Power Market, Power Trading and Power Exchange National Seminar - - PowerPoint PPT Presentation

Power Market, Power Trading and Power Exchange

National Seminar Challenges & Opportunities in Power Generation, Transmission & Distribution 23-03-12

Power System Operation Corporation Ltd. Eastern Regional Load Despatch Centre

Market

– A mechanism through which buyers and sellers interact to determine prices and exchange goods and services – Entire set of conditions surrounding production, transport and distribution of a product – Size determined by geography, transport, costs, etc.

In a market everything has a price !!!

• Price

– is the value (not cost) of the good/service in terms

• f money

– represents the terms on which voluntary exchange

• f goods & services takes place

– Serves as signal to the producers and consumers

Demand

• Need + Purchasing power = Demand
• Law of downward–sloping demand

–When price of a commodity is raised, buyers tend to buy less of the commodity, other things remaining constant (e.g., purchasing power, related goods, preferences, environment, etc.) Quantity Price

Supply Curve

• The supply curve shows the relationship between its

price and the amount of that commodity that producers are willing to produce and sell, other things held constant (e.g., cost of production, technological advancement, related goods, etc.)

Quantity Price

Equilibrium

Quantity demanded is equal to quantity supplied Quantity Price of commodity Surplus Shortage

Shift in equilibrium

Price elasticity of demand

Elastic More Elastic Less elastic

Perfectly Inelastic Perfectly elastic

Change in Quantity Demanded in response to change in Price

Market Design

IMBALANCES CONGESTION MANAGEMENT ANCILLARY SERVICES SCHEDULING & DISPATCH

ELECTRICITY MARKET

“Making Competition Work in Electricity”, Sally Hunt

Four Pillars of Market Design

Liquid Markets

• Characterstics

–Many buyers and sellers –Accessibility of buyers and sellers to each other –Accessibility to information about the market prices

• Price settles fast to a market price
• Defining feature

–Ability to absorb the loss or addition of a participant (buyer or seller) without a noticeable change in the market price

Liquid Markets

• Law of one price

– For the same product, same time and same place, there will be one price if the market is liquid

• UI Market – Liquid ?

Efficient Markets

• Market is efficient if the participants cannot

predict price movements

• Arbitrageurs

– Balance prices in different markets – Benefit from inefficient markets

Indian Electricity Market

Evolution of Power Market in India

Grid Code Feb.’ 2000 Settlement System 2002-03 Open Access 2004 PX 2008

Ancillaries,

INDIAN ELECTRICITY MARKET

ENABLERS

Legislation Indian Electricity Act 2003 National Electricity Policy 12-Feb-2005, Para 5.7.1(d) Regulation IEGC-Feb 2000 ABT Order-Jan2000 Open Access-May-2004 Power Exchange-Aug-2007 Execution CTU/STU, RLDC/SLDC Grid & Market Operation Control Centres & SEMs ABT settlement: in stages 2002-03 STRUCTURE Balancing Mechanism Frequency linked Unscheduled Interchange Intra-day STOA Day-ahead Power Exchange Multiple Power Exchanges Short-term Bilateral Day-ahead First-come-first served Three-month ahead Long-term Bilateral Shared resources (ISGS) Own resources

Long-term market (90%)

State Sector generation

45 %

Central Sector generation

36 %

Pvt Sector Generation

9%

Electricity Market Segments

Short-term market (10%)

Bilateral Market (52.32%)

Through Traders

38.37%

Direct Trading

13.95

UI (30.10 %)

Exchange (17.58 %)

Short-term Market

Short Term Open Access: Bilateral and Collective Transactions

Open Access in Inter-State Transmission

• Implemented w.e.f. 6-May-2004
• Revised Regulations w.e.f 1st April 2008 and further amendement in May,2009
• Products –

–Monthly bilateral

• Advance
• First Come First Serve

–Day ahead bilateral –Collective Transactions through Power Exchange –Intra day bilateral

• Permits usage of spare transmission capacity through a transparent process
• Offers choice and freedom to buy & sell power

Power Exchange

• July 2006: Staff Paper by CERC
• February 2007

–CERC Guidelines for establishment of Power Exchange

• August 2007

–In principle approval to the first power exchange in the country

• January 2008

–Revised Regulations for Open Access in Inter-state Transmission, Effective 1st April 2008

• June 2008

–Procedure for Scheduling of Collective Transactions by CTU –Commencement of operations

