On February 6, 2024, the Central Electricity Regulatory Commission (CERC) issued a suo moto order directing Grid India to implement a shadow pilot model for the coupling of power markets. The proposed shadow pilot seeks to couple three markets on the power exchanges – the real-time market (RTM) of the three power exchanges, separately coupling the RTM with security constrained economic despatch (SCED), and coupling the day-ahead market (DAM) of the three power exchanges. This pilot is expected to help in evaluating the operational, market and regulatory consequences prior to undertaking a full-scale implementation, which has been a major subject of discussion in both the policy and regulatory spheres in recent months.
To recall, the Ministry of Power (MoP), in a June 2023 letter, emphasised the importance of market coupling for the overall development of the power market. Additionally, the Report of the Group on Development of Electricity Market in India, 2023, constituted by the MoP, highlighted the need to evaluate the feasibility of price coupling by the CERC/MoP in order to ensure a uniform price discovery for the implementation of reforms such as the MBED. In August 2023, the CERC issued the “Staff Paper on Market Coupling” to initiate discussions with market participants and other stakeholders on the various issues and challenges involved in the implementation of coupling among the power exchanges.
Details of the shadow pilot
As per the order, Grid Controller of India Limited (Grid India) will run this shadow pilot model, adhering to the procedures/practices followed for RTM, SCED and DAM after market hours. The results of the pilot run are not expected to have any effect on the price and volume discovery in the actual RTM and DAM, nor on the final schedule and settlement for any entity during the trial period.
Grid-India will collaborate with power exchanges to develop operational procedures, such as bid sharing, market price discovery and schedule revisions. The Power exchanges will provide Grid-India with actual bid data daily, ensuring reliable communication links.
Within two months, Grid-India will develop the necessary software for the pilot, aggregating bids for coupling RTM, RTM with SCED, and DAM. The pilot will run for four months, with Grid-India providing monthly reports to the CERC, detailing bid volume, clearing price, economic surplus and other relevant observations. Additionally, Grid-India will maintain data on installed capacity, variable cost, and market requisitions throughout the pilot, with feedback reports published for stakeholder awareness. The feedback report will also be published on its website for stakeholder awareness.
CERC’s market coupling simulations
The CERC staff paper on market coupling received an overwhelming response, with a total of 127 stakeholders submitting their comments and suggestions. After carefully examining their suggestions, the commission recognised the need for more evidence-based results to make decisions on the potential benefits that coupling may bring to market participants and the power system as a whole. Accordingly, the CERC staff carried out several simulations using bid data from power exchanges.
For the analysis, bid data from Indian Energy Exchange Limited and Power Exchange India Limited for the RTM for 40 days in 2022-23 was considered. This data included bids, both cleared and uncleared, that were available on both trading platforms. The analysis for the DAM pertained to the months of January, February and March 2023.
As per the simulations, the findings revealed that market coupling facilitated the clearing of uncleared buy and sell offers, especially in the RTM, resulting in an increase in economic surplus. Additionally, instances where the coupled market clearing price (MCP) fell below the uncoupled MCP on the dominant exchange led to an overall increase in consumer surplus. Although the increase in economic surplus in both the RTM and DAM was modest, market coupling showed promise in enhancing efficiency and consumer welfare by enabling the clearing of unmatched bids and reducing volatility in the MCP.
The simulations for coupling in the DAM and RTM suggest that while uncleared bids may clear in a coupled scenario, the overall gains in volume and economic surplus might not be significant. Although peak time blocks show an increase in economic surplus, the longer-term gains remain negligible. The impact on the MCP and volatility varies depending on demand and supply curve elasticity, indicating that merely coupling the bids of all power exchanges may not substantially enhance market outcomes under the current dominant market structure.
One of the suggestions outlined in the staff paper was to couple the RTM with the SCED for efficient despatch and cost optimisation. The CERC staff conducted a simulation exercise integrating the RTM and SCED data (utilising the actual data from the RTM and SCED) to assess the benefits of such an optimisation model, revealing several insights.
Coupling the RTM and SCED involved aggregating demand and supply curves, leading to volume movements in both directions. When SCED generators with lower variable costs replaced higher-cost RTM suppliers, it reduced the MCP but contributed to increased SCED savings. Conversely, when low-cost RTM suppliers replaced high-cost SCED generators, the MCP increased, yet SCED savings still rose due to reimbursement from high-cost generators. This interchange between market segments demonstrated potential for cost optimisation and savings enhancement.
The simulation results showed that the savings pool totalled approximately
Rs 8.5 million, surpassing the estimated savings from SCED (Rs 14.3 million) for the day. Instances of SCED generators replacing power exchange sellers outnumbered instances of the reverse. The simulations also demonstrated a maximum increase in the cleared volume of approximately 1,100 MW. Furthermore, there was a notable 5 per cent reduction in the price variation range, a decline of approximately 10 per cent in price cap hits, and the average coupled MCP was Re 0.422 per kWh lower than the average MCP of the dominant exchange.
After examining the simulation results, the CERC acknowledges the potential benefits of implementing an optimisation model by coupling the RTM with the SCED. Despite their current differences, both the RTM and SCED share the common goal of optimising the power system. With generation capacities currently fragmented across exchanges and SCED mechanisms, there exists an opportunity to better utilise existing assets to meet demand more effectively. The CERC believes that coupling the RTM with the SCED has the potential to harness unutilised generation, address unmet demand, and lead to significant cost optimisation, thereby enhancing market depth and ensuring system reliability, as demonstrated in the simulation results.
Next steps
While the shadow pilot is currently focused on the optimisation of the power system and cost in the RTM, SCED and DAM, Grid-India has also been tasked with assessing the feasibility of coupling the DAM and the security constrained unit commitment (SCUC). Though the SCUC has already been provided for in the Indian Electricity Grid Code, 2023, it is yet to be implemented. It is expected that the SCUC will be rolled out shortly after the CERC’s approval. Hence, the CERC is looking to explore the possibility of coupling DAM and SCUC once the SCUC is operationalised.
For now, at the end of the four-month period based on insights gained from the shadow pilot, the CERC will decide on creating the necessary regulatory frameworks for market coupling.
Aastha Sharma