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Enactment of the Electricity Act 2003 introduced the Indian Power Sector to a relatively new domain of managing the supply-generation balance and trading in electricity. By identifying electricity trade as a distinct activity, Electricity Act 2003, along with pursuant regulations from the Central and State Electricity Regulatory Commissions paved the way for a paradigm shift in the power sector. The Open Access Regulations opened avenues for more active participation from the private sector as well in this vibrant market segment.

The Indian Electricity Market

State Utilities / Distribution Licensees are the bulk purchasers since they have an obligation to supply electricity to the consumers. Most of the bulk supplies are through long term Power Purchase Agreements (PPAs) with State Generating Companies, Central Generating Companies and Independent Power Producers (IPPs) etc. This is supplemented by short term bilateral contracts, directly or through traders. UI (Unscheduled Interchange), a mechanism of real time settlement, is also used as a tool for real time purchase / sale of power to a limited extent.

Post 2003 Act, Power market is far more vibrant and dynamic. Opening of market has facilitated entry of power traders and power exchanges who have given it new dimension for adjustment of purchase / sale in line with the time-of-day demand and exigencies of weather condition, unscheduled outages etc. Traders have introduced variety of products that provide flexibility to the distribution licensees, IPPs, CPPs etc. to select the quantum and hours of supply and to schedule the peaking facilities to their financial advantage. These developments have also helped in commercialization of power market by differentiation in tariff according to demand-supply position. Starting 2008, power exchanges have further augmented the flexibility for purchase / sale on hourly basis for the day-ahead and other value added products.

Renewable energy obligation and Renewable Energy Certificates (REC) are the latest additions to the power market.

Opening of Power Market and Freedom to Market Participants

Unbundling of SEBs followed by opening of market through the Electricity Act, 2003 and Open Access Regulations has attracted many players that offers ample scope for power trading. Under the new regime, the generators and consumers have many options.

As per the Electricity Act, 2003, open access refers to ‘non-discriminatory access to the transmission lines or distribution system or associated facilities of the transmission / distribution licensee by any licensee or consumer or Genco, in accordance with the relevant Regulations and orders’. This provides freedom to generators, distribution licensees and consumers as also facilitates competition in power supply and provides variety of options.

Hence, open access regulations, de-licensing of generation, unbundling and recognition of power trading as a distinct licensed activity provides adequate platform for power trading in India and pulling enormous volume. Power Exchange, once a far fetched thought, is also progressing fast, not to mention Renewable Energy Contracts is a reality and is traded activity on exchanges.

The Transition

The deregulated electricity market offers new avenues for power suppliers, licensees, exchanges, consumers etc. Historically, the suppliers have been bound to the power that they themselves have produced, or to long-term bilateral supply contracts. Since the dawning of the new Act, the electricity trading has emerged as important component of the Indian power sector, essential for overall resource optimization. Power Trading through Traders and Exchanges has already reached to about 3% and 2% of total power generation but it could still be said to be in infant stage and we could look ahead for miles to go.