Selling Options FR Restricted Capacity For A Power Plant - Evaluation and Options

GSEG - Selling Options for
Restricted Capacity
Evaluation and Analysis
Sparshy Saxena
PGP 08
Acknowledgement
Ab initio, I would like to express my sincere appreciation to the college authortites, including my project
mentor, Dr. Subrat Sahu, for their esteemed and valuable support.
I would like to extend my heartfelt gratitude to the staff of Gujarat State Electricity Generation and
Evonik for providing me with a congenial working atmosphere and extending the support as required by
me. I would personally like to thank Mr. Hemant Gajjar, Mr. Vinay Kumar, Mr. Sameer Joshi, Mr.
Shailesh Shivadasan and Mr. Baiju for their enthusiastic support.
I owe an intellectual debt to Mr. Yogesh Patel, my Project mentor, Mr. Baiju, Mr. Gautam Patel, for their
valuable guidance, Mr. Shashwat Srivastav, Indian Energy Exchange; and a few acquaintances from
Adani Power Limited for their expertise on power trading.
2|Selling Options for Restricted Capacity of GSEG

Objective
The objective of the report is to study the various options available to GSEG for the sale of the restricted
capacity. The report studies the options in light of factors like available trading capacity, profit margin
and the available customer base.

Executive Summary
Gujarat State Electricity Generation has a combined cycle power plant based at Hazira with a capacity of
156 MW with expansion underway for ~350 MW. With the power being costlier, the plant suffers losses
due to load restriction during low demand period. Outside of its PPA with GEB, based on a hypothetical
proposal, the varied options that are available with GSEG to trade the extra capacity are the Bilateral trade
and Power exchange. Bilateral trade involves market research, price volatility as per bargaining capacity
and a chance of the power not being sold due to it being costlier and unexpectedly varying. Out of the two
power exchanges operational in India, the Indian Energy Exchange (IEX) has an upper hand as compared
to the Power Exchange India Limited (PXIL) in various aspects like the wider customer base, competitive
trading prices, superior technology and varied future trading contracts. Thus, trading on IEX seems to be
a profitable option for GSEG based on calculations taking the average availability of power for a
particular day. However, considering the practical aspects like which time of the day power is available
for sale, whether the demand in the grid exists, nomination acceptability within a short span of time and
not a day ahead, including the fact that GUVNL themselves would trade the power during high demand
periods, it may be relatively difficult to sell the power. Nevertheless, exploring the option of power sale
and actually trying it can throw up the actual possibilities & difficulties and the experience gained can be
useful in future.

Contents
The Power industry ............................................................................................................................... 10
Introduction ....................................................................................................................................... 10
Demand Management ........................................................................................................................ 11
Power Contracts ................................................................................................................................ 13
Long term ...................................................................................................................................... 13
Short term...................................................................................................................................... 13
Grid Management .............................................................................................................................. 24
Pricing of Power ................................................................................................................................ 27
Long term contracts and Bilateral trading ....................................................................................... 27
Pricing on the exchange ................................................................................................................. 30
Gujarat State Electricity Generation ....................................................................................................... 34
Company Description ........................................................................................................................ 34
Combined Cycle Power plant at Hazira .............................................................................................. 34
Production Data ................................................................................................................................. 37
Amount of losses incurred ................................................................................................................. 38
Nature of losses ................................................................................................................................. 38
Options and Evaluation ......................................................................................................................... 41
Short term market .............................................................................................................................. 41
Bilateral market – Power exchange : Relative Comparison ................................................................. 41
Power Exchange ................................................................................................................................ 42
Indian Energy Exchange ................................................................................................................ 42
Power Exchange India Limited ...................................................................................................... 42
Relative comparison between the exchanges ...................................................................................... 43
Market Share ..................................................................................................................................... 43
Membership Options ......................................................................................................................... 46
Contracts Offered .............................................................................................................................. 50
Technology Support .......................................................................................................................... 51
Costing Analysis ................................................................................................................................... 52
Comparative costs of other options .................................................................................................... 52

Effects on revenue ............................................................................................................................. 52
Monthly revenue................................................................................................................................ 54
Cost Benefit Analysis ........................................................................................................................ 56
Mix of selling options for GSEG........................................................................................................ 58
A Hypothetical Trading Proposal ................................................................................................... 58
Learnings and Conclusions .................................................................................................................... 61
Findings ............................................................................................................................................ 61
Recommendations ............................................................................................................................. 61
Action plan ........................................................................................................................................ 62
Contingencies .................................................................................................................................... 62
Exhibits ................................................................................................................................................. 63
Bibliography ......................................................................................................................................... 65

TABLE 1 : MARKET TRADING VOLUMES OF THE LEADING EUROPEAN E XCHANGES ................................................... 17
TABLE 2 : FUEL COMPARISON ................................................................................................................................ 36
TABLE 3 : PRODUCTION AT FULL CAPACITY ............................................................................................................ 37
TABLE 4 : ACTUAL PRODUCTION DATA................................................................................................................... 37
TABLE 5 : FEE STRUCTURE FOR IEX ...................................................................................................................... 47
TABLE 6 : MEMBERSHIP OPTIONS FOR PXIL........................................................................................................... 48
TABLE 7 : MEMBERSHIP FEE FOR PXIL .................................................................................................................. 48
TABLE 8 : COMPARATIVE COSTS FOR POWER TRADE (IN RS./KWH) ......................................................................... 52
TABLE 9 : TRADING PRICES ON IEX (JUNE 2008-MAY 2009) ................................................................................... 53
TABLE 10 : LOAD RESTRICTION LOSS DATA ............................................................................................................ 53
TABLE 11 : MONTHLY PROFIT FOR THE PERIOD JUNE 2008 - MAY 2009 (@ RS. 2.9/KWH) ........................................ 54
TABLE 12 : MONTHLY PROFIT FOR THE PERIOD JUNE 2008 - MAY 2009 (@ RS. 5/KWH) ........................................... 55
TABLE 13: COST BENEFIT ANALYSIS FOR A FULL MEMBERSHIP OPTION .................................................................... 57
TABLE 14 : COST BENEFIT ANALYSIS FOR A LIGHT MEMBERSHIP OPTION .................................................................. 57
TABLE 15 : PRICES FOR THE UI INTERFACE FOR THE PERIOD OF AUGUST 2008 - MARCH 2009 .................................. 59
TABLE 16 : DAILY PROFIT FOR DECEMBER 11 (HYPOTHETICAL – EXCESS OF POWER) .............................................. 59
TABLE 17 : DAILY PROFIT FOR DECEMBER 11 (HYPOTHETICAL - DEFICIT OF POWER)................................................ 60

FIGURE 1 : DIAGRAMMATIC REPRESENTATION OF THE DEMAND SETTLEMENT ......................................................... 12
FIGURE 2 : RELATIVE TRADING VOLUME ON NORD POOL ........................................................................................ 18
FIGURE 3 : GRID INFRASTRUCUTRE ........................................................................................................................ 25
FIGURE 4 : SELLING PRICE OF POWER ON THE E XCHANGE (JUNE 2008 – MAY 2009), IN RS./KWH............................. 31
FIGURE 5 : AVERAGE HOURLY MARKET CLEARING PRICE FOR APRIL 2009, TRADED ON IEX, IN RS./KWH ............... 31
FIGURE 6 : DETERMINATION OF EQUILIBRIUM PRICE .............................................................................................. 33
FIGURE 7 : TOTAL MONTHLY LOSS FOR THE PERIOD JUNE 2008 – MAY 2009, IN MWH ............................................. 38
FIGURE 8 :MONTHLY LOAD RESTRICTION LOSS DATA FOR THE PERIOD APRIL 2008 – MAY 2009, IN MWH ............... 39
FIGURE 9 : MONTHLY OPERATIONAL LOSSES FOR THE PERIOD APRIL 2008-MAY 2009, IN MWH .............................. 39
FIGURE 10 : RELATIVE MARKET SHARE OF THE TWO EXCHANGES ........................................................................... 44
FIGURE 11: MONTHLY SUMMARY OF ELECTRICITY TRADED ON EXCHANGES, IEX & PXIL ...................................... 44
FIGURE 12: DAILY AVERAGE TRADED HOURS (2008-2009) .................................................................................... 45
FIGURE 13 : MONTHLY AVERAGE TRADED HOURS (2008-2009) ............................................................................. 46
FIGURE 14 : IEX MEMBERSHIP .............................................................................................................................. 47
FIGURE 15 : MONTHLY PROFIT FOR THE PERIOD OF JUNE 2008- MAY 2009 @ RS. 2.9/UNIT ...................................... 55
FIGURE 16: MONTHLY PROFIT FOR THE PERIOD OF JUNE 2008- MAY 2009 @ RS. 5/UNIT .......................................... 56

EXHIBIT 1 : AREA OF OPERATIONS OF THE LEADING EXCHANGES IN EUROPE ............................................................ 63
EXHIBIT 2 : DIAGRAMMATIC REPRESENTATION OF A COMBINED CYCLE POWER PLANT ............................................ 63
EXHIBIT 3 : RELATIVE COMPARISON OF FOUR FUEL ALTERNATIVES ......................................................................... 64
EXHIBIT 4 : HOURLY MCPS FOR THE MONTH OF DECEMBER, 2008 .......................................................................... 64

