NTP 2006
Legislative Open Access Charges Operational
Enablers for facilitating implementation of Open Access
• Equip SLDCs• Use revenue accrued to SLDC from OA consumers for Infrastructure
development, automation, capacity and capability building. 100 OA consumers imply a yearly revenue of appx Rs 9 crores to SLDC• Leverage technology solutions and automate processes for NOC issuance,
energy scheduling and energy settlement• IEX has introduced SLDC interface to help manage NOCs of customers in the
state of Punjab and Tamil Nadu. The same can be adopted for other states
• Open Access Registry (OAR) • OAR will bring in transparency and facilitate faster transactions using automatic
rule-based open access clearance while removing manual discretions
Legislative Open Access Charges Operational
Enablers for facilitating implementation of Open Access
Open Access Wish list
Implementing open access in its true spirit:Promoting retail competition
The concept of Open Access rests on the premise that electric energy as a product can be separated from transmission as a service
• Separate ‘content’ and ‘carriage’ business– SERC to segregate charges in terms of energy charge, network
charge (including wheeling, transmission and regional transmission charges, as applicable) and surcharges and insist Discoms to reflect these charges in their consumer bills.
Competition Score CardEAct,2003
Key Elements COMPETITION SCORE (/10)
Way Forward
1.Privatisation 2 Implement Delhi Model of privatisation through PPP with corrections
2, Unbundling 3 Separate transmission from two competitive elements
3. Competitive Generation 8 Competitive Bidding has brought competitive generation. Cautious approach for SBD.
4, Non-discriminatory Open Access
5 •Achieved Partial open access to some extent•Full open access can only come with separation of carriage/content
Competition Score CardEAct,2003
Key Elements COMPETITION SCORE (/10)
Way Forward
5. Voluntary Spot Wholesale Market
8 • Better intra-day markets- Reduce time from trade to delivery• Forward Market- delivery based
6. Independent Regulatory Framework
8 Broader role beyond tariff setting
7. Independent System Operation
4 SLDC ringfencing to be achieved.
8. Trading identified activity 6 • Fair large no. of traders. But still most of the trading back-to-back. • Retailer model to develop
THANK YOU
Suggestions to realize full Open Access
1. Bundled ‘supply’ and ‘wires’ in Electricity Supply
– Licensee has a natural monopoly of the infrastructure i.e. ‘wires’. He discourages
consumer to switch and also does not provide better quality power i.e. ‘content’.
– Consumer apprehends poor network availability when he switches to third
party. This double whammy seriously affects the ability of the consumer to avail
alternative supply.
Solution: Separation of ‘supply’ from ‘wires’ business of a distribution licensee. Initially
‘accounting separation’ followed by ‘financial separation’ may be specified.
• Additionally, minimum service conditions of distribution licensee may be defined by
State Commission for open access consumer and serious penalties be specified for
non-compliance.
IEX Market SegmentsDelivery-based Contracts… CERC regulated
Day-Ahead Marketsince June,08
Closed , Double-sided Auction 10-12 am biddingEach 15-min block , 0.1 MW min NOC required
Term-Ahead Marketsince Sep,09
Day-Ahead Contingency – Another window 3-5pm
Intra-Day - for rolling evening peak hours
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for Next 2 weeks
Renewable Energy Certificatessince Feb,11
Next… Energy Saving Certificates
Green Attributes as CertificatesSellers : RE generators not under feed in tariffsBuyers: Obligated entities1MWh equivalent to 1 REC
Auction Continuous
Wish List• Default Supplier
– Consumers should have a way of getting supply in case remote supplier fails. – Every consumer can be assigned a default supplier.– Ceiling tariff may be fixed by State commission for supply with provision of negotiation.
• Ceiling tariff for OA consumer category– Most serious apprehension observed from large consumer is threat of ‘high tariff’ by incumbent
supplier. – This concern can be managed by providing in the Regulations, a provision to this effect.
• Service condition of Distribution Licensee– Minimum service conditions of distribution licensee for open access consumer can be defined by
SERC and serious penalties be specified for non-compliance. • Separation of ‘retail’ and ‘wires’ function
– The process of first separating ‘retail’ from ‘wires’ business of a distribution licensee must start immediately. Initially ‘accounting separation’ followed by ‘financial separation’ may be specified.
• Method for cross Subsidy surcharge– Uniform methodology as per TP.