• October 2008

–Second Exchange begins operations

• Power Market Regulation,2010

–Day ahead Market

2003 June – enactment

• f EA 2003

2006 July – CERC issues staff paper

• n PX

2007 February – guidelines

• n setting up

PX 2008 January – guidelines for collective transactions 2008 June - guidelines for scheduling of transactions on PX 2008 October – instructions for multi exchange scenario

In transition towards a competitive market structure

Regulatory Framework for Power Exchange

Congestion Management: Bid Area

Area Region States N1 North JK, HP, CHD, PUN, HAR N2 North RAJ,DEL, UP, UTT W1 West MP, CHTG W2 West MAH,GUJ, GOA, DD,DNH S1 South AP, KAR, GOA S2 South TN, KER, PONDY E1 East WB, SIK, BIH, JHAR E2 East ORISSA A1 North-East TRIP, MEGH, MANI, MIZO A2 North-East AS, AP, NAGA

Power Exchanges: Concepts

Power Exchanges

An electricity Power Exchange provides a spot market, mainly day-ahead, for electricity, which like any other market matches demand and supply for each time block, while providing a public price index

Role of an Exchange

• Standardized specifications - contract structure
• Standard margining system

–Eliminates credit rating

• Risk Management in a volatile market

–Robust Clearing & Settlement systems

• counter party credit risk absorbed

–Fair, Safe, orderly market

• rigorous financial standards and surveillance procedures

Role of an Exchange

• Price Transparency

–Anonymous auction platform –Price Discovery by matching of demand-supply –Long term price signals

• Transparent real time, pan-geographic price

dissemination

–Benchmark reference price –Liquidity to participants

• Risk Management

–Separation of pricing function –Neutral, Secure and self Regulated market

Exchange vs. OTC Contract

OTC contract Exchange Traded

Available to limited market participants Liquid market – wider market participation Bilateral/ Customized Contracts Standardized contracts Counter party credit risk Counter party risk assumed by exchange Is an involved participant Platform is Neutral

Opaque dealing Transparent price discovery mechanism Bilateral dispute settlement mechanism Well defined dispute settlement mechanism Difficulty in reporting and regulating various trades The exchange is the central reporting and regulating entity

Central Electricity Regulatory Commission (Power Market) Regulations, 2010.

Part – 2 : Scope of Regulation and Extent of Application

Regulation No.3

• Markets

–Over the Counter Market –Power Exchange Market –Other Exchange Market

• Contracts

–OTC Contracts directly between buyers and sellers –OTC Contracts through Electricity Traders –

• Back to back deals
• Deals with Open position
• Contract to aggregate suppliers / buyers and sell / buy to a one or

more buyers / sellers

–Financially settled electricity derivatives contracts transacted in OTC market

Regulation No.4

–Delivery based contracts transacted on Exchange

• Intraday contract /Contingency contract
• Day Ahead contract
• Term Ahead contract

–Financially settled electricity derivative contracts transacted on Exchange –Any new contracts linked with electricity generated from renewable sources, e.g. Renewable Energy Certificates (REC), etc. transacted on Power Exchange. –Any new contract in areas related to capacity , power price indices, and other areas related to electricity –Capacity Contracts –Ancillary Services Contracts

Regulation No.5

• Market participants including

–Grid connected entity(ies) such as but not limited to Generating companies, Distribution Licensees, consumers who have been granted open access. –Electricity Traders; –Power Exchanges and Clearing Corporations approved by the Commission; –Members of Power Exchanges; –Members of Clearing Corporation; –Other Exchanges and –Any other transacting party

Part – 3 : Approval / Suspension of the Contracts by the Commission

Regulation No.6

• The Commission may, on an application made in this

behalf , permit any Exchange to introduce such contracts as specified in Part 2 of these Regulations for transacting on the Exchange

• An Electricity Trader is not required to obtain any

approval under these regulations but shall submit information as specified in CERC (Procedure, Terms and Condition of grant of Trading License and other related matters) Regulations, 2009 and comply with the trade reporting requirement as specified in Regulation 59 (iii) hereof.

Regulation No.7

• An Exchange seeking permission under Regulation 6 shall

submit to the Commission the complete and detailed contract specifications.