The Power industry
Introduction
The power industry, on layman terms, is dissemination of electrical power, from the generators to the end
consumers. The Indian power market is characterized by volatile relationship between the supply and
demand of power as well as the virginity of the regulated environment. The electricity consumption by
the end consumer is the guiding factor for evaluating the electricity demand for the future. At present,
there is an approximate 8% energy shortage while peak power shortage is about 12%. GoI has plans to
overcome the power shortage by building adequate generation capacity by the end of the 11 th plan. Based
on the projections made in the 17th Electric Power survey, in 2011-2012, there is expected to be a demand
of approximate 969 TWh at the power station bus bars, and a peak load requirement of approximate 153
GW. This means the energy demand will be higher by about 30%and the peak load by 35%. Based on the
above statistics, a capacity addition of 46,500 MW has been tentatively fixed for Central Public Sector
Undertakings under the Ministry of Power. At the state level, the SEBs/State utilities and private sector
will add about 41,800 MW. For optimal development of the electricity energy in its totality, an integrated
approach, including capacity addition through nuclear and non-conventional energy, has been adopted.
The capacity addition targets of 6400 MW through nuclear power and 10,700 MW through non-
conventional sources has been fixed for the period till 2012.
The main aim of the players on the power market is meeting maximum consumer load, juggling between
long-, medium- and short term agreements between business entities, and replacing costlier power with
cheaper power. The tariffs of the industry are often market driven i.e. the prices are fixed based on the
frequency meter and hence are susceptible to variability due to load generation balance. Some of the
issues prevalent in the market are improper tariffs, as discussed above, and improper allocation of
subsidies, beside the danger of the collapsing of the market.
Regulators have been trying to establish an organized market structure by ensuring level playing field,
competition and a proportionate number of buyer and sellers through legislative policies and regulations.
In order to meet the deficit at the national/state levels, GoI liberalized the power sector in 1991 and
encouraged private participation through the concept of IPPs, wherein the IPPs are required to supply
their power to SEBs.
10 | S e l l i n g O p t i o n s f o r R e s t r i c t e d C a p a c i t y o f G S E G
As a further step in liberalization, the Electricity Act was implemented in 2003, which has provisions
Open Access (Third Party Sale), empowering regulators and unbundling of SEBs into Gencos, Transcos
and Discos.
The Indian power market, both generation and trading, are novice as compared to the international power
market wherein activities are carried on a very large scale since 10-15 years as compared to a time slot of
about 5 years since the need for a ‘organised’ electricity market was recognized and steps were taken to
bring the same into place.
Demand Management
The need for electricity is variable and not scheduled as in terms of quantity. Hence the load balancing
techniques form an important aspect of the ‘Inventory’ management system of the electricity supply. The
industry experiences seasonal and irregular daily demand variations. The need for power increases during
the peak hours of the day, 10 am to 5 pm, called peak power demand, and also during the seasons of
summer, where in electricity is consumed in greater quantities. For this, the main aim of a consumer is to
ensure the supply of the bare minimum amount for which the usage if confirmed and constant. The
additional requirements of power have to be adjusted with additional arrangements.
The constant need for power is sufficed through a long term power purchase agreement with a generating
entity, both central and independent power producers (IPPs). The other variable demand is satisfied
through medium and short term agreements, as the need may be. These variable contracts are negotiated
either directly or through traders. However, there is another provision for unscheduled and inadvertent
need, the UI (Unscheduled Interchange), like a spot market trading pertaining to overdrawing of
electricity from the grid over one’s stipulated limit. The detailed further splitting up of the market is given
as :
EXCHANGES – DAY AHEAD MARKET (Intra-day, Day
Ahead contingency, daily, weekly, monthly – upto 3

DEMAND months {9%}
DAILY
VARIATIONS
UI BALANCING – REALTIME {43%}
SEASONAL Short term Trades – BILATERAL – (Direct,

traders) : Day Ahead, FCFS, upto 3 months, Banking {48%}
BASE DEMAND – MANAGED THROUGH LONG TERM PPAs
Figure 1 : Diagrammatic representation of the Demand Settlement
Power systems have to make provisions for achieving a balance between real-time demand and supply.
The grid frequency has to be maintained within an IEGC specified frequency band of 49.0 to 50.5 Hz.
The utilities can deviate from their scheduled interchanges as long as the frequency remains with the
floating frequency regime. As seen above, with the base demand is satisfied with PPAs, the short term
variation are satisfied with contractual settlements and Unscheduled Interchange (UI) is used for real-time
balancing.
Power Contracts
Long term
Generally, for this, generators tie up with a discom for selling a larger chunk of their generated power.
The quantity and the sale price are based on the terms of the PPA settled between the two entities. The
PPA is arranged by the invitation of tenders. The generator floats out an open bid for the quantum of
power that it generates. Discoms, those interested, file out tenders for the evacuation. The appropriate bid
is then selected and the PPA is drafted out between the two entities. It is possible that the quantum of
power to be purchased might not be fixed. It depends on the cost of generation of the generator.
A Discom has PPAs with several generators. Power dispatch to the grid is done on the basis of the Merit
Order Despatch. According to this rule, cheaper power is dispatched to the grid over costlier power.
Discoms have to maintain a stipulated frequency of power that they put into the grid. Hence, they sort the
power from among the generators that they have. As a result, the generator with costlier power might be
asked to cut down on his generation processes. Hence, the plant does not operate at full capacity, leading
to a decreased plant availability factor (PLF)1, leading to Backing down losses for the plant, in terms of
MWhr that they produce.
Short term
The demand for electricity is variable and to a certain extent, haphazard. The seasonal variations in trend
can be predicted to a certain extent. The discoms tie up with the generators, through the PPA, for that
amount of power for which they is an evident and permanent demand. Entities prefer going in for short
term contracts for meeting the variations in demand and supply. Generators float bidding contracts and
invite tenders from potential buyers. According to the generating capacity being offered, the potential
customers file their bids and the appropriate bid is selected.
The trading for temporary contract power in times of variable demand is divided in to two types of
markets based on the transaction capacity and congestion to facilitate feasible meeting of demands; Spot
market which includes Intra-day and Day-Ahead market and the Forward market which includes the
Weekly and Monthly contracts.
1
Plant Availability is expressed as a ratio of the Operating hours + Standby Hours to the Total Year hours
Apart from contracts, UI regulation is widely used to trade power to meet seasonal, short-term and peak
demand. UI is a commercial as well as a disciplinary measure formulated to regulate the usage of
additional power over base demand. UI allows overdrawing power from the grid at higher rates that are
based on frequency of the power available at the dispatch centre and are generally associated with the
Regional Load Dispatch Centers (RLDCs) for the different zones in the country. Some of the issues
related to power trading in India are;
1) Procedurally difficult : Involves elaborate scheduling/dispatch procedures, co-ordinations with

load dispatch centres, securing open-access.
2) Relatively closed-loop price discovery : wide fluctuations due to local factors, prices not having
any underlying relationship to overall demand and supply, transmission scenario.
Bilateral Trade
Bilateral trade for power is a short term contract between two entities, for temporary settlement of
demand variation. It can be carried out in two ways;
1. Direct trading
2. Through traders
Direct trading forms 7% and through traders forms 41% of the total 48% share of bilateral trade in the
market for short-term power trade.
Bilateral trading takes place to settle the variations in demand. These variations are short-term in nature
and beyond being settled through long term contracts. Hence, entities tie up for short terms to suffice their
variable demand. Bilateral trading was limited within the state boundaries, prior 2003. However, after the
enactments of the Electricity Act, 2003, open access came into picture and trans-state business came into
play. The enactments gave the players enough authority to tap the market to search for players.
Bilateral trading takes place through inviting tenders. The bidding can take place between public and
private entities. In bilateral trading, the guidelines of either the Central Electricity Regulatory
Commission (CERC) or the State Electricity Regulatory Commission (SERC) come into force for
supervision of the deal. These guidelines come into play to ensure that foul play does not take place. But,
these regulations only come into play when one of the entities involved is a state player. In case of two
private players involved, the guidelines are not applicable.
There is, however, an exception to this case. Incase the private buyer is the end consumer of that power,
the guidelines are not applicable. But if the buyer intends to further put up the power for sale, which shall
ultimately reach the customer, the guidelines are applicable to prevent unnecessary inflation of costs
before reaching the customer. SERC guidelines are applicable when one is a state player (SERC is
applicable from this state) and the other is a private player. CERC guidelines are applicable when more
than one state player is involved.
Generally, an entity desiring to go into bilateral trade would proceed in the following way :
1. The desired entity skims the probable market for power sale.
2. Hereafter, an open bid takes place where tenders are invited to fulfill the requirement by the
buyer.
3. It is made sure that both, the buyer as well as the prospective sellers are in accordance with the
guidelines of CERC or SERC, whichever applicable.
4. As per the requirement of the buyer and the deals offered by the sellers, the appropriate bid is
selected.
Taking the case of a generating company, A that has seasonal additional power during winters and a
distribution company, B that needs power during the same time frame. These two entities enter into a
bilateral trade, where the contract is shaped as per the basis of it being beneficial to both, including the
cost of the traded electricity. This sale price might not be in compliance with the market rate or any other
PPA that might be in possession with either of the companies, as it is subject to non-transparent
negotiations.
Trading in a bilateral market, involves the evaluation of the potential market for power and is extremely
cost sensitive, which could be non-profit yielding contract for a generator who delivers costlier power.
Power Exchange
On a general note, an Exchange is a platform on which buyers and sellers come together to trade. An
Exchange is not the market but a ‘host’ to the market. In the same light, a Power Exchange is a platform
on which power is traded. An exchange is effective in a market-driven economy where the prices are
driven by the demand and supply. As opposed to non-market principles, it ensures a leveled playing field
for players, ensuring anonymity preventing unfair trade.
On an electronic Power Exchange, traders from a large geographical spread converge without their
identities being revealed. In this case, the anonymity of the traders is maintained; hence market
manipulation is thwarted and, in effect, a true market-driven power economy is enabled. It further,
enables the market to be driven genuine forces of power and supply, and not by vested interest.
In a contract negotiated over the exchange, the variable issues are Price, Time and Quantity, and all the
other issues are standardized. Hence the negotiations take place over a general and standard platform for
all the engaging entities.
Some of the benefits of using the exchange for trading of power are as;
Better price discovery of the traded electricity

Less overheads (search cost)
Payment security
Better price signals
Single check point on competitive prices (priority over bilateral contracts)
Another trend seen with the power industry are the transmission and distribution losses, which amount to
round 23% (estimated), in the Indian context. In the exchange, these losses are absorbed both by the buyer
(draws lesser than its stipulated amount) and the seller (injects more power in the grid).
International Power Exchanges

