The Indian power sector is undergoing a rapid change in terms of generation, transmission and consumption . The market dynamics have never changed this fast at any time in the past. The country has witnessed 20 per cent CAGR in renewable generation since FY16 while total electricity generation saw 4.3 per cent growth in the same period, indicating that the increase in generation from renewable energy sources has been much higher than the increase from other conventional sources.
India is now the 4th largest in terms of installed RE capacity (>150 GW) and has set a target of 500 GW of green energy capacity by 2030. This capacity addition is the result of favourable measures undertaken by policy and regulatory bodies. These include well-defined RPO (renewable purchase obligation) trajectories at State and Central levels, incentives, exemption of intra- and inter-state transmission and wheeling charges, waivers of cross-subsidy and additional surcharges in the captive/group captive regime, favorable banking periods, etc.
Banking facilities offered to renewable projects by the RE rich States have helped integrate the intermittent renewable capacities into the grid, primarily for industrial and commercial consumers who are looking to meet their green goals (voluntary and otherwise). The requirement of banking emerges because of the temporal difference between customers’ demand curves and seasonally (daily) variable renewable energy generation.
The distribution companies of these RE rich States act as a huge source and sink depending on the requirement, and the banked energy and its drawl are accounted for by adjustments on monthly or annual basis for a small charge to be paid to these Discoms.
Viable alternative
With the increasing share of renewable energy and the related system complexities along with commercial and technical issues, many States have proposed to reduce the banking periods or discontinue the facility altogether. For example, Karnataka, in August 2020, issued a proposal to discontinue banking to solar, mini-hydel and wind projects.
When seen from the point of view of financial repercussions, banking adversely impacts the ability of the distribution utilities to utilise the energy markets, thus resulting in opportunity loss for Discoms and leading to high power purchase cost which is ultimately and necessarily passed on to the consumers.
For instance, the Tamil Nadu Discom (TANGEDCO) has presented loss of around ₹1,905 crore per annum due to banking. Most of the Discoms in the country are already under severe financial stress and provisions such as banking are only adding to their burden.
Despite the ability of the Discoms to act as resource centre to balance the grid, there is an obvious reluctance to offer banking services mainly due to commercial reasons. Since renewable energy is intermittent and has been granted a “must run status “, it complicates the function of the system operator to run the grid within stipulated parameters.
There have been instances where Discoms have been forced to back down their cheaper generation sources to accommodate the RE injection and purchase costlier power from the market to return the banked power. Therefore, it becomes evident that the time has now come to substitute banking arrangements with innovative alternative market-based solutions.
India’s power market has proven that market-based solutions are of immense value to the buyers and sellers, facilitating competitive, transparent and flexible power procurement with a certainty of scheduled and time-bound payments.
The Real Time Market (RTM) commenced operations in June 2020, Green Term Ahead Market (GTAM) in August 2020 and Green Day Ahead Market (GDAM) in October 2021. The new market segments have together achieved 29 billion units (BU) since June 2020, representing around 20 per cent of total volume of 145 BU traded during the same period on the exchange. The RTM (real-time market) alone has achieved trade of over 24 BU of volume since inception.
Green market
In 2020, the trading of delivery based solar and non-solar energy started on the exchange under contracts such as intra-day, day-ahead contingency, daily and weekly which paved the way for GTAM in the country. A total volume of around 4.3 BU has been traded in the market since inception on the exchange with competitive price discovery.
For FY22, the average price for solar and non-solar power in the market stands at ₹3.69 per unit and ₹4.41 per unit, respectively. In a bid to further provide competitiveness in renewable price discovery and facilitate green market penetration, the GDAM was introduced in October 2021. The conventional power and GDAM now operate in an integrated manner.
The exchange seeks bid for both conventional and renewable energy at the same time through distinct windows and separate price formation takes place. Within three months of operations, GDAM has so far traded 350 million units of electricity. The GTAM and GDAM segments have received excellent response from the participants as more and more utilities and C&I (commercial and industrial) consumers are now participating in the green market to meet their energy needs thus meeting their RPO requirements in an integrated, flexible and cost–effective manner.
Since the commencement of the green market — GTAM and GDAM — a cumulative volume of around 4.8 billion units has already been traded.
Way forward
The electricity and green market now provide diverse spectrum of market-based products and contracts. Discoms have access to real-time exchange discovered prices to take optimal buy-sell decisions. The green captive producers can avail themselves of open access and sell power through markets when their generation is more than own consumption instead of banking power with the utility.
Similarly, they can buy from the market in periods of need to meet their demand. State utilities have a significant role to play here and must encourage the captive producers and consumers to participate in the pan-India market for meeting their energy requirements. Further, the introduction of new green market segments such as the long-duration green contracts and Contracts for Difference (CfD) will play a key role in ensuring that all the renewable energy generated within the country is dispatched in the most efficient manner.
Market-based models such as the CfD mechanism can be used for trading and scheduling of power at the exchange at market prices with guaranteed revenue to the generator. Further, the growing share of renewable energy in the energy mix underlines the relevance and importance of the power markets more than ever before.
The writer is Former Secretary, Ministry of New and Renewable Energy, Government of India