ROLE OF POWER TRADERS IN INDIA AND OPPORTUNITIES FOR CROSS BORDER - - PowerPoint PPT Presentation

Presented by: Harish Saran, Executive Director (Marketing) PTC India Limited

ROLE OF POWER TRADERS IN INDIA AND OPPORTUNITIES FOR CROSS BORDER POWER MARKET

WHAT IS POWER TRADING

According to Electricity Act, 2003; “Purchase of electricity for resale thereof and the expression “Trade” shall be construed accordingly.

WHY POWER TRADING ?

Prior to power trading as a business concept: power exchanges between the States/vertically integrated utilities were characterized by small , intermittent volumes Mostly in the nature of emergency support No commercial arrangements Non-payment or payment delays with resultant disputes The exchanges were further limited due to lack of transmission inter-connections Sustained shortages, both in energy and peak demand, discouraged initiatives

Milestones Description 2009 Central Electricity Regulatory Commission – New trading regulations; Tightening the terms for licensing keeping in view of prices of traded power, liquidity requirements and elimination of non-serious players Key changes

• Electricity being purchased for resale thereof
• Three categories - reduced from 6
• Networth requirement range revised - from Rs. 50 million to Rs. 500

million

• Net Worth definition revised to discount loans and advances given to

associates

• Liquidity ratios introduced
• Manpower specification defined
• Restrictions on procurement of power for trading – to exclude

defaulters from the business chain Soft regulations for market building, control & consolidations; customized approach !

POWER TRADING IN INDIA: MODIFIED REGULATIONS

Milestones Description 2010 Central Electricity Regulatory Commission – Power Market Regulations: Brought in primarily for defining & regulating the licensing & functioning of Power Exchange(s) in India 2012 CERC – Modified regulations were imposed for better control & monitoring

• f the market players/ trading licensees

Key changes

• Electricity being purchased for resale in India or for export out of India
• Four categories – I (unlimited), II (<1500 mn units), III (<500 mn units)

and IV (<100 mn units)

• Networth requirement range revised - from Rs. 10 million (IV) to Rs.

500 million (I)

• Compliance and reporting defined
• Non-compliance inviting strong penalties

Strict regulations for managing gaming, compliance & defaults & positive impact of competition !

KEY MILESTONES: POWER TRADING LICENSING

Year Key Events Remarks Pre-1999

• Occasional exchange of power between the integrated utilities

1999

• Incorporation of Power Trading

Corporation of India Limited

• Now named as PTC India Limited.
• Date of incorporation: 16-04-1999

2003

• Grant of first trading license
• To PTC India Limited on 22-07-2003

CAPITAL ADEQUACY AND LIQUIDITY REQUIREMENTS

Category of the Trading License

Volume of electricity proposed to be traded in a year including intra‐State trading, where applicable

Minimum Net Worth (USD in Million) Category I No Limit 7.5 Category II Not more than 1500 MUs 2.27 Category III Not more than 500 MUs 0.75 Category IV Not more than 100 MUs 0.15

EVOLUTION, CONCEPTS AND STANDARD PRACTICES OF POWER TRADING IN INDIA

PRIOR TO EVOLUTION OF POWER MARKET

Monopoly Suppliers (SEBs, Private Licensees) ; Each SEB had an allocated share in a Central/ Jointly owned station Generators (CGSs, IPPs and SEBs) with capacity fully tied up Price setting by Central/ State Governments – SEBs hardly having any say Entire sector developed on fixed rate return; Interplay of market forces remained non- existent Utilities would back-down in case of low demand and resort to load shedding in case of excess demand Power as a resource for earning revenue did not exist in this cost based regime

EVOLVING POWER MARKET STRUCTURE

Transmission (CTU/STUs) IPPs All Other Generators Captives Power Exchange Traders Distribution (Discoms) Consumers

CATEGORY OF BUYERS

State Utilities/Distributi

• n licensees

Industries

• Generation from State Generation companies/Own Generation
• Long term sourcing from Central Generators-NTPC/NHPC etc.
• Pooling from Ultra Mega Power projects under Case-2
• Procurement through competitive bidding
• Long term (upto 25 years.)
• MediumTerm (1-5Years)
• Short term (<1Year)
• Power Swap arrangement between State Utilities (Banking)
• Procurement from Hydel sources on bilateral basis (For up to 35

years)