There are successful operating exchanges around the world like Nordpool and Powernext which have a
strong financial market equipped with adequate products and services for the market players, providing an
efficient trading platform for business.
Let us take a look at one of the successful international power exchanges in brief.
Nordpool Exchange (Northern Europe)
Nordpool is a major and one of the most liquid exchanges in Europe, operating between the Nordic
countries of Sweden, Denmark, Norway and Finland. Nordpool Spot AS provides a market place for
physical power through Day-ahead market, Elspot and an intra-day market, Elbas.
Among the other European exchanges, Nordpool has the highest market share in terms of the volumes of
power being traded.
2006 (TWh) 2007 (TWh) 2008 (TWh)
Nordpool Spot 250 291 298
EEX 87 123 146
APX 19 21 25
PowerNext 30 44 52
Table 1 : Market trading volumes of the leading European Exchanges
Source : Nordpool Spot AS company Presentation, 2009
The areas of operation of these exchanges are included as Exhibit 1.
The exchange was established in 1993, with a view to quote power prices for the Norwegian power
market. However, in 2002, with the splitting of the physical and financial markets, the Nord Pool Spot
was devoted to handle the physical trading of power.
The Nord Pool Spot AS operates in the physical markets based on the Nordic model of power exchanges.
Apart from providing a transparent platform for trading, cutting down transaction costs and managing
grid congestion, The Nordic model promotes inter-european co-operation through market coupling to
Germany, Netherlands and other European countries.
NordPool operates two types of physical markets based on the type of contracts ofered, Elspot and Elbas.
Elspot is a day-ahead auction based market for trading of physical power. It covers countries of Norway,
Sweden, Finland, Denmark and KONTEK area in Germany. About 70% of the total power consumption
in the Nordic countries is traded on an Elspot market.
Figure 2 : Relative trading volume on Nord Pool
Source : Nordpool Spot AS company Presentation, 2009
Trading on the Elspot market gives a provision of hourly contracts and block bids for the entities trading
on the exchange. In the hourly bid, the participant can select the range of price steps for the hourly
requirements of power. The block bids are aggregated bids for several hours with a fixed price range and
volume for the specified hours.
Price calculations are done by evaluating the purchase and sale bids, and then reaching an equilibrium
price, which shall be illustrated in the after sections.
The Elspot trading varies the price calculations in relation to the bottlenecks present pertaining to the grid
congestion. In case of no congestion, after the equilibrium price is decided, the whole region that is
covered by the market, shows similar pricing of power, after checking the transmission capacities
available. In case of congestion or bottlenecks present, according to the areas of concern, the prices are
fluctuated, raised or lowered, in order to smoothen out the congestion by indirectly affecting demand.
Thus, the region shows differentiated pricing.
The Elbas trading market is a physical adjustment market, designed to cater to the immediate needs for
power, for a time period shorter than 24 hours. It is an intra-day market with continuous trading of one-
hour contracts till one-hour prior to delivery.
In India, however, the concept of a regulated power exchange has come in to play from the year 2003,
which witnessed a change in the regulatory framework prevalent in the power market. Following are the
regulatory changes that took place since the year 2003 :
2003 June Enactment of Electricity Act ’03, development of an organized electricity

market
2006 July CERC issued a ‘Staff Paper on Development a Common Platform for
Electricity Trading’, whereby, it recommends a spot (day-ahead) market for
electricity trading, based on European model
2007 February CERC issued ‘Guidelines for setting up of Power Exchange
2008 January CERC Finalized new ‘Open Access Regulations for Inter State Transmission’
which includes guidelines for power exchange- based transactions
2008 June Guidelines for scheduling of transactions on exchanges
2008 October Finalization of operating instructions in a multi-exchange scenario
Operation
The exchanges operate on a daily basis. The operation includes different phases as illustrated below.
Time line of Exchange Operations
Bid accumulation period (Bidding phase)

During the auction sessions on each Trading Day, bids entered by Members on the IEX Trading Platform
are automatically stored in the Central Order Book without giving rise to Contracts. During this phase,
bids entered can be revised or cancelled. Bid accumulation period shall start at 10.00 AM and will end at
12.00 Noon.
Auction period
At the end of the bidding session, the exchange Trading Platform will seek to match bids for each hourly
contract. After the price determination phase is concluded, the Members, whose bids have been partially
or fully executed, will be provided all relevant trade information regarding each contract traded on the
IEX Trading Platform.
Price Determination Process (Provisional)

All purchase bids and sale offers will be aggregated in the unconstrained scenario. The aggregate supply
and demand curves will be drawn on Price-Quantity axes. The intersection point of the two curves will
give Market Clearing Price (MCP) and Market Clearing Volume (MCV) corresponding to price and
quantity of the intersection point. Results from the process will be preliminary results. Based on these
results the Exchange will work out provisional obligation and provisional power flow. Funds available in
the settlement account of the Members shall be checked with the Clearing Banks and also requisition for
capacity allocation shall be sent to the NLDC. In case sufficient funds are not available in the settlement
account of the Member then his bid (s) will be deleted from further evaluation procedure.
Price Determination Process (Final)

Based on the transmission capacity reserved for the Exchange by the NLDC on day ahead basis by 2.00
PM, fresh iteration shall be run at 2.30 PM and final Market Clearing Price and Volume as well as Area
Clearing Price and Volume shall be determined. These Area Clearing Prices shall be used for settlement
of the contracts.
Settlement
On receipt of final results, obligations shall be sent to Banks for Pay In from buying Members at
2.30 PM and will take confirmation of the same from the Bank. At 3.00 PM final results will be sent
to NLDC / SLDCs for incorporating in final schedules. Once a transaction is scheduled it shall be
considered as deemed delivery
Delivery of power
Delivery Point
Delivery point for the purpose of contract, shall be reckoned as the periphery of Regional
Transmission System in which the grid-connected exchange entity is located. The same shall be
used for the purpose of payment of transmission charges in cash and transmission losses in kind.
For example, delivery point for a state-embedded entity in Maharashtra shall be WR periphery.
Day-ahead Scheduling of Exchange traded contracts

The Exchange traded contracts will be aggregated for each region and State for each hour. This
will also give net contractual flows between regions and/or bid areas. After the schedules are
issued by NLDC/SLDCs, the delivery shall be deemed to have been completed.
Transmission Capacity, Transmission Charges and Losses

 Levy of transmission charges
Following Transmission Charges shall be payable by the Members for the traded contracts:
Transmission Charges for respective Regional Transmission System, as made applicable under the
Central Electricity Regulatory Commission (Open Access in inter-State Transmission)
Regulations, 2008.
Transmission Charges for respective State Transmission Licensee, as decided by the concerned
State Electricity Regulatory Commission. In absence of any direction or order from concerned
SERC, in this respect, the provisions as stipulated in the Central Electricity Regulatory
Commission (Open Access in inter-State Transmission) Regulations, 2008 shall be applicable.
Socialized Scheduling and Operating Charges for trades on the Exchange. The Exchange shall pay
such charges based on Central Electricity Regulatory Commission (Open Access in inter-State
Transmission) Regulations, 2008 to NLDC and SLDCs. Such charges shall be socialized over all
transactions within respective State(s) and Region(s).
Any other charges as specified by CERC.
 Transmission Losses:
All grid connected exchange entities shall pay, in kind, the transmission losses from delivery
point to its grid connection point. Transmission losses, for the Regional Transmission System, as
decided by the NLDC for Collective transactions, shall be accounted for at the time of
scheduling. Similarly, transmission losses for the State Transmission Licensees, as prescribed by
the respective SERC, shall also be accounted for at the time of scheduling.
Markets
The operations on an exchange consists of different types of contracts, mainly consisting of a Day-ahead
market (DAM). Further on, the contracts can be divided into a spot market (Intra-day and Day ahead) and
Forward market (Weekly and Monthly contracts). DAM is a major tool of operation used by both the
exchanges for trading.
DAY-AHEAD MARKET
Double-sided closed option (the traders are anonymous of the bids that are placed, both on the
demand as well as the supply side)
Hourly contracts (1-24 hours)
No possibility of reversing or squaring off of contracts
Hourly variation in price
The different exchanges have slightly different specifications pertaining to the DAM.
The exchanges provide facility to even trade the scrap capacity available with a seller.
Special provisions
Congestion management is an important factor and a special provision that is taken into concern with the
exchange. Imbalance of power within the different regions can lead to congestion. This can delay the
supply and transmission of power the following note details how the exchange tackles congestion by
altering price. Let A and B be two areas, A being a surplus area and B being a deficit area. An equilibrium
price, P0 , is reached by taking an unconstrained scenario for the sale and purchase bids, for both the areas.
Area A + Area B
Having reached an equilibrium price, the areas with deficit and surplus are recognized in order to make
price adjustments. Let us consider area A, which has surplus power. In this area, the prices are lowered.
Lowering of prices shifts the equilibrium price point to the right, thereby increasing demand to Q 1 and
reducing the quantity of sale bids for that area. Thus, the surplus area is eased out.
Area A
Similarly, area B has deficit power. Thus, price adjustment is done in such a way that the sale bids
increase. The price is raised to P2 in the area B. raising the price shifts the equilibrium price to the left,
decreasing the quantity of purchase bids to Q2 and increases sale. Thus, the deficit in the area is
normalized.
Area B
Congestion management is an important tool for power exchanges in order to ensure unconstrained flow
through the grid.
Grid Management
Transmission and grid management are the essential functions for smooth evacuation of power from
generating stations to the consumers. Transmission function primarily consists of construction and
maintenance of transmission infrastructure while the job of grid operator is to give operating instructions
to the engineers in the field and ensure moment-to-moment power balance in the inter-connected power
system. Grid management involves taking care of the overall reliability, security, economy and efficiency
of the power system.
Grid management is carried out a regional basis in India. The country is geographically divided in five
regions, namely Northern, Eastern, Western, North-Eastern and Southern. All the states and the union
territories fall under either of these regions. The first four of the grids operate in a synchronous mode,
which implies that the power across these regions can flow seamlessly as per the relative load generation.
The Southern region is interconnected with the rest of the India grid through asynchronous links. This
implies that the quantum and direction of power flow between the Southern grid and rest of India grid can
be manually controlled.
Let us look at the hierarchy of the grid infrastructure.
Figure 3 : Grid Infrastrucutre
The Load Despatch Centres basically aim at optimum scheduling and dispatching of electricity within the
region, in accordance with the contracts entered into with the licensees or the generating companies
operating in the region and keeping accounts of the quantity of the electricity transmitted through the
regional grid.
Grid management functions can be segregated into different types; ex-ante, real time and post-facto;
according to their nature of operations.
The ex-ante functions are more in nature of planning for the day of operations. It involves estimating the
future scenarios, evaluating options and making elaborate plans to meet the anticipated as well as
unforeseen events.
The real-time functions comprise of balancing the dynamically varying supply and demand of energy in
the inter-connected system.
Regional Electricity Market
The regional electricity in India is governed by frequency linked operation and commercial settlement
mechanism known as Availability Based Tariff (ABT) and Unscheduled Interchange (UI).
Unscheduled Interchange : The UI mechanism is often seen as a disciplinary as well as regulatory

