The Central Electricity Regulatory Commission (CERC) recently issued a suo moto order to power exchanges,
driven by growing concerns over price deviations and potential market manipulation in certain short-term electricity contracts. This regulatory action was prompted by persistent and significant price divergence between day-ahead contingency (DAC) contracts and the day-ahead market (DAM) since around October 2023. The significant price deviations in DAC contracts, compared to the DAM, raised red flags among stakeholders and the Ministry of Power. They feared that DAC contracts, which were originally designed to address last-minute grid imbalances, were evolving into parallel price discovery mechanisms, thereby distorting market outcomes.
Analysis of stakeholder comments and the CERC’s decisions
Time slots in TAM contracts
The CERC’s proposal to limit pre-specified slots in term-ahead market (TAM) contracts elicited mixed reactions. Some stakeholders, including the Central Electricity Authority (CEA), supported the standardisation to enhance liquidity and reduce market fragmentation, while others expressed concern that fixed slots would limit the flexibility of discoms in managing real-time demand fluctuations. Acknowledging these diverse perspectives, the CERC reaffirmed its stance against user-defined time blocks. The commission has directed the power exchanges to discontinue the provision of user-defined time slots, including hourly slots, in TAM segments, including green TAM and high-price TAM. The power exchanges will allow only established pre-specified slots on the exchange platform for all TAM contracts. Further, the power exchanges have been directed to consult with market participants on the selection of pre-specified time slots within established categories such as round-the-clock power, peak/off-peak and solar/non-solar hours, and then seek the CERC’s approval.
Timelines for ADSS contracts
The proposal to define timelines for various stages of any day single-sided (ADSS) contracts received widespread support, particularly from sellers, who anticipated greater transparency and a more organised bidding process. In response to requests for longer acceptance windows, the CERC has highlighted concerns about volume blocking and delayed price discovery. To address the issue of buyers floating multiple ADSS notices, which increases uncertainty for sellers, the CERC has directed the power exchanges to obtain declarations from buyers regarding concurrent auctions and to implement a minimal non-refundable auction initiation fee to ensure serious participation.
Operation of intra-day contracts
While the CERC proposed the withdrawal of intra-day contracts due to low liquidity and the availability of the real-time market, most stakeholders advocated for their continuation. They emphasised the importance of intra-day contracts in facilitating optimal power trading and providing assurance of volume clearance, particularly for green and high-cost generators. Recognising the utility of these contracts, the CERC has directed the exchanges to continue their operation with continuous matching. It has also allowed participants to select “market” order types and mandated the alignment of delivery timelines across exchanges to 2.5 hours ahead. In addition, it has directed Power Exchange India Limited (PXIL) to discontinue intra-day dynamic contracts in order to promote standardised contracts and enhance competition.
Price discovery mechanism in DAC
The CERC’s proposal to modify the price discovery mechanism in DAC contracts from continuous matching to a uniform price step auction received support from stakeholders, who believed it would enhance transparency and efficiency. The CEA had earlier highlighted concerns about reduced competition and the potential for manipulation under the continuous matching mechanism. While some stakeholders expressed concerns about potential delays in bid finalisation with the auction method, the CERC emphasised the role of bid aggregation in preventing anti-competitive practices and ensuring transparent price discovery. Accordingly, the CERC has directed its staff to initiate the process of amending the Power Market Regulations, 2021 to implement the uniform price step auction. It has also directed the power exchanges to submit proposed specifications and timelines for approval. The commission has decided against an interim measure to display buy and sell offers before order transfer, considering stakeholder concerns about costs and technological changes. Further, it has directed PXIL to discontinue “DAC Dynamic” contracts.
Further, the CERC has directed the power exchanges to publish data on the number and volume of bids (both buy and sell) received on their websites for all contingency and TAM contracts, in addition to the existing data on traded volume. Net, net, reiterating its commitment to regulatory compliance and alignment with regulations, the commission aims to promote a more efficient, competitive and transparent power market. The directives are expected to empower market participants, promote fair competition and contribute to the overall development of the electricity sector.
Aastha Sharma
