19 Mar, 2020
Redesigning real time electricity markets in India
2 mins read | CEF Explains

Context 

Electricity, once generated, has to be consumed instantaneously, which means that dispatch needs to balance the demand and supply in real-time1. The electricity market has been designed around this principle of grid security and cost-efficiency.

A discom typically prepares power procurement plans for long (>7 years), medium (3 months to 5 years) and short-term (up to 3 months in advance) timelines. However, for actual dispatch, discoms plan procurement a day in advance – based on demand and generation expectations for every 15-minute time blocks of the day. This is referred to as day-ahead scheduling. Despite the above, the dynamic nature of the grid (particularly due to unpredictable demand and intermittent renewable generation) creates uncertainty making it difficult to balance the grid. As the time block of dispatch approaches, these imbalances are met through real-time markets, that are broadly divided into three segments.

These segments and their associated challenges are described below.

  1. Deviation settlement mechanism (DSM) and ancillary services2: DSM and ancillary services are mechanisms used to handle last mile demand-supply imbalances. But, instances of these mechanisms being used for a duration much beyond their real-time use have been observed, especially of ancillary services. This is due to the lack of a clear demarcation between day-ahead and real-time markets through gate closure (a system where the gate for a schedule revision closes at a fixed time before actual delivery and the system operator takes over and schedules ancillary services). This has led to a passive dependence of discoms on these market mechanisms to balance demand and supply in real time and thus poor load and RE generation forecasting.
  2. Intra-day markets: Intra-day markets include intra-day contingency bilateral transactions (between discoms and gencos) and intra-day market segment of power exchanges (where discoms and gencos bid supply and offtake offers to match real time demand and supply). Low market volumes across these, particularly owing to a market design issue of continuous trading versus a uniform clearing price-based auction for the power exchange intra-day market.
  3. Re-scheduling: Lack of sanctity of day-ahead schedule has been observed due to right to recall (where generators and discoms can revise their schedules an hour ahead of actual delivery). In addition, absence of gate also contributes to the same.

In 2018, the Central Electricity Regulatory Commission (CERC) published a discussion paper, Re-designing the Real-Time electricity markets in India. The paper proposes an hourly real-time market with a clear demarcation between energy trade and system imbalance handling. This is expected to lead to greater efficiency in price discovery and increased market depth through an auction-based uniform clearing price3. The real-time markets with shorter bidding time, faster scheduling, and defined processes (e.g. gate closure) are expected to lower the power purchase costs. It is expected that real-time markets will lead to efficient power procurement planning, scheduling, dispatch, and imbalance handling.

The redesigned real-time markets are expected to be rolled out in FY 2020-21. Following infographic summarises key elements of the new real-time markets.

Relevance and impact

Real-time electricity markets are expected to help different stakeholders in mitigating the variability and uncertainty due to increased share of renewables in the grid. It is also expected to increase the efficiency of the power purchase portfolio management as:

  • Certainty in the sector increases by the introduction of gate closure and faster bidding mechanism
  • Enabling access to a larger pool of power generators with surplus reserves
  • Discoms, like generators, can also sell their un-requisitioned power and gain additional revenue (50% of gains realised)

Who should care

  • Distribution companies
  • Power generators
  • Power system operators (load despatch centres)
  • Central and state regulatory commissions

This CEF Explains is part of the series of articles published in collaboration with NTPC School of business.


References

  • [1] Electricity is consumed instantaneously unless stored, but energy storage is yet to achieve viability at scale.
  • [2] Balancing refers to the situation after markets have closed, in which a system operator acts to ensure that demand is equal to supply, in and near real time, while maintaining grid frequency at its nominal value and ensuring grid security. To encourage individual participants to provide these services, ancillary services are procured by system operators through a regulatory mechanism or through markets.
  • [3] It has generally been seen across various stock exchanges, derivatives exchanges and forex markets, that auction-based trading leads to higher volumes and efficient price discovery. On the other hand, continuous trading gives market participants more flexibility.

Disclaimer

CEF Analysis” is a product of the CEEW Centre for Energy Finance, explaining real-time market developments based on publicly available data and engagements with market participants. By their very nature, these pieces are not peer-reviewed. CEEW-CEF and CEEW assume no legal responsibility or financial liability for the omissions, errors, and inaccuracies in the analysis.
Filled under: Policy & Regulation , Power Markets
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