measure, in order to bring order to the grid, by maintaining the frequency within the permissible window.
(Soonee, Narasimhan, & Pandey, 2006)
Prior to the implementation of the ABT, the incentives were linked to the actual production and not
availability. Hence, it led to the generators pumping in electricity, irrespective of the system frequency
and they were paid incentives as per the amount put into the grid. It led to the increasing of operational
costs for the generators. On the other hand, the utilities would draw from the grid with impunity, even in
deficit and returned equivalent energy to the system during surplus conditions.
UI mechanism encourages the utilities to conserve when in surplus so as to provide when in shortage and
thus smoothen the frequency curve. The UI rate is a frequency-activated signal. Every utility reacts to this
signal in real-time and adjusts its generation/demand and a new equilibrium is achieved. The decreasing
marginal returns with every additional unit of deviation from the scheduled interchange acts as a counter-
weight, which forces the utility to seriously weigh the consequences of its actions. Thus, a collective
action results in a Nash equilibrium, where the pay-off for every player is maximized. The UI rate at any
frequency represents the marginal price of the costliest generator that is expected to be on the bar at that
frequency that forces other players to optimize their exchanges with the grid in order to maximize their
profits or minimize their costs. The UI rate, therefore, needs to be readjusted whenever the energy costs of
generation in the country get revised, similar to ABT.
ABT shall be covered under pricing of power.
Open Access and Electricity Trading
Open Access (OA) has been implemented in all the regions since May 6, 2004 in line with the open
access regulations issued by CERC. The regulations aim at promoting non-discriminatory usage of the
transmission system by customers after payment of appropriate charges. Open Access comes into play
after the customer has accessed the stipulated limit.
Access can be granted under two categories : long term and short term. Long term access is granted for
usage of 25 years or more while the short term access is for a maximum of three months at a stretch. As
per the existing regulations, the long term users pay higher charges and have a higher priority over short
term users. Under the short term category, the reservations can be made under the categories of Advance,
First-Come-First Served, Day-ahead and Same day.
Open access in transmission effectively introduces competition in the wholesale electricity market.
Although the overall inter-state trade volume is currently only 3% to 5% of the country’s total energy
consumption, it has had a multiplier effect on the entire power sector by promoting competition,
efficiency and economy. (Pandey, 2007)
The regional transmission system and the inter-regional links are being utilized to transport surplus
hydro-generation in the north-eastern region and pithead generation in the eastern region to the energy
deficit load centres in the northern, western and southern regions. The inter-regional exchanges have
increased manifold after the introduction of open access. Almost all utilities in the grid have taken
advantage of the open access provisions and transactions have taken place in all the possible directions in
the country. The electricity trade has grown further after the commissioning of new generating stations
and the establishment of an organized platform for trading in the form of a Power Exchange. The grid
operator would continue to provide the interface between the physical system and the electricity market
Pricing of Power
The pricing of power can be assessed in three different ways, depending on the type of contracts which
are in concern. However, the mechanism through which power is priced is almost similar in both, long-
term and the bilateral trading, except for the distinction of the terms and tenure of the contract.
Long term contracts and Bilateral trading

Pricing of power in long term contracts, or rather through PPAs and bilateral trading is generally
negotiated between the two entities.
The pricing of power is very essential from the point of view of revenue earning from power sale. The
cost of generation of power involves two aspects :
1) O&M costs and Fixed costs

2) Input fuel price
Fixed costs cover the costs involved in the setting up of the plant, the infrastructure and the financial
structuring opted for. They are :
1) Debt obligations
2) Interest charges
3) Lease and Hire rental charges
4) Capital cost and
5) Settling of exchange rate, if required.
The Operations & Maintenance cost depends on the efficiency of a power plant to generate power. The
various risk factors that can affect the O&M costs are :
1) Plant availability
2) Plant load factor2
3) Heat rate degradation3
4) Spares consumption and prices
5) Manpower turnover
6) Unscheduled/Scheduled maintenances
7) Logistics support
8) Daily operations
The above factors can affect the O&M costs, and hence, need to be assessed as per their risk factors.
The input cost of fuel is variable and depends on the type of power plant established. Over the various
fuel inputs like coal (imported or domestic), Liquefied natural gas, Natural gas is a viable and cheaper
option. (A relative comparison of the four viable fuels is included as Exhibit 5). However, the capital cost
for a natural gas fired plant is relatively higher. The other renewable sources like hydel- or wind power
plants also have a high cost devoted to capital assets and the technology used in generation. For a certain
type of power plant, the fuel cost is fixed through a Fuel Supply Agreement (FSA).
2
Plant Load Factor is the ratio of the Average produced power to the output of the plant operating at full capacity.
3
Heat rate is the efficiency level of a generator to use the input BTUs of heat fed to the feedwater to produce 1
KW of energy.
The sale price of power is fixed on a two-part tariff basis which involves two components :
1) Capacity charge
2) Energy charge
The pricing is generally done on a cost-plus pricing basis which covers the targeted return. The capacity
charge covers the fixed costs like O&M expenses and other capital costs. The energy charge covers the
fuel costs. Hence, the fuel chosen plays an important role in the influencing the ability of power to avoid
backing down losses.
Backing down losses to a power plant are generally those losses which occur when a plant does not
operate at optimum PLF. It can occur due to the following reasons :
1) Load restrictions due to costlier power. Like, a trader might have three to four generators on his
list for power purchase. In order to maintain the transmission limit, the power dispatch depends
on merit order dispatch. That is, cheaper power gets an evacuation preference over costlier power.
Thus, the generator having costlier power is forced to generate power according to the
requirement put forth by the evacuator.
2) Restrictions in gas supply from the supplier
3) Power losses due to the shutdown of machines, scheduled or for maintenance or on account of
tripping.
Out of all these causes, load restriction occurs due to the plant generating costlier power. The other
avoidable loss is due to the tripping of machines which can be eased out by maintaining a proper
environment of the turbines. The other causes, to a certain extent, are outside the influential circle.
The most important aspect of grid maintenance is the load generation balance within the region it operates
in. Regulations are devised in such a manner that generators get their profit and everyone are initiated to
maintain the required frequency level in the grid. India plans to have an Integrated National Grid, to
ensure least cost supply of power. It would mean an amalgamation of the five regional grids, which have
varying operational parameters, which include frequency. Such an initiative would require normalization
of the frequency across the grids with proactive load management. Another issue is the varying amount of
surplus and deficit in the five grids. The north and the eastern grid have surplus power while the Southern
and Western grid has a deficit. This leads to a decreased frequency operation, leading to long-term
damages and a hidden cost that is borne by the customers.
Availability Based Tariff (ABT) is a recent, government initiated tariff system, which is a revision of the
existing tariff design. ABT is a performance based tariff for the supply of electricity by generators owned
and controlled by the central government. It is also a new system of scheduling and dispatch, which
requires both generators and beneficiaries to commit to day-ahead schedules, and of rewards and penalties
seeking to enforce day ahead pre-committed schedules, though variations are permitted if notified one and
a half hours in advance. The order also emphasises prompt payment of dues.
ABT is a two-part tariff system, consisting of the following components :

1) A fixed Charge (FC) payable every month by each beneficiary to the generator for making
capacity available for use. The FC is not the same for each beneficiary. It varies with the share of
a beneficiary in the generator’s capacity. It also varies with the level of availability achieved by
the generator. In case of gas fired and thermal plants, the FC has not been been defined by GOI
notification. Hence, it comprises of loan interest, depreciation, O&M expenses, ROE, income tax
and interest on WC.
2) An energy charge per kWH of energy supplied as per a pre-committed schedule of supply drawn
upon a daily basis.
3) A charge for Unscheduled Interchange (UI charge) for the supply and consumption of energy in
variation from the pre-committed daily schedule. This charge varies inversely with the system
frequency prevailing at the time of supply/ consumption.
ABT attempts to promote financial incentives to promote grid discipline.
Pricing on the exchange

There are certain factors that influence price of power that is bidden on the exchange. They are :
1) Season of sale : The demand of power undergoes seasonal variations. For example, the regularity
or irregularity of the monsoon tends to vary the electricity demand. During intermittent, irregular
or no showers, the demand goes up as the atmosphere does not cool down, and hence people tend
to use cooling appliances discreetly.
Figure 4 : Selling price of power on the Exchange (June 2008 – May 2009), in Rs./KWh
2) Period of the day : The period of the day during which the power is sold also affects the price.
The variation occurs due to the activity level associated with a particular hour.
Figure 5 : Average Hourly Market Clearing price for April 2009, traded on IEX, in Rs./KWh
During the peak hours of the day, office hours between 10 am to 4 pm or 5 pm, the consumption
(Demand) is higher. With the supply being limited, the price of power goes up during this period.
3) Shutdowns : The Central Electricity Authority (CEA) receives yearly schedules of the power
generation statistics from generators, including shutdowns for maintenance purposes. Thus, the
area where a shutdown in power plants is observed shows a raise in demand in that area, with a
decrease in supply. Hence, automatically, the price in that area goes up.
The price is decided on the basis of the demand and supply of electricity by the bidders. The algorithm of
price calculation is done on a hourly basis, in MWh. The whole process is described in detail below:
Let us consider the portfolios of three bidders; A, B and C. These three bidders submit anonymous bids
pertaining to the quantum of power they would purchase or sell at different prices of power (in units of
Rs./KWh). The following table summarizes the nature of bids submitted online.
Price 0 1 1.1 2 2.1 2.5 3 3.1 4 4.1