• Power Exchanges (IEX/PXIL)
• Short term contingency through negotiation
• Self Generation (Captive Power Plant)
• Procurement from State Utilities/Distribution Licensees
• Procurement of Power from Power traders/Generators through

competitive bidding/Negotiation through Open Access

• Procurement from Power Exchanges (IEX/PXIL)

MARKET SEGMENT

Long Term Markets ( up to 25 years)/ Medium Term Markets (>1 upto 5 years) Short Term Markets (up to 1 year )

Regulated Assets – Interstate and at State level

Competitive Bidding – DBFOT/ DBFOO/ FOO Licensed Traders / Bilateral Power Exchange Real time balancing

UI mechanism + penalty

WHY SHORT TERM CONTRACTS?

• Short term Power transactions is meant for balancing short term needs i.e. to procure seasonal and

fluctuating power requirements due to seasonal variation or any other reason(s) and to allow sellers to sell any unplanned and fluctuating surplus power.

• Short term purchase/sale is done for the unsold power/ mitigating the demand as last option

Features:

 Handle seasonal and temporary demands  Market for merchant capacity  Cater to unfulfilled demand by Discoms  Day ahead requirements being fulfilled by power exchanges  Pricing on the basis of utility of end-use, bargaining power of counterparties, competitive

bidding, enforceability of reliability guarantees Challenges:

 Constraints in terms of availability of open access (Transmission capacity restrictions, NOC

issues from Discoms)

SHORT TERM BILATERAL VIS-À-VIS POWER EXCHANGE

Parameters Bilateral Trades Power Exchange Contract Tenure & Scheduling Intra-day and from 1 day up to 1 year on Firm Bilateral Scheduling Intra-day, 1 day-ahead & up to 7 days under Collective Scheduling Contracted Tariff & Market Risk Fixed with no variation linked to market / fuel Depending up on market conditions; Volatile & Risky Requirement / Usefulness Management of Surplus/Deficit on Firm Basis Balancing Mechanism for Day- Ahead Surplus/Deficit Billing & Payment Weekly billing; Payment within 7 days up to 30 Days Advance Payment with Daily Billing Credit Available 14 days up to 37 days No Credit; Advance Payment Rescheduling & Surrender Allowed on 2 days notice Not Allowed

SHORT TERM POWER PROCUREMENT : MECHANISM

Bilateral Contingency & Day-Ahead

• By Utilities mainly for meeting contingency demands
• Utilities finalize the tariff based on prevailing market condition within a blanket

tariff approval given by SERCs Contracts for more than 1 day to 1 year

• OTC under the provisions of EA 2003
• MoP has recently revised the Guidelines for Short term power procurement

(SBD) by Distribution licensees. All future power procurement on short term by Distribution Licensee shall be executed through e-bidding process followed by ReverseAuction. Power Banking arrangement

• Utilities enter into power swap agreement to utilize the seasonal variation in

their load pattern

• Forward banking Utility returns the banked energy to other utility with some

agreed premium at a pre decided date

• Undertaken directly or through PowerTraders primarily on negotiation basis
• Need of a transparent guideline for Swap arrangement is felt

BANKING ARRANGEMENT

Part - A

‘State A’ will bank/supply power to ‘State B’ through PTC

PTC

Start Here

State A State B PTC

‘State B’ will return/supply power to ‘State A’ through PTC

Part - B

• Banking arrangement is wherein two utilities/states trade power in order to match seasonal variation

in surplus & deficit situation

• It is a cashless transaction wherein there is no tariff paid for the energy availed/supplied
• A brief of flow of a banking transaction is shown below:-
• The banking arrangement has successfully been carried out between almost every utilities/states.

