The power sector in India has undergone significant transformation in recent years, with a focus on the development and integration of power markets. Thanks to dynamic leadership and a mission-driven approach, the Government of India has realised its vision of establishing a deep, integrated and expanded power market. The regulatory regime has been instrumental in supporting this development, recognising the needs of market participants. The introduction of the over-the-counter (OTC) platform has been a key component in achieving these goals.
Built on the “Staff paper on developing a common trading platform for electricity”, prepared by the Central Electricity Regulatory Commission (CERC), our power markets are unique and tailored to our requirements, our structure and our grids. The recent report from the Ministry of Power on the “Development of Electricity Markets in India”, not only sets a progressive path for the markets, but also covers the broad spectrum of areas crucial for a deep, well reported, technology-driven power and energy market in the country.
The period until 2008 witnessed the development of electricity “trading” in bilateral and multilateral modes, resulting in the creation of an electricity market. The various attributes of electricity, such as place of delivery, time of delivery and period of delivery, were established. The market grew to accommodate almost 10 per cent of the electricity generated in the country. Recognising the need for a “spot market”, the power exchanges were introduced.
During the past decade, while the market has grown in absolute terms, short-term volumes seem to be stagnated at around 11 per cent of the generation.
- Collective transactions: The accompanying tables highlight that in FY 2023, collective transactions in the day-ahead market (DAM) have reduced to levels seen in 2019-20. Even after accounting for the real-time market (RTM) and the green day-ahead market (G-DAM) volumes, this segment appears to be stagnating. Meanwhile, RTM volumes have demonstrated an impressive growth and GDAM appears to be gaining traction.
- Non-collective transactions: The bilateral transactions on the exchange are on the rise and account for about 20 per cent of the total exchange volumes. The growth in volumes in the OTC market has surpassed the growth in exchanges volumes.
As the prices of electricity have increased, the relative share of collective and non-collective transactions has reached its pre-pandemic equilibrium.
The Indian power sector requires digital solutions for addressing the challenges and growing needs. The OTC market must allow direct interaction between buyers and sellers to provide more choices, electronic access and value to smaller participants.
In the Power Market Regulations 2021, the CERC promoted the idea of a neutral OTC platform to facilitate direct interaction between buyers and sellers, reduce the information asymmetry in the OTC market, facilitate data-driven decision-making, serve as a data repository and provide advanced analytics tools to market participants.
The core idea behind an OTC platform is to bring transparency and innovation in the OTC markets through digital technology and services. Bilateral trading needs to move to screen-based facility. Further, it needs to evolve from being a market with disaggregated information and high transaction costs (in terms of margins, time taken and risk management) to an aggregated information, low transaction cost market. Participants need power procurement options that provide flexibility in contract structures. Further, renewable energy generators will need such a platform since renewable energy is mostly generated at a smaller scale.
The OTC platform will fill an important gap in the current power market design (energy only market) and provide a transparent, integrated and well-functioning framework, along with other market infrastructure institutions.