Rs./kWh
A, MW 20 20 20 20 20 20 20 0 0 0
B. MW 60 60 60 60 40 40 40 40 40 20
C, MW 40 20 0 0 -40 -60 -80 -80 -120 -120
Purchase 120 100 80 80 60 60 60 40 40 20
Sale 0 0 0 0 -40 -60 -80 -80 -120 -120
Net 120 100 80 80 20 0 -20 -40 -80 -100
An algorithm, or rather a demand-supply curve, is then plotted taking the total data registered for
purchase and sale to help reach an equilibrium price. The equilibrium price is then and the corresponding
data are then registered as the selling price for a particular market clearing volume data (MCV).
Price
4 Sale
Purchas
e
Rs/kWh 3
MW
4 8 12
0 MW0 0
Figure 6 : Determination of Equilibrium Price
In the diagram above, portfolio A and B emerge as net buyers at the price of Rs 2.5 per kWh. Portfolio C
sells 60 MW, out of which 20 MW is purchased by A and 40 MW by B.
With bids accumulated on a country wide basis, congestion may happen. To manage that, market splitting
has been proposed. For which, the country will be divided into five price zones, north, north east, east,
south and west.
Gujarat State Electricity Generation
Company Description
Gujarat State Electricity Generation (GSEG) is engaged in the production of gas based electricity, from
their power plant at Hazira. The company is a special purpose vehicle (SPV) floated by Gujarat state
Petroleum Corporation (GSPC) with a view to covering the different verticals of the energy sector. GSEG
has a power plant commissioned at Hazira which uses natural gas as a fuel for generation. Natural gas is a
clean and economically cheap option, which allows GSEG to generate electricity at competitive costs.
GSEG manages its electrical utility with the following initiatives :
1) Advanced power generation and management practices, and improve the efficiency of power
supply to Gujarat Electricity Board
2) Operations at least-cost
3) Full compliance with the health, safety and environmental regulations of Gujarat
4) Excellent working conditions to optimise the skills and potential of the staff and managers
involved.
GSEG has a present generation plant with a capacity of 156.1 MW at Hazira. The first phase of expansion
is on way which would expand its capacity to360 MW. The company plans to further expand capacity by
commissioning larger projects and expand its reach in the distribution vertical of the power sector.
Combined Cycle Power plant at Hazira

The combined cycle power plant at Hazira in possession of Gujarat State Energy Generation has two
components – the existing Plant of a capacity of 156 MW and the expansion plant with an additional
capacity of ~350 MW.
The plant comes under the Western Region Electricity Board (Installed Generation capacity of 8797 MW,
for the year 2005 and a deficit of about 3500 MW). The major players operating on the western board are
as follows :
1) State : GEB
2) Central : NTPC
3) IPPs : AECo, GIPCL, Essar, GPEC, GSEG
The plant has a fixed Fuel supply agreement (FSA) and a Power purchase agreement (PPA), for its input
and power evacuation, for both its components.
The FSA is with GSPC- Niko for its natural gas supplied through GSPL cross-country pipelines, laid upto
the existing plant, from its wells in Hazira for both the capacities. The plant has a fuel requirement of
0.42 MMTPA, wherein GSPC is able to supply about 80% of the total requirement, and the rest fuel
requirement is completed through LNG.
The power evacuation, for its present plant, is facilitated through PPA with Gujarat Electricity Board
(GEB), wherein the plant is connected to the grid through two 220Kv switchyards.
Plant configuration
The plant is a combined cycle power plant. It utilizes natural gas as a fuel. Normal thermal plants have an
efficiency of about 30% to 40%. In CCPP, the efficiency of generation rises to about 44%- 50%, with
some of the latest plants having efficiencies in excess of 55%. The mechanism has a combination of a gas
turbine generator (Brayton cycle) with turbine exhaust waste heat boilers and steam turbine generator
(Rankine cycle).
In a combined cycle operation, the exhaust gases from each gas turbine are ducted to a waste heat boiler,
also called a Heat recovery system generator. The heat in these flu gases, ordinarily exhausted to the
atmosphere, generates high pressure steam. This steam is piped to a steam turbine. Such a plant requires
low maintenance fuels like natural gas and light distillate fuels, which are expensive.
A diagrammatic representation of a combined cycle power plant is enclosed as Exhibit 2.
The present plant has two operational gas turbines and one steam turbine.
Present configuration :
Generation capacity of 156.1 MW

Year of operation : GT11 & GT12 since December 2001
STG – June 2002
Total operating hours : GT11 (32751), GT12 (27886), STG (29964.7)
Least cost option study – Relative comparison
Conversion Coal Based Thermal Power Plant CCPP (Regassified Natural gas)
Comparatively lesser efficient More efficient
Operational efficiency of 38% with the best Higher output & operational efficiency of 60% on
available fossil fuel net calorific value basis
Higher requirement of cooling water with a Steam turbine output of 50%, lesser requirement of
plant of similar capacity cooling water
Environmental hazard of ash disposal No environmental hazards, lesser gestation period
Based on coal, non- renewable fossil fuel Based on clean fuels
Table 2 : Fuel Comparison
Fuel Source
The present plant utilizes natural gas as a source of fuel, which is delivered by GSPC- Niko, as mentioned
above. The choice of fuel depends on the following deciding factors :
Cost of generation
Flexibility in operations
Location construction
Infrastructure availability
Environmental concerns
There are various options for fuel inputs; coal, LNG and other sources like fuel oil.
NG as a source, is cheaper and is environment friendly. This reduces the cost of generation for the
company, allowing it to produce power at a cheaper rate.
The statistics for the usage of NG is as under :
Gas Source : GSPL Niko, hazira
Quantity : 0.8 MCMD (33600 Nm3/hr for 2 GT)
Total gas consumption : GT11 + GT12 = 0.78 MCMD
The comparative analysis of the four fuels is given as Exhibit 3.
Production Data
The present plant operates at an average PLF of 85%, with an installed capacity of 156.1 MW. Operating
at a full capacity, the plant would produce, on a monthly basis ;
Days in a Month Generated Capacity (in MWh)

30 112392
31 116138.4
28 (February) 104889.2
Table 3 : Production at full capacity
However, due to Actual Commercial and Technical losses and that a CCPP power output depends on
ambient conditions typically giving lower output during high ambient temperatures, the plant does not
operate at full capacity. The following table gives a record of the production data from the period of June
2008 to May 2009.
Month Production Data (in MWh)

June 2008 101707.9
July 2008 69323.28
August 2008 56686.32
September 2008 58416.4
October 2008 83409.71
November 2008 107555.3
December 2008 106715.4
January 2009 101719.7
February 2009 96330.7
March 2009 108013.9
April 2009 111752
May 2009 114098.5
Table 4 : Actual production data
Amount of losses incurred
The plant, as observed, operates at an average 85% PLF. Losses observed by the plant are mainly backing
down losses.
The following graph shows the total quantum of losses incurred by the plant.
Figure 7 : Total monthly loss for the period June 2008 – May 2009, in MWh
Nature of losses
The plant highlights three possible types of losses, mainly backing down losses:
1) Load restriction : The power plant of GSEG uses a costlier fuel of natural gas for generation.
However, fuel supply restrictions from the supplier leads to the usage of LNG to about 20%.
Moreover, the capital costs of the plant, it being a combined cycle plant, are higher. Hence, the
power produced by the plant lands up as being costly to GEB. As a result, the plant shows
backing down losses due to load restriction. The following graph shows the loss amount due to
load restriction.
Figure 8 :Monthly Load Restriction loss data for the period April 2008 – May 2009, in MWh
As the power is costlier to GEB and under the Merit Order Dispatch flow, the plant cuts down on its
produced capacity, or rather slows the generation process, as ordered by GEB, influenced by the demand
in the grid. This leads to the plant not functioning at optimal capacity, leading to losses.
2) Operational losses : These type of losses occur due to operational fallacies and failures. They
include planned and unplanned shutdowns (machine and generator tripping), part load operation
of certain turbines. The following graph enlists the total operational losses for the plant, including
all the parameters and conditions.
Figure 9 : Monthly Operational losses for the period April 2008-May 2009, in MWh
As mentioned above, the operational losses can be broken down into three types :
Forced Shutdown
Planned shutdown
Part load operation of the turbines
Out of all the months, planned shutdown of the turbines for maintenance has taken place majorly on a
large scale basis only in the month of April 2008, where it comprises of the entire volume of 20008.5
MW. In the other months, the losses comprise more of unscheduled maintenances, peaking in the months
of August 2008 and September 2008, indicating operational inefficiencies in the working of the turbines.
The power losses due to part load operation of the turbines are introduced from the month of December
2008.
3) Fuel Restriction Losses : This third type of losses have been described as occurring due to the
insufficient availability of fuel from the supplier, thereby forcing reduction in generation.
However, these losses are nil, in case of the plant.
Out of the above losses, the generation losses due to load restriction can be utilized to generate extra
revenue. The plant has surplus capacity which remains unutilised and hence, unsold. This extra capacity
can be tapped and sold through a suitable platform to generate extra revenue for the company. The deal
here is to find an optimum platform which would guarantee risk-free sale of the power, taking into
account the generating cost and type of power which would be offered.
Options and Evaluation
In the chapters above, we have seen that GSEG has a long term PPA with GEB which forms a constant
source of power evacuation. In this agreement, the prices are negotiated and fixed at a certain price, with
fixed terms. As also witnessed above, GSEG shows extra generated power capacity which remains
unsold, and hence could be an added source of revenue. Looking at the variation in the power that would
be up for sale, the market that would concern GSEG is the short term market.
Short term market

Since the power that would be traded on the exchange is variable and not frequent, the power has to be
traded in the short term market. As mentioned above, there are two options available for trading, bilateral
and the power exchange.
Bilateral market – Power exchange : Relative Comparison

Tapping a bilateral market, involves the evaluation of the player and the probable demand in the market.
It also involves different aspects like;
The generation cost,