Trader Trader

Trader Trader

Total Volume of Short term transactions of Electricity w.r.t Total Electricity Generation

Year Total Volume of Short term transactions of Electricity (BU) Total Electricity Generation (BU) Total Volume of Short term transactions of Electricity as % of Total Electricity Generation 2009-10 65.90 764.03 9% 2010-11 81.56 809.45 10% 2011-12 94.51 874.12 11% 2012-13 98.94 907.49 11% 2013-14 104.64 962.90 11% 2014-15 98.99 1045.09 9%

LONG / MEDIUM TERM POWER PROCUREMENT

• Long Term Procurement of power is for a

period upto 25 years for thermal power projects

• Medium Term Procurement of power ranges

from a duration of more than 1 year and up to 5 years

• Under the Negotiated Route, state utilities

buy power from the Projects after approval

• f resp. State Regulatory Commissions, and

at regulated tariff. However, since January 2011, this route is rarely exercised for Thermal Power Projects, and still available for Hydro Projects

• Competitive Bidding Route is generally

adopted for power procurement since then, and has undergone several changes in itself

LT/MT Procurement Negotiated Route (u/s 62 of EA 2003)

Hydro

(currently)

Competitive Bidding Route (u/s 63 of EA 2003)

• DBFOO (LT)
• FOO (MT)

PERCENTAGE SHARE OF ELECTRICITY TRANSACTED BY TRADERS DURING LAST 4 YEARS

PTC 33% TPTCL 10% Mittal 9% JSW 8% GMR 6% Adani 6% Others 28%

2014 2014-15 5

PTC 32% JSW 12% TPTCL 11% Reliance 7% NVVN 6% Adani 5% Others 27%

2013 2013-14 4

PTC 30% NVVN 12% TPTCL 11% JSW 10% NETS 7% Adani 7% Others 23%

2012 2012-13 3

PTC 33% NVVN 17% TPTCL 11% NETS 10% Reliance 7% Adani 5% Others 17%

2011 2011-12 2

FEW FACTS ABOUT POWER TRADING IN INDIA

ROLE OF TRADERS IN DEVELOPING POWER MARKET

Transition from cost-based returns to market based returns Creating “value” for power – market based price discovery of power Optimal utilization of generation capacity – short-term trading Increased generating capacity addition – long-term trading Encouraging Renewable Energy market Introducing innovative products suiting customers needs Single window service

ROLE OF A TRADER – SELLER’S PERSPECTIVE

Arrange off-take of power as made available by the seller Manage entire transaction such as Open Access, scheduling, Energy accounting & other system compliance/approvals Identify buyer for off-take of contracted capacity and enter into requisite commercial agreement on back to back basis Ensure power for testing & commissioning of Power station/Transmission lines Facilitate energy settlement Ensure payment security Facilitate sale of power to third party from alternate sources in case of short off-take by original buyer Co-ordinate with relevant agencies for transfer of power

ROLE OF A TRADER – BUYER’S PERSPECTIVE

Arrange power as per requirement of procurer

Manage entire transaction such as Open Access, scheduling, Energy accounting & other system compliance/approvals Identify Seller for supply of contracted capacity and enter into requisite commercial agreement on back to back basis Co-ordinate with relevant agencies for transfer of power Facilitate energy settlement Ensure supply comfort (Contract performance) Facilitate supply of power from alternate sources in case of generator outages Supply of power to Industries/large consumers

ADVANTAGES OF POWER TRADING FOR…

• Will have more avenues when they sell excess of power
• Increased utilization of existing resources
• Will lead to increase in PLF & generation efficiencies
• The bottled up capacities of CPP’s & Merchant Power Plants is

unlocked.

• Facilitates attraction of capital to the generation

Generators

• Better Grid Discipline & energy security
• Improved utilization of transmission capacities will lead to assured

revenue flow & more investment in the transmission infrastructure

Transmission Licensee

• Reliability of power supply to the consumer will increase
• Improves quality of power in terms of frequency excursion and

voltage

• Avenues for reduction in cost of power through time of day trading
• Overall reduction in cost of power with phasing out of surcharges

Distribution Licensee

• Helps in reduction in cost of power
• Shortages in deficit locations minimized

Consumers

Strengths Weakness

 Act as Counter Party  Adds liquidity  Find new ways/opportunities to mitigate risks  Facilitate attraction of capital to the generation and Transmission Inter- connections  Bring transparency to the markets  New insights to the opportunities for enhancing trade and commerce  No monopoly mind-set  Orientation towards transaction on a dynamic basis  Seizing opportunities but more importantly creating opportunities  More willing to take on barriers that hereto before constrained market evolution  Adaptability to the requirements of the market.  Substantially enhancing the overall efficiency of the market  Dependent on Market for business  Lower profits in comparison to turnover  Poor track record