• Parameters for examination of such contracts:

–Type of contract –Price Discovery methodology and matching rules proposed –Transaction period –Risk Management mechanism

• Margining mechanism
• Final Price Settlement mechanism

–Delivery mechanism –Delivery Duration –Penalty for Contractual Deviation (for Term Ahead Market)

Regulation No.8

– Permission not given to enter into or transact following contracts unless the same has been permitted to be so launched or introduced by the Commission in terms of notification issued in this behalf -

• Derivatives Contracts;
• Ancillary Services Contracts
• Capacity Contract

Regulation No.9

• If the Commission is of the opinion that it is

necessary or expedient so to do, it may after granting the concerned person the

• pportunity of being heard, by order, suspend

transactions on any contract for the period specified in the order or withdraw any contract from the market or the Exchange, as the case may be.

Part – 4 :Principles of Market and Market Design

Regulation No.10

• A Power Exchange shall function with the

following objectives:-

–Ensure fair, neutral, efficient and robust price discovery –Provide extensive and quick price dissemination –Design standardised contracts and work towards increasing liquidity in such contracts

Regulation No.11

• A Power Exchange shall adopt the following market

design in case of day ahead markets:-

–Price Discovery

• The economic principle of social welfare maximisation and to

create buyer and seller surplus simultaneously during price discovery.

• The bidding mechanism shall be double sided closed bid auction
• n a day ahead basis.
• The price discovered for the unconstrained market shall be a

uniform market clearing price for all buyers and sellers who are cleared

• In case of congestion in transmission corridor, market splitting

mechanism shall be adopted.

• The delivery / drawl of power shall be considered at the regional

periphery.

–Delivery Procedure

• Participants in Power Exchange shall take “Concurrence

,Prior Standing Clearance, or No objection” from their respective State Load Despatch Centres if applicable before participating in the Power Exchange

• Transmission charges and transmission losses shall be

handled as per Procedure for scheduling (Open access) of Collective Transactions issued in accordance with CERC (Open access in Inter State Transmission) Regulations, 2008 and as amended from time to time.

• Contracts in day ahead market are necessarily for physical

delivery and shall be binding on the participant executing the transaction

• The scheduling and delivery of contracts on Power

Exchange shall be in coordination with the system

• perator and in accordance with CERC (Open access in

Inter State Transmission) Regulations, 2008 as amended from time to time, The operational details shall be as per the Procedure for scheduling (Open access) of Collective Transactions issued in accordance with CERC (Open access in Inter State Transmission) Regulations, 2008 and as amended from time to time.

• The allotment of transmission corridor to Power

Exchanges shall be done by National Load Despatch Centre as per directions of the Commission.

Regulation No.12

• OTC Markets – The following principles of

transaction shall be observed:

–OTC market shall provide customized solution to sector participants and endeavour to bring innovation in the market place. –Contracts to be sold to client shall be based on the suitability, appropriateness and full material disclosure of contract pricing, its risks and implications to the parties entering into the contract.

Regulation No.13

• The Physical Market Design should

complement security and reliability of power system and under no circumstances should market mechanisms compromise grid security

Regional Grid Operation: Philosophy as per IEGC

• Operated as loose power pools
• States have full operational autonomy
• State power system treated as notional (flexible)

control area

• Very tight control of actual interchange by state

utilities & Inter State Generating Stations not mandated

• Deviations from net drawal schedules appropriately

priced

GRID MANAGEMENT FUNCTIONS

• Ex-ante functions

– Scheduling

• Real-time functions

– Supervision & control of system parameters – Facilitating Open Access transactions

• Post-facto functions

– Settlement system operation

• Interaction with stakeholders

Settlement System – ABT & UI

• ABT is a scientific settlement system for contracted sale &

purchase of power

• Has three components

–Fixed Charges or capacity charge

• Linked to day-ahead declared availability/subscription

–Variable Charges or fuel charges

• Linked to before the fact energy schedules

–Charges for deviation from commitments

• Frequency actuated signal

–Signal transmitted at the speed of dynamics to be controlled

• Real time pricing stretched to its physical limits

–Merit order –Economic load management

• Incentives for helping the grid
• Opportunities for a diligent player
• Simple, dispute-free weekly settlement system

23-Mar-12 47

DECENTRALIZED SCHEDULING

Availability Declaration Entitlements

S L D C

Requisition & Bilateral Agreements

Injection Schedule Drawal Schedule Revision in DC Revision in Requisition Final Injection Schedule Final Drawal Schedule 09:00 10:00 15:00 18:00 22:00 23:00

R L D C I S G S Time Revisions during Current day Revisions during Current day 0 to 24 hours

Collective Transactions (PX)

A Typical Dispatch

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

36 34 32 30 28 26 24 22

FIRM SHARES IN ISGS ADVANCE SHORT TERM BILATERAL CONTRACTS

Day Ahead, PX

Sell Buy Buy Sell Forecast UI

Contingency

Real-time

Surpluses/Deficits - Balance supply and demand Hours ‘00 MW

Sharp Price Movements

3/23/2012 POSOCO 52

DAYS HOUR PRICE

The End Result ….