Efficiency level of the plant,
The ability and the strength of a plant to negotiate and, to a little extent,
The type of power plant involved.
GSEG has a higher cost of power, and thereby, finding probable partners would be a little hassle, wherein
the players cold have an access to cheaper power. Moreover, on the exchange, the company gets varied
options in terms of players, where as through bilateral trade, the options are restricted to the bids that are
received. Financial security is also provided by the exchange acting as an intermediary. Thus, the
exchange is more feasible option as compared to bilateral trade.
Power Exchange
The Indian power market has two different operational exchanges. They are ;
1) Indian Energy Exchange (IEX)

2) Power Exchange India Limited (PXIL)
Indian Energy Exchange

Indian Energy Exchange (IEX) is India’s first, nation-wide, automated and online power exchange. IEX
received its approval from the Central Electricity Regulatory Commission (CERC) on August 31, 2007
and commenced operations from June 27, 2008 (Srivastav, 2009). Financial Technologies (India) Ltd.
(FTIL) and Power Trading Corporation India Ltd (PTC) a leading power trading company are the
principal promoters of IEX. In recognition of the significance of IEX in the modernisation of the
electricity market in India, a number of prominent players in the Indian electricity market have taken
stakes in the Exchange. They include Infrastructure Development Finance Company (IDFC), Adani
Enterprises, Reliance Energy, Lanco Infratech, Rural Electrification Corporation (REC) and Tata Power
Company.
Power Exchange India Limited

Power Exchange India Limited (PXIL) commenced operations from October 22, 2008. PXIL is promoted
by National Stock Exchange (NSE) and the National Commodity and Derivatives Exchange (NCDEX).
The entities that have a stake in the exchange are Power Finance Corporation Limited (PFC), Gujarat Urja
Vikas Nigam Limited (GUVNL), JSW Energy, GMR Energy and Jindal Power Limited.
The market system at PXIL offers a spot market and a realtime market, pertaining to the services offered.
The exchange operates a day-ahead market, a 24 hour period sub-divided into hourly contracts. The
software accepts simultaneous buy and sell bid portfolio. The bids remain anonymous and the bidder can
have the flexibility of bidding for time blocks, even of an interval of 15 minutes with the Block-bid
option. The finance between the participants is handled by the exchange which acts as an intermediary.
The types of contracts offered are normal DAM type and block bids, restricted only to the sellers.
The price calculation is similar to the equilibrium pricing. The pricing is the main tool that is used to
manage congestion. As explained in the Nordpool type of pricing differentiation, the following steps are
involved in the price calculation for congested areas;
1) Calculation of Market Clearing Price (MCP) for normal flow of power, without congestion.
2) Identification of areas of probable congestion, transmission bottlenecks
3) Identify surplus areas and deficit areas
4) Increase price in deficit area (Supply increases and demand decreases)
5) Decrease price in surplus area (Supply decreases and demand increases)
Pricing for the real time market is based on the frequency of the system. Of the metered generation
registered, a part would be taken for the spot sale contract. The imbalance is put up for real time
transactions. In the real time market, the pricing of power is based on frequency of the system. The
amount of power in the system decides the price of the power to be supplied. The pricing includes
penalties for over-drawal and under-supply of power and benefits for a reverse situation.
All the other terms and specifications are similar to that of IEX.
Relative comparison between the exchanges

Both the exchanges, IEX and PXIL, have almost the same terms and conditions and function on the same
principle. H owever, the exchanges can be differentiated on the basis of the following points :
1) Market share and present position
2) Membership options
3) Contracts offered for trading
4) Technology support
Market Share
IEX has commenced its operations earlier than PXIL. On the market position front, IEX has a
comparative 92% share as compared to an 8% share of PXIL.
Figure 10 : Relative Market Share of the two Exchanges
The 92% pertains to a trading of 2142 MUs and the 8% to a 185 MU. As compared to PXIL, IEX has
access to all the states of the country, 23 to be precise, and has a turnover of Rs. 2451 crores.
The exchange has a wider customer base of participants interacting on the platform as compared to PXIL.
Figure 11: Monthly Summary of Electricity traded on Exchanges, IEX & PXIL
Over a period of 6 months, the relative share of PXIL has averaged between 2% to 19% of the total
electricity traded via an exchange.
Figure 12: Daily Average Traded Hours (2008-2009)
The daily trading hours shows that the platform of IEX is utilized almost for the entire day (24 hours) for
the past 7 months, except January 2009 where the figure fell to 19.9 hours. On the other hand, PXIL
showed trading for about hours ranging from 25%-50% of the entire day length. This indicates that the
client exposure and power traffic is higher on IEX than PXIL.
Figure 13 : Monthly Average Traded Hours (2008-2009)
Membership Options
IEX and PXIL have drafted membership options almost on the same lines but have different ways of
offering it. The membership costs have different fixed costs as per the type of membership opted for and
the transaction costs, a source of income for the exchanges, varies accordingly. While considering both
the exchanges, either one can trade electricity or be a clearing member as in terms of finance, or be both.
The basic layout of the terminology of the memberships is given as;
Trading Member : Entities that trade electricity on the exchange. (Generators, CPPs, IPPs)
Clearing Member : Entities which handle the financial transactions of the traded power. (Lenders and
banks)
Professional Member : Entities that handle transactions on the behalf of other traders. They can either
be professional traders or clearing members.
Proprietary Member : Entities that handle transactions on their own behalf only, both trading and
financial aspects.
Both the exchanges offer different combinations of memberships, with varying membership fee. Let us
look at the individual exchanges.
Indian Energy Exchange
Figure 14 : IEX Membership
The fee structure for a Proprietary and a Professional member is given as :
Table 5 : Fee Structure for IEX
The above structure has two options, with a varying transaction fee. The full payment option has a
transaction fee of 1 paise/kWhr and the light payment option has a transaction fee of 2 paise/kWhr.
Beside the two options, the entity may choose to be a client at a fee of Rs.1 lakh. The proprietary
members need to have a grid connectivity and a standing clearance from the State Load Despatch Centre
(SLDCs).
Power Exchange India Limited
The membership details are given as below:
Type of Membership Entitlement Suitable for

Trading Member (TM) Entitles the member to trade, both Smaller captives, representatives of
for themselves and/or on the behalf captives
of their clients
Trading and Self-Clearing Entitles the members to trade and Large captives and utilites
Member (TSCM) clear for themselves only
Trading cum Clearing Member Entitles the members to trade and Traders/ Active utilites
(TCM) clear for both, themselves and/or on
behalf of their clients
Professional Clearing Member Entitles the members to clear on Lenders/ Large banks
(PCM) behalf of other TMs
Table 6 : Membership Options for PXIL
The fee structure of the above membership options are given as follows :
TM TSCM TCM PCM

One Time Fee 5 10 10 0
Annual Fee 1 2.5 2.50 1
Interest-free security 10 25 40 50
deposit
Processing fee 0.05 0.05 0.05 0.05
Total 16.05 37.55 52.55 51.05
Table 7 : Membership fee for PXIL
The interest-free security deposit of Rs. 40 lakhs for a TCM is for a maximum of self+ 5 clients. For
every additional client over this stipulated limit, a fee of Rs.2 lakhs has to be paid.
PXIL has a variable transaction fee of 1 paisa/kWhr, applicable to all the membership options.
Considering GSEG, a power generator, with IEX, it could either become a Proprietary member or a
Professional member, depending on the following factors :
1) Resources at disposal : Trading on the exchange requires expertise, from the viewpoint of adept
manpower. The manpower, if available, can be utilised to tap the market of trading on behalf of
clients by becoming a Professional member. This would lead to additional avenues opening up in
terms of business and revenue.
2) Another factor is the availability of funds which can be dispensed towards selling the extra
capacity. However, the fund factor depends on the quantum of the power that would be traded on
the exchange. Incase the plant has huge quantity of power that it trades and for a long time
duration, the full payment option seems viable as the transaction fee for the same is low. This
would be feasible as the transaction cost is lowered as compared to the light payment option.
However, if the voluminous trade ceases only to be seasonal, with nominal mundane trading, the
light payment option would be feasible.
Considering PXIL, GSEG could opt for any option except for a Professional Clearing Member.
IEX offers a more simplified membership option, which is relatively economical as compared to PXIL.
Ideally, taken the expertise and the PPA of GSEG, the company does not have the adequate manpower to
deal on the exchange. Moreover, the expansion phase of the plant to 360 MW is also underway. At such a
juncture, extra funds would be needed towards the expansion phase. With the lack of manpower too, the
undertaking of trading on behalf of other clients would not be optimally profitable. Hence, in these
circumstances at hand, the viable option here would be the membership with IEX. The option of the full
and light payment can be decided on the basis of the volume traded. The extra cost as compared to PXIL,
at places, can be settled against the fact that IEX has an international based technology support and a
wider customer base to interact with, coupled with a dense trade traffic.
Contracts Offered
PXIL has an operational Day-ahead market for transactions and a real time market for balancing the
variations. On the other hand, in addition to the DAM, IEX proposes to have a Term- Ahead market.
TAM would offer contracts with features that are listed below :
1) Regional contracts
2) Concurrence with SLDCs
3) Product categories
The different product categories available are;
1. Monthly contracts : Delivery Far Month (Contracts for delivery in the fourth month, counting the
current month as the first), Delivery Middle Month (Contracts for delivery in the 3 rd month), Delivery
Near Month (Contracts for delivery in the 2nd month)
2. Weekly contracts
3. Daily contracts
These term-ahead contracts would be similar to bilateral contracts, but with certain enhancements. The
term-ahead market would also cover regional contracts. IEX has received inprinciple approval from
CERC for these TAMs.
Further on, the exchange also proposes trading of the following environmental-friendly certificates :
1) Green Certificate Trading (REC) : Facilitate trading of renewable energy certificates, the trading
would be in accordance with National Renewable Energy Law being prepared by GoI.
2) White Certificates Trading : Facilitate trading in energy savings, blueprint by MoP under
National Action Plan for Climate change.
Technology Support
OMX Technology, Sweden, the technology provider to the world’s leading power exchange,
NORDPOOL, has joined hands with Financial Technologies (India) Ltd to provide technology support to
Indian Energy Exchange (IEX). OMX is a leading expert in the exchange industry. It owns exchanges in
the Nordic and Baltic regions, and develops and provides technology and services to companies in the
securities industry around the globe. In power trading, OMX is a pioneer, with four power exchanges in
Europe currently using its technology. Financial Technologies is a leading technology enterprise
specialising in providing technology for organized markets connected with multiple asset classes such as
securities, commodities, debt, and foreign exchange. IEX is the seventh exchange with which Financial
Technologies is sharing its systems management expertise in trading, clearing and settlement operations .
Thus, IEX has access to an established and sophisticated technology support as compared to PXIL.
Based on the above factors, IEX proves to be a better trading platform as compared to PXIL.
Costing Analysis
Comparative costs of other options