Opportunities Threats

 Retail sale of Electricity  New product development  Improve distribution infrastructure  leapfrog to the latest technology  Deterioration of financial health of Utilities  Price change  Inadequate fuel availability  Little margin in transmission network for short term transactions  Bottleneck in State transmission infrastructure  Most of the industries not on independent feeders  High Cross subsidy surcharge  Imposition of Section 11

CHALLENGES FACED BY POWER TRADING ORGANIZATION

OPPORTUNITY IN CROSS BORDER ELECTRICITY TRADE IN SOUTH ASIA REGION

 The south Asian region especially consisting of Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka has a variety of energy resources with major potential for hydro power.  Large untapped hydro power resources exist in Bhutan, India, Nepal, and Pakistan.  More than 100GW of hydro potential in Bhutan and Nepal are waiting to be tapped out of the combined hydro potential of the region, which is approximately 350GW .  There are healthy reserves of wind power resources in India, Sri Lanka, and other parts of the

• region. This potential offers a huge scope for tapping clean energy and meeting the region’s

energy needs.  Yet, despite the potential and the macroeconomic growth in this region, the power sector has not been able to keep pace with the demand.  The region continues to experience chronic problems of shortage of electricity supply and its quality.

BACKGROUND

 Presently, all SouthAsian countries except Bhutan have energy shortages.  Cross-border transmission interconnections and trading transactions are taking place to a limited extent.  There has been existing regional co-operation between India, Bhutan, Nepal and Bangladesh.  Bhutan exports around 1400 MW from existing Hydro projects to different Indian Utilities through PTC India Limited.  India supplies power to Nepal through various existing treaties as well as purely on commercial terms.  India is supplying 500 MW power to Bangladesh through Baharampur(India) - Bheramara (Bangladesh) 400 kV D/C transmission link .

BACKGROUND ………

OPPORTUNITIES IN SOUTH ASIA

High rate of GDP growth South Asian Countries among the most rapidly developing countries in the world Opportunities in South Asia Large and growing population but low per capita consumption of electricity Huge demand for energy against limited domestic supply Energy mix different for different countries

OPPORTUNITIES OF REGIONAL POWER EXCHANGE

Electricity commerce can run on transmission interconnections India – Sri Lanka submarine link is under active consideration Weak/Inadequate India-Nepal inter- connections . Work on new transmission interconnection in progress A Strong India- Bhutan transmission inter-connection A strong Indo- Bangladesh Transmission exists now. But the line is still inadequate to cater to entire potential of Indo-Bangladesh power exchange.

SCOPE OF REGIONAL CO-OPERATION

• Economies of scale in new construction, diversification of generation mix and better load

management

• Each country has its own load pattern with different peaking profiles
• Hence each country would require substantial investment “on their own” to meet their peak loads.

This generation capacity would become idle in off-peak hour unless there is other off-taker. These countries can set off their peak requirements with excess generation of some other country.

• India being a vast country is already taking benefit of diverse peak demand and generation profiles
• f various regions
• The above will lead to optimization of capital investment
• Utilization of natural resources

Technical and Financial

• Energy security and lower dependence on Oil & Gas import
• Enhanced investment activities
• Lower tariff and increase in per capita consumption
• Employment generation
• Harmonious & symbiotic relationship in the region

Social and Economic

• For reduction in carbon emission, Hydro generation in Nepal & Bhutan would assist in this cause

Environment

WAY FORWARD

The above would provide comfort to the investors for making investment in the Power market of South Asian Region

The need of the time is to suitably align the policy framework for the entire region and put endeavour to build a common market place for the entire region which is not limited to any political boundary. Set up a committee for creation of Regional Power market. Detailed deliberation on framing common laws and bylaws/Harmonization

• f

Technical requirement/Commercial arrangement within specified timelines. Creation of SAARC Regional Power Regulator and a Regional Appellate tribunal. Creation ofVehicle for funding of Power Infrastructure in South Asia. CERC is in process of framing Guidelines for Cross Border Electricity Trade.

Thank You