Dynamic Trade

Success of the real-time market in managing demand-supply variations

Rohit Bajaj, Senior Vice-President and Head, Business Development and Shruti Bhatia, Head, Corporate Communications, Indian Energy Exchange

The power exchange-based spot market has proven to be a game changer for generators, power utilities and industrial consumers since its inception in 2008, by enabling the trade of power in a transparent manner with market-determined competitive prices. To further enable market participants to capitalise on the benefits of spot markets, especially close to the real time, the Central Regulatory Electricity Commission (CERC) allowed the power exchanges to commence a real-time electricity market (RTM) from June 1, 2020, in the wake of the Covid-19 pandemic and the consequent lockdowns.

In June 2021, the real-time electricity market successfully completed one year. It has indeed been the most dynamic market segment featuring half-hourly auctions through the day and through the year. There are 48 RTM auction sessions on the exchange during the day with the delivery of power starting one hour after gate closure of the bid session. Since its launch, the market has greatly helped in managing the power demand-supply variation and has played a key role in facilitating 24×7 power demand-supply balancing aspirations in the most flexible, efficient and dynamic manner.

Robust first-year performance metrics

The response from market participants has been quite encouraging since the launch of the real-time electricity market on June 1, 2020. The Indian Energy Exchange (IEX) has over 99 per cent market share in the market segment and has achieved a cumulative trade of 12,378 MUs during its first year at a very competitive average price of Rs 2.83 per unit. The market crossed the trade volume of 10,000 MUs even before completing one year in April 21. In fact, the average power price in the RTM is as competitive as, and in tandem with, the day-ahead market (DAM), which is an indication of the fact that the market is liquid enough and has attained a maturity like DAM within a span of one year of its introduction on the exchange.

The continuously growing volume in the RTM shows its acceptance by distribution utilities and industrial consumers as the go-to platform for addressing the real-time electricity demand-supply balance in the most competitive and efficient manner. The key buyers on the platform are distribution utilities of Jammu & Kashmir, Telangana, Rajasthan, Andhra Pradesh and West Bengal, whereas key sellers include NLC, and utilities of Madhya Pradesh, Odisha, West Bengal, Uttar Pradesh and Karnataka. The major industries participating in the market are the metals, cement, textiles and chemical industries from states such as Gujarat, Maharashtra, Andhra Pradesh, Uttar Pradesh, Bihar and Odisha.

Strengthening grid security and helping utilities reduce DSM penalty

Until the commencement of the real-time electricity market, the financially stressed distribution utilities had no option but to resort to the deviation settlement mechanism (DSM) for balancing real-time requirements, resulting in huge financial penalties for them, or to go for load shedding, which is increasingly becoming unacceptable among consumers. With the RTM, utilities have been able to avoid paying high deviation settlement charges, increase the reliability of supply and successfully lower their overall cost of procurement, resulting in financial liquidity and savings. The increased participation in the market has led to the gradual reduction of additional deviation in case of overdrawals and underdrawals. Thus, DSM tightening through the RTM strengthens the case for the RTM as a part of active portfolio planning for buyers and sellers.

Generation companies also have an opportunity to sell any excess or un-requisitioned capacity on a round-the-clock basis through this market to a wide set of buyers, thus enabling efficient use of the installed generation capacity. Generation companies can now buy power from the RTM to meet their supply commitments in the event of forced outages. There have been more than 25 such instances when generators have used this market for meeting their commitments.

Moreover, as several states have renewable energy concentrated in select areas, utilities as well as system operators in these states face a huge challenge in managing their deficit and surplus power requirements. The RTM is helping these utilities and system operators to forecast and schedule green energy in an integrated manner, thereby supporting the national green energy aspirations of making India a sustainable energy economy. The market supports grid operators in enhancing their overall grid safety and security by managing renewable energy intermittency in an efficient manner. Rajasthan, Gujarat, Karnataka, Telangana and other renewables-rich states have been using the RTM to manage their renewable power intermittency.

RTM supported utilities in balancing their power demand and supply during the recent cyclone Tauktae Distribution utilities, generation companies and large open access consumers are the key beneficiaries of this market as it gives them greater flexibility for the optimal utilisation of resources in intra-day trading by procuring power just an hour before delivery. With a vibrant and liquid RTM in operation, utilities now have access to structured market auctions throughout the day, where the price is discovered competitively, liquidity is robust, and flexibility of procurement in 15-minute time blocks is available.

Cyclone Tauktae wreaked havoc in Gujarat, affecting the electricity infrastructure of over 10,000 villages. There was so much uncertainty that forecasting demand on a day-ahead basis was next to impossible for the state utilities. Due to the availability of a real-time electricity market, the state was able to reliably procure a significant quantum market of electricity as compared to the day-ahead market, harmonise demand-supply balancing, and supply power to its consumers in an efficient manner. For instance, on the delivery date, May 19, 2021, when the cyclone disturbance struck the western coast of the country, the IEX RTM traded 72 MUs – the highest daily volume recorded since the inception of the market. The market saw sell bids at 2.2x of cleared volume and discovered a competitive average price of Rs 1.95 per unit on the bank of high sell-side liquidity. The market accounted for a 2.3 per cent share in the total daily energy consumption of 3,150 MUs. In the absence of a real-time electricity market, the cyclone-affected states such as Gujarat and Maharashtra will have to choose between DSM overdrawal/ underdrawal and load shedding.

The way forward

The National Electricity Plan 2021 reiterates the Government of India’s vision of affordable and uninterrupted Power for All on a 24×7 basis. It is aligned to the fact that not only does electricity enable industrial and economic growth, but it also helps raise the overall human development index. This has never been more profound than today, as we are facing unprecedented times due to the Covid-19 pandemic and extreme climate events such as cyclones because of global warming.

The commencement of the real-time electricity market at the IEX has not only helped find buyers for unrequisitioned surplus generation capacity, but has also facilitated generators to purchase power to fulfil obligations created due to outages. Going forward, the RTM has great potential to make the power market even more dynamic through the reduction of the RTM gate closure time from 1 hour to 30 minutes. There will be more flexibility for buyers and sellers to manage their demand-supply variability much closer to real time. With more market participants realising its benefits, the RTM is expected to play a pivotal role in reducing the dependence of utilities on DSM as an avenue to meet their power supply requirements, strengthening grid safety and security, achieving aspirations related to large-scale renewable energy capacity integration, and further deepening the energy markets in India.

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