GSEG has the following different options for evacuation of the restricted capacity; bilateral trade, power
exchanges (IEX & PXIL) and UI. The following table gives the relative comparison costs of trading on
the different platforms.
Aug 08 Sept 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09

Bilateral 6.78 7.17 7.78 7.98 7.89 7.23 6.58 7.34
IEX 7.50 7.68 8.46 7.56 6.14 6.42 5.62 6.42
PXIL 7.57 7.22 6.58 5.86 4.42 6.24
UI 5.17 6.50 6.32 5.33 4.89 4.99 4.89 4.85
Table 8 : Comparative costs for power trade (in Rs./KWh)
As seen from the above table, from the two exchanges, IEX has higher trading prices as compared to
PXIL. Prices on bilateral market are certainly higher, which could generate higher revenue. But, as
mentioned in the above comparison between the exchange and bilateral market, the power being costlier
and the market research renders it non-viable, coupled with the fact that it does not offer a wider exposure
to customer base. Rates on the UI interface are low. Hence, it can be used to trade power during intervals
when prices are low on the exchange. Thus, it reiterates the fact that the exchange is a much more viable
option to trade.
Effects on revenue
GSEG has a generation cost of approximately Rs. 2.25/unit to about Rs. 5/unit depending on the type of
fuel used with highest being on RLNG. Out of the total generation cost, the variable expenses (cost of
gas, transportation cost from the gas wells at Hazira, import of power from GEB and the O&M expenses)
account for a range of 70-75% of the total cost. The company, in even in the case of not generating the
restricted amount, will incur the fixed expenses (employee wages, interest and financial charges,
depreciation) involved in the cost. The following table gives a list of the exchange trading prices from the
period June 2008 to May 2009.
Month Price (Rs./KWh) Month Price (Rs./KWh)
Jun-08 7.66 Dec-08 6.14
Jul-08 7.73 Jan-09 6.42
Aug-08 7.5 Feb-09 5.62
Sept-08 7.68 Mar-09 6.42
Oct-08 8.46 Apr-09 10.47
Nov-08 7.56 May-09 6.52
Table 9 : Trading prices on IEX (June 2008-May 2009)
The trading prices on the exchange differ as per the season of trade.
The following table gives the total losses, load restriction losses, both in amount and as a percentage of
the total backing down losses.
Total Backing Down losses Load Restriction Losses

(n MW) (in MW) As a percentage of total losses
10684.1 7769.5 7.639032956
46815.12 422 0.608742114
59452.08 774.98 1.367137609
53975.6 241.5 0.413411302
32728.69 2228.7 2.671991067
4836.66 3764.91 3.500439867
9423.05 6476.3 6.068761429
14418.68 11574.88 11.3791898
8568.5 7404.7 7.686749915
8124.5 6105.55 5.652559532
640 607.2 0.54334598
2039.9 2039.9 1.787841207
Table 10 : Load restriction loss data
As seen above, the load restriction losses range from a minimal percentage to around 11% of the total
losses.
Monthly revenue
Considering the above values of generation cost, the prevalent trading prices and the loss amounts, the
following table gives a calculation of the marginal profit for GSEG, if it trades the extra capacity o the
exchange. The generation cost varies as per the use of natural gas or R-LNG, from Rs. 2.9/kWh or Rs.
5/kWh. The profit is calculated taking both the instances in consideration. However, the margins would
be very low in case of the cost being Rs. 5/kWh.
Generation cost for GSEG : Rs. 2.9/unit
Month Loss Amount Trading price Actual Price Marginal revenue

(MWh) (Rs./kWh) (Rs./kWh) (Rs. In crores)
Jun-08 7.66 3.76 2.921332
7769.5
Jul-08 7.73 3.83 0.161626
422
Aug-08 7.5 3.6 0.278993
774.98
Sept-08 7.68 3.78 0.091287
241.5
Oct-08 8.46 4.56 1.016287
2228.7
Nov-08 7.56 3.66 1.377957
3764.91
Dec-08 6.14 2.24 1.450691
6476.3
Jan-09 6.42 2.52 2.91687
11574.88
Feb-09 5.62 1.72 1.273608
7404.7
Mar-09 6.42 2.52 1.538599
6105.55
Apr-09 10.47 6.57 0.39893
607.2
May-09 6.52 2.62 0.534454
2039.9
Table 11 : Monthly profit for the period June 2008 - May 2009 (@ Rs. 2.9/kWh)
The above actual trading price includes Re.1 towards miscellaneous charges like open access charges,
wheeling charges.
The following graph gives the trend of the marginal revenue that could be generated by GSEG.
Figure 15 : Monthly profit for the period of June 2008- May 2009 @ Rs. 2.9/unit
Generation cost for GSEG : Rs. 5/kWh
Month Loss Amount Trading price Actual Price Marginal revenue

(MWh) (Rs./kWh) (Rs./kWh) (Rs. In crores)
Jun-08 7.66 1.66 1.289737
7769.5
Jul-08 7.73 1.73 0.073006
422
Aug-08 7.5 1.5 0.116247
774.98
Sept-08 7.68 1.68 0.040572
241.5
Oct-08 8.46 2.46 0.54826
2228.7
Nov-08 7.56 1.56 0.587326
3764.91
Dec-08 6.14 0.14 0.090668
6476.3
Jan-09 6.42 0.42 0.486145
11574.88
Feb-09 5.62 -0.38 -0.28138
7404.7
Mar-09 6.42 0.42 0.256433
6105.55
Apr-09 10.47 4.47 0.271418
607.2
May-09 6.52 0.52 0.106075
2039.9
Table 12 : Monthly profit for the period June 2008 - May 2009 (@ Rs. 5/kWh)
Figure 16: Monthly profit for the period of June 2008- May 2009 @ Rs. 5/unit
The above calculations show that the trading is profitable only when the generation cost is above Rs.
5/unit. Under Rs. 5/unit, the trading shows negative profit. The high cost, as mentioned above, is
attributed to the use of R-LNG.
Cost Benefit Analysis

Let us consider the following assumptions and data to derive a cost benefit analysis for GSEG through
trading on the exchange. The analysis has been done taking into account both the generation costs.
Average available trading capacity : 4117.51 MW
Minimum available trading capacity : 241.5 MW (Taken into consideration while calculation)
Number of Days traded : 151
Number of hours traded : 12
Total MWHrs Traded : 437,598 MWHrs4
The following table gives the total profit calculation, assuming that GSEG takes up a membership with
IEX on a full payment option.
4
Total MWhr traded = volume traded*Number of days traded*Number of hours traded
1.Generation Cost Rs. 2.9/kWh Rs. 5/kWh
2. Average Trading Price Rs. 7.34/kWh
3. Membership cost 0.65 crores
4. Transaction cost (@ 1 paise/kWh) 0.4376 crores
5. Total generation Cost 126.903 Crores 218.799 crores
6. Total Cost (3+5+4) 127.990 Crores 219.886 crores
7. Total Revenue 321.196 Crores
8. Total yearly profit (7-6) 193.206 crores 101.31 crores
Table 13: Cost benefit Analysis for a full membership option
The above cost benefit analysis is for a trading of an average of 241.5 MW, traded for 151 days in a year,
subject to the capacity that is available to trade corresponding to the average of 4117.51 MW.
1.Generation Cost Rs. 2.9/kWh Rs. 5/kWh

2. Average Trading Price Rs. 7.34/kWh
3. Membership cost 0.226 crores
4. Transaction cost (@ 2 paise/kWh) 0.875 crores
5. Total generation Cost 126.903 Crores 218.799 crores
6. Total Cost (3+5+4) 128.004 Crores 219.9 crores
7. Total Revenue 321.196 Crores
8. Total yearly profit (7-6) 193.192 crores 101.296 crores
Table 14 : Cost benefit analysis for a light membership option
The above calculation is for the light membership option.
Thus, from the above analysis, it can be seen that trading the extra power on the exchange is a profitable
option and yields a profit of about Rs. 190 crores with a generation cost of Rs. 2.9/unit and of 101 crores
with a generation cost of Rs. 5/unit.
The above calculations are, however, based on the average availability of power. In actual practice, the
power availability during a particular time of the day should match with the grid demand during the same
time slot.
Considering the practical aspects like which time of the day power is available for sale, whether the
demand exists in the grid, nomination acceptability within a short span of time and not a day ahead,
including the fact that GUVNL themselves would trade the power during high demand periods, it may be
relatively difficult to sell the power. Nevertheless, exploring the option of power sale and actually trying,
it can throw up the actual possibilities and the experience gained can be useful in the future.
Mix of selling options for GSEG

The above analysis gives the profitability of the power sale through the exchange. However, the exchange
solely cannot be used as medium of trade as the company is not a merchant plat and has a PPA that
evacuates power as per demand. As mentioned above, the market system prevalent on the exchange is the
Day-ahead market. This would entail the company to commit a sale quantity a day prior to the actual sale.
The loss that they incur due to load restriction is not known at that earlier date. Hence, it makes the
commitment of a fixed quantity a problem. Hence, the company can adopt a mix of selling options, the
exchange and the UI interface.
A Hypothetical Trading Proposal