• Frequency is

–collectively controlled –democratically stabilized

• Wholesale market is workably competitive

–allocative efficiency –productive efficiency

• Economic signal available for

–optimum utilization of resource –investments in generation capacity

• Settlement is

–streamlined –dispute-free

1000 2000 3000 4000 5000 6000 7000 8000 9000 MAY '04 AUG'04 NOV'04 FEB'05 MAY'05 AUG'05 NOV'05 FEB'06 MAY'06 AUG'06 NOV'06 FEB'07 MAY'07 AUG'07 NOV'07 FEB'08 MAY,08 AUG'08 Nov'08 Feb'09 May'09 Aug'09 Nov'09 Feb'10 May'10 Aug'10 Nov'10 Feb'11 May'11 Aug'11 Nov'11

Approved Energy (MUs)---> Increasing trend of STOA - Approved Energy (MUs)

500 1000 1500 2000 2500 MAY'… AUG'… NOV'… FEB'05 MAY'… AUG'… NOV'… FEB'06 MAY'… AUG'… NOV'… FEB'06 MAY'… AUG'… NOV'… FEB'08 MAY,… AUG'… Nov'08 FEB'09 MAY'… AUG'… Nov'09 feb'10 May'10 Aug'10 Nov'10 Feb'11 May'11 Aug'11 Nov'11

• NO. OF TRANSACTIONS

Open Access-TOTAL TRANSACTIONS ( 2004-12)

<--Introduction of Day-Ahead Product from April,2005

Trade under Short-Term Open Access

17 23 24 30 31 39 55 52 778 3938 5933 9560 15414 18128 19883 17337 5000 10000 15000 20000 25000 10 20 30 40 50 60 2004-05 2005-06 2006-07 2007-08 2008- 09* 2009- 10* 2010- 11* 2011- 12* Number of Transactions ----> Energy (BUs) -----> Volume of trade (BUs)

• No. of transactions

*Includes Bilateral + Collective transactions

Number of Trading Licencee approved by CERC

44 13 19 21 28 40 41 40 4 7 9 12 14 15 16 17 5 10 15 20 25 30 35 40 45 50 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Fiscal Year ------ Number of Traders

Approved Licencee Traders Active Traders As on 30.10.2011

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 100 200 300 400 500 600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

• Rs. In Crores :-->
• Rs. In Crores :-->

Week No. --->

All India UI Billing (w.e.f. 28-Mar-11 to 11-Dec-11)

Series1 Series3

583 202 107 892 551 1162 554 509 70 2846 1040 1816 821 730 219 4627 1393 1991 644 997 145 5170 1348 2561 942 1747 216 6814 2362 4156 1120 2544 503 10685 3409 4358 3204 2805 513 14289 3784 4652 1326 2976 249 12987 2818 4224 978 2112 225 10357 1846 2851 542 1541 170 6950 2000 4000 6000 8000 10000 12000 14000 16000 Western Region Northern Region Southern Region Eastern Region North Eastern Region All India

Rs in Crores-->

Annual UI Volume (Regionwise)

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (Upto 11th Dec'11) All India 892 2846 4627 5170 6814 10685 14289 12987 10357 6950

2000 4000 6000 8000 10000 12000 14000 16000 Rs in Crores

UI Volume over the Years

19134 27972 10237 15962 2311 75617

5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 55000 60000 65000 70000 75000

Western Region Northern Region Southern Region Eastern Region North Eastern Region All India

• Rs. in Crores

Region wise Cumulative UI Volume in Rs. Crores (Till 11th Dec-11)

Western Region 25% Northern Region 37% Southern Region 14% Eastern Region 21% North Eastern Region 4%

Regionwise Cumulative UI share (Till 11th Dec'11)

Western Region Northern Region Southern Region Eastern Region North Eastern Region

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 100 200 300 400 500 600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

• Rs. In Crores :-->
• Rs. In Crores :-->

Week No. --->

All India UI Billing (w.e.f. 28-Mar-11 to 11-Dec-11)

Series1 Series3