Desirable power reform
India’s power sector needs a Real-Time Market to utilise resource optimisation across regions, benefitting masses with cheap tariffs, writes Hiranmoy Roy
The Indian economy has reached US$ 2.7 trillion at present. In the interim Budget of 2019-20 presented in February 2019, the government gave a vision for the decade and flagged ten important aspects of their vision laid before us. The most important aspect was building physical and social infrastructure. Thus maintaining the same tempo, Union Budget 2019 further emphasised infrastructure sector. Big reform proposed for the power sector is to build on the successful model in ensuring power connectivity — One Nation, One Grid — that will ensure power availability to states at affordable rates. Measures like one nation-one grid and creating green infrastructure along with affordable housing can transform lives. Finance Minister said the much-needed power reforms like power tariff should be soon taken up. A discussion paper on 'Re-Designing the Real-Time Electricity Markets (RTM) in India' was proposed by the Central Electricity Regulatory Commission (CERC) and invited comments/suggestions. In response to the new proposal, 21 stakeholders including POSOCO, Power Exchanges, Trading Licenses, IPPs, State Utilities, State LDCs, Generators and Consultancies submitted their comments. The proposed Real-Time Market (RTM) would not only provide discoms with an alternate mechanism to access a larger market at a competitive price but would also allow generators to participate in the RTM with their un-requisitioned capacity. This will definitely ensure the procurement of electricity by masses at an affordable tariff. As a step towards creating a Market Platform for trade of energy closer to the delivery of power in real-time, a framework for Real-Time Market for electricity is already proposed and public notice (No. RA-14026(11)/2/2018/CERC) issued by CERC on August 6, 2019, to finalise the formation of the real-time market.
The recommendations of the High-Level Empowered Committee (HLEC) on the retirement of old and inefficient plants, and addressing low utilisation of Gas plant capacity due to paucity of Natural Gas, will also be taken up for implementation now.
Sitharaman said the government is examining the performance of the Ujwal Discom Assurance Yojana (Uday) and it will be improved. The government launched Ujjwal DISCOM Assurance Yojana (UDAY) in 2015 aimed at the financial and operational turnaround of discoms. Government is examining the performance of the scheme and it will be further improved. Uday has faced criticism owing to rising debt and overdue of discoms. The gap between the average cost of supply and revenue recovery reduced from 59 paise at the beginning of Uday to 17 paise in FY18. However, the revenue gap widened in nine months of FY19 to 35 paise, from 26 paise in the year-ago period, on higher coal and freight charges, lesser subsidy disbursement by states and ineffective tariff hikes by regulators. It may be mentioned that discoms are now beset with huge debt burden at present an amount of Rs 72,862 crores and Power ministry very recently has proposed special credit scheme for discoms to pay back debt burden to generators on easy terms. The Central government will work with the state governments to remove barriers like cross-subsidy surcharges, undesirable duties on open access sales or captive generation for Industrial and other bulk power consumers. Besides these structural reforms, considerable reforms are needed in tariff policy. A package of power sector tariff and structural reforms would soon be announced.
Large public infrastructure can be built on land parcels held by Central Ministries and Central Public Sector Enterprises all across the country. Through innovative instruments such as joint development and concession, public infrastructure will be taken up.
The key difference between an integrated market and an exchange-based market is in terms of how the unit commitment and dispatch processes take place and the extent to which the decisions are centrally coordinated. Both the integrated markets and exchange-based markets rely on day-ahead and real-time markets. The day-ahead market typically clears at about midday on the day before the operating day in question. In both these markets, players use forecasts of demand and supply conditions on an operating day to provide market participants with day-ahead schedules and corresponding prices. Continuous trading implements a pay-as-bid matching algorithm. In uniform pricing as followed in the integrated markets of US, auction participants receive the market-clearing price so that the optimal strategy in competitive environments is to bid at marginal cost. In comparison, the pay-as-bid scheme used for continuous trading implies that market participants have to anticipate the clearing price and accordingly mark up their bids.
India has unique characteristics of variation in demand pattern in different region due to its climatic and socio-cultural diversity. For instance, when the maximum demand met in the Northern region (July to August) coincides with minimum demand met in Western Region and vice versa. This diversity in the demand pattern can be utilised effectively with national-level organised market given the fact that electricity is more difficult and expensive to store. With National-level organised market, the possibility of resource optimisation across regions to take advantage of cheap resources would increase significantly thereby benefiting masses.
Given the constraints in existing market operation and system operation and the challenges facing energy imbalance in real-time, it is high time the country brought about changes in the market design in the real-time segment. Subba Rao Amarthaluru, Executive Director – Finance & Strategy at CLP India, said, "The announcement of pursuing a 'One Nation One Grid' concept is a positive move and will prove beneficial in achieving the government's goal of power for all by 2020. Government's move to focus on driving structural reforms in the power sector is commendable, and will definitely help in propelling the sector towards the path of growth. This will fuel investments and address the issues concerning stressed power plants." Thus, the solution to the existing problems of the power sector lies in the way forward of a competitive market model for power sector via the Real-Time Market.
Hiranmoy Roy is Head of the Department of Economics and International Business and teaches Power Economics in School of Business, UPES, Dehradun. Views expressed are strictly personal