Development of power market in India—opportunities and challenges

Abstract

Electricity market in India has come a long way since its nascent origin in circa 1999. Electricity trading began through inter-regional bulk power transfer from the surplus region in eastern India to deficit regions in western India in 1999. This has led to the emergence of electricity traders, who have helped in optimizing generation asset across the country, and acted as counter-parties to trades and helped absorb the credit risk of distribution companies (DISCOMS), which were in poor financial health. Subsequently, as trade volume picked up, power exchanges with standard contracts were introduced in July 2008. Power exchanges are electronic platforms where anonymous price discovery happens based on supply and demand for power in the short term. The short-term electricity trade has reached 7.58 billion units (9.84% of total generation) in March 2012 with a market size of approximately US$ 4 billion. The short-term market includes power contracts of less than 1-year period, through traders or directly by the distribution utilities, “Day-Ahead” contracts through power exchanges and unscheduled interchange (UI) power trades. This has led to the development of an efficient trading market for electricity, capable of sending market signals for the development of the sector and selection of technology. It has helped increase capacity addition by the private sector. Considering the short-time span since the initiative to develop power market was taken, the achievements are significant. However, a variety of challenges include handling transmission corridor congestion efficiently, developing more products of longer duration and variety to meet diverse requirements of stakeholders, including contracts of 1 year and more to provide timely signals and estimates for required capacity additions, and viability of market players in medium and long term, considering continuing legacy of under-recovery of power cost from consumers. All these have been analyzed in this chapter.