Status of Open Access• Before Electricity Act
– Transmission planning based on Generating capacity addition– Central Sector shared plants added generating capacities and
CTU(POWERGRID) added transmission network (SUPERGrid)– At State-level, Vertically integrated utility added generating and
transmission capacities based on load growth.– CPPs could access grid by paying transmission charges– For usage of transmission grid by third parties, mutually agrees
charges payable. – Very few trading transactions
• Transmission rights exercised by Utilities having long-term BPTA with POWERGRID
Electricity Act 2003• Generation de-licensed. Multiple dist. Licenses.• Transmission utility at central level to continue with
responsibility of coordinated planning of trans network.• Private companies can take up transmission• Open access: Any Genco/Discom/Consumer can access
transmission system without discrimination, subject to transmission availability. Pay regulated transmission charges to Transco (wheeling charge and surcharge)
• Open access to distribution in phases. • Power trading recognized as activity.• Transco cannot undertake trading.• Captive generation encouraged. No regulated charge except
wheeling and surcharge.
Changing Structure: Emerging Structure - Post EA 03
Competitive, Flexible Structure enabling Choice to Consumer
DistributionLicensee 1
GeneratingCompanies
OwnGeneration
DistributionLicensee 2
Captive GenerationFacilities
Power Traders would also be involved in some of the transactions
Distribution Network (Gradual Open Access)
Own Distribution System
Transmission Network (Immediate Open Access)
36
Scene prior to introduction of Power Trading
• 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
37
Scene prior to introduction of Power Trading (2)
• Prior to power trading as a business concept: power transfers between the States/vertically integrated utilities were characterized by: – Small , Intermittent volumes– Mostly in the nature of emergency support– Without any commercial arrangements– Non-payment or payment delays with resultant disputes
• The exchanges were further limited due to lack of transmission inter-connections
• Sustained shortages, both in energy and peak demand, discouraged initiatives
• Skepticism about success of trading was widespread
38
Genesis of power trading in India
• PTC was formed in 1999 as a Government of India initiative for development of power market and incentivising market based investments to the Power Sector, specially from the private sector:
• Electricity Act,2003 recognised TRADING as licensed activity.
Facilitate development of Power Projects particularly through private investment Promote Power Trading to optimally utilize the existing resources Develop power market for market based investments into the Indian Power Sector Promote exchange of power with neighbouring countries
39
• Short & Medium Term transactions for peak/off-peak load balancing:
• Duration of Transactions (Few hours to 3 years)
• Hours of Supply
• Round the Clock
• Evening Peak / Morning Peak
• Night Off Peak / After Noon Off Peak
• “As and When Available” Power for balancing Scheduled Interchanges
• “Weekend / Holiday Power”
• Banking of Power
Typical Market Transactions ….
40
Power Trader – Key Success Determinants
• Credible intermediary • Payment Security Mechanism• Weekly billing to reduce credit risks• Right to divert in case of default• Relationship of trust, transparency
• Comfort to developer of power projects –by addressing market risks• Comfort to lender – by addressing credit risks• A catalyst for private investment in the sector
Strengthening the Act
• Consumer, according to the Electricity Act, 2003 can be supplied electricity for his own use by a licensee or the Government or any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force.
• Further Section 12 authorises any person to transmit, supply, etc. electricity only if he procures a license under Section 14. Therefore, either a trader can act as a retail supplier by combining its role as a franchisee, as defined in Section 2(27) as “person authorized by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply”.
• Such arrangement, however, can at best be an interim arrangement. • The Act needs to be amended to create “Retail Electricity Supplier” as a
separate licensee
42
Impact of Electricity Trading
• Optimization of existing energy resources
• Encouraging commercial outlook in the sector
• Encouraging cross-border exchange of power
• Catalyzing investment into the Power sector, mainly from the private sector
43
Market Trends
• A new category of Trading Licensee introduced/net worth criteria eased
– Entry barrier reduced, may lead to more players/competition
– Strict market monitoring to ensure against market abuse
• Industrial segment is increasingly using PX to procure power
– More than 875 participants
• Volumes and depth increasing slowly
• Higher liquidity will give right pricing signals
• New longer duration contracts on PX on the anvil, weekly term ahead picking up
• PX showing rapid growth, bi-lateral through trader on decline
• Regulations simplified to enable intermittent RE power such as wind
• Renewable Energy Certificates being introduced-will help in meeting RPO
– Thrust on RE, particularly Solar power
• Transmission pricing based on point of connection tariff- expected to help in growth of power market
• The Electricity Act defines Open Access as “non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulation specified by the Appropriate Commission”
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