Let us consider a hypothetical proposal for trading, based on historical data (taken of December month for
the year 2008). The daily prices traded on for the month of December is enclosed as Exhibit 4.
Let us consider that the company decides to trade on December 11. Thus, it applies for a bid on December
10, as per the provisions of the DAM. The issue here would be declaring the trading amount for the next
day. At the end of every day, GSEG declares the availability for the next day, the amount that they would
be producing. In case GEB wants the plant to cut down the capacity, it informs the plant 15 minutes in
advance.
During the trading window on the 10th, the average of the past days of the month, as in from December 1
to December 9, is calculated, 175.8 MW and put up for trading. As per the daily MCP and MCV on the
10th, the time slot for between 6 pm and 7 pm showed the highest MCP. The figure 16 shows the average
MCP and MCV for the past Hence, the particular time slot is bid for the next day, i.e the 11th as well.
After the equilibrium price is decided, the MCP for that particular block on the 11th comes down as Rs.
9.11/kWh. Further on, there can be two cases after this.
1) The actual spare production amounts to 266 MW. Thus, the plant has an excess of capacity over
the traded amount. At the MCP of Rs. 9.11/kWh, the committed 175.8 MW is traded through the
exchange. For the rest of the 90.2 MW, the UI can be used. Table 14 gives the prices on the UI
interface for the period of August 2008 to March 2009.
Month Price on UI Effective price

(Rs./kWh) (Rs./kWh)
Aug-08 5.17 1.92
Sept-08 6.50 3.25
Oct-08 6.32 3.07
Nov-08 5.33 2.08
Dec-08 4.89 1.64
Jan-09 4.99 1.74
Feb-09 4.89 1.64
Mar-09 4.85 1.6
Table 15 : Prices for the UI interface for the period of August 2008 - March 2009
Thus, the remaining capacity can be traded at a price of Rs. 4.89/kWh. The profit that they would earn on
the day of December 11th is calculated as :
Generation cost Rs. 2.9/unit Rs. 5/unit
Medium Exchange UI Exchange UI
MCP/Price Rs. 9.11/unit Rs. 4.89/unit Rs. 9.11/unit Rs. 4.89/unit
Quantity 175.8 MW 90.2 MW 175.8 MW 90.2 MW
Profit 0.0916 0.009 0.0547 -0.01
Total profit Rs. 0.1006 crores Rs. 0.0447 Crores
Table 16 : Daily profit for December 11 (Hypothetical – Excess of power)
2) The actual spare production amounts to 141.08 MW. This would mean a shortage of power by
34.72 MW as per the fixed amount. The rest amount can be drawn from the UI at the prevalent
rate on the grid.
Generation cost Rs. 2.9/unit Rs. 5/unit
Medium Exchange UI Exchange UI
MCP/Price Rs. 9.11/unit Rs. 4.89/unit Rs. 9.11/unit Rs. 4.89/unit
Quantity Sell 141.08 MW Buy 34.72 MW Sell 141.08 MW Buy 34.72 MW
Profit/Cost incurred Rs. 0.0735 crore Rs. 0.0169 crore Rs. 0.0438 crore Rs. 0.0169 crore
Total profit Rs. 0.0566 Crores Rs. 0269 Crores
Table 17 : Daily profit for December 11 (Hypothetical - deficit of power)
Hence, in light of the above two probable cases, the above two methods can be adopted in order to trade
on the exchange. In case of a known deficit a day earlier, power can be purchased from the exchange
when the rates are lower. Generally, trading prices are lower on the exchange during late hours of the
night, 11 pm to 12 am, and wee hours of the morning, 12 am to 5 am. The rates hover around Rs. 2/kWh
to Rs. 3/kWh. Power purchased can then again reinjected into the grid during peak hours when the rates
are high, generally between office hours, to give a reasonable amount of trading margin.
It would require having a continuous tab on the prices on the exchange. So that they withdraw from the
exchange when the prices are sufficiently lower and then sell it back to the exchange as and when
required, or more aptly, when the prices are high.
Learnings and Conclusions
Findings
On the basis of the data collection and analysis; the following issues of findings come into view.
1) GSEG has costlier power as compared to many other from the pool of sellers to GEB.
2) As a result, the plant suffers load restriction losses to a higher extent of 11% of the total losses
incurred.
3) Thus, with the plant not operating at optimum capacity, it leads to a loss of probable revenue for
the plant.
4) Considering the company decides to trade on the exchange, with the power cost amounting to Rs.
5/kWh and Rs. 2.9/kWh and the trading price being near Rs. 7.433 (average), the profit per unit
fluctuates between Rs. 2.433/kWh and Rs. 4.5333/kWh. Thus, this leads to a fluctuation of
average monthly profit from Rs. 0.29 crores to Rs. 1.16 crores, taking the data of the past year,
both loss and trading prices. Taking into account the fixed costs like the membership fee and the
variable transaction costs, the yearly profit also fluctuates from Rs. 190 crores to Rs. 101 crores.
This analysis is based on the availability of power on an average basis.
5) Considering the practical aspects like which time of the day power is available for sale, whether
demand exists in the grid, nomination acceptability within a short span of time and not a day
ahead , including the fact that GUVNL would themselves trade the power during high demand
periods , it may be relatively difficult to sell the power. Nevertheless, exploring the option of
power sale and actually trying, it can throw up the actual possibilities and difficulties and the
experience gained can be useful in the future.
Recommendations
On the basis of the surfacing of the above issues, the following recommendations are suitable :
1) Finding an alternate platform for the sale of the ingenerated power, via the exchange.
2) Depending on the demand of the power that is of concern, the full membership or the light
membership might be opted for.
3) During the course of time, as the company gains experience in trading with the exchange, it can
also extol the option of becoming a Client and trading on the behalf of other entities, adding to
the source of revenue.
Action plan
The following steps need to be undertaken in order to initiate trading with the exchange.
1) A detailed analysis of the time availability of power, the demand at that time and the price can be
undertaken for further working out the possibility of power sale.
2) Depending on the quantum of power available to trade, in relation to the load restriction losses,
compilation of the entire power, the ratio of the power that is to be traded, the number of hours
for which trading has to take place, determining the time block during which the exchange prices
are high enough and to generate maximum revenue as well as be feasible enough to ensure sale of
type of power in hand.
3) Application to be enlisted in, taking into account the amount of power that the company intends
to trade.
4) Provision of adequate manpower to facilitate trading on the exchange.
A special requirement by the Exchange is the presence of the ABT meter and a standing clearance from
the SLDC for trading, which needs to be acquired.
Contingencies
The following problems could crop up in the action plan;
1) Lessening and blocking of the load restriction losses.
The former discrepancy could lead to the locking in of the membership fee and stopping of funds from
trading. However, the company would generate revenue from its sale to GEB for the concerned losses.
Meanwhile, the company can choose to transfer or surrender their membership after a period of three
years, in compliance with the terms of the exchange.
The losses that would occur in the process would be,
1) Membership fee
The other payments to the exchange are either adjusted or refundable. Even in the case of the lowest
amount of power sold to GEB, 241.5 MW earning revenue of Rs. 60375, depending on the membership
being full or light, the fee would be recovered within a period of 8 years to 3 years, respectively.
Exhibits
Exhibit 1 : Area of operations of the leading exchanges in Europe
Exhibit 2 : Diagrammatic representation of a Combined Cycle Power Plant
Natural Gas LNG Imported coal Domestic coal
Availability Depends on natural Depends on No problem Abundant mine development
Gas finds Development of A probable issue
LNG projects
Flexibility in operations High High Needs to be operated as a base load plant

With few start and stops
Infrastructure Gas pipeline network available Close to port Close to railway line,
For a captive jetty, Land and
Abundant water Abundant water
needed
Regulatory Gas Linkage No issues Imported under OGL Coal Linkage
Committee Committee
Environmental options Cleaner fuel Cleaner fuel Better than Ranks least
Domestic coal
Construction Medium High High Low
Rank based on the cost 1 2 3 4
of generation
Exhibit 3 : Relative comparison of four fuel alternatives
Exhibit 4 : Hourly MCPs for the month of December, 2008
Bibliography
Pandey, V. (2007, November). Electricity Grid Management in India - An Overview. 'Electrical India' -
Vol 47 No 11 .
Soonee, S., Narasimhan, S., & Pandey, V. (2006). Significance of Unscheduled Interchange Mechanism
in the Indian Elecricity Supply Industry. Department of Electrical Engineering, ITBHU .
Srivastav, S. (2009, May). Facets of the working of the Power Exchanges. (S. Saxena, Interviewer)

Selling Options FR Restricted Capacity For A Power Plant - Evaluation and Options

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GSEG - Selling Options for

2|Selling Options for Restricted Capacity of GSEG

3|Selling Options for Restricted Capacity of GSEG

4|Selling Options for Restricted Capacity of GSEG

5|Selling Options for Restricted Capacity of GSEG

6|Selling Options for Restricted Capacity of GSEG

7|Selling Options for Restricted Capacity of GSEG

8|Selling Options for Restricted Capacity of GSEG

9|Selling Options for Restricted Capacity of GSEG

Ahead contingency, daily, weekly, monthly – upto 3

SEASONAL Short term Trades – BILATERAL – (Direct,

BASE DEMAND – MANAGED THROUGH LONG TERM PPAs

Figure 1 : Diagrammatic representation of the Demand Settlement

1) Procedurally difficult : Involves elaborate scheduling/dispatch procedures, co-ordinations with

Better price discovery of the traded electricity

International Power Exchanges

Nordpool Exchange (Northern Europe)

Nordpool Spot 250 291 298

EEX 87 123 146

Table 1 : Market trading volumes of the leading European Exchanges

Source : Nordpool Spot AS company Presentation, 2009

The areas of operation of these exchanges are included as Exhibit 1.

Source : Nordpool Spot AS company Presentation, 2009

2003 June Enactment of Electricity Act ’03, development of an organized electricity

Time line of Exchange Operations

Bid accumulation period (Bidding phase)

Price Determination Process (Provisional)

Price Determination Process (Final)

Day-ahead Scheduling of Exchange traded contracts

Transmission Capacity, Transmission Charges and Losses

Figure 3 : Grid Infrastrucutre

Unscheduled Interchange : The UI mechanism is often seen as a disciplinary as well as regulatory

ABT shall be covered under pricing of power.

Open Access and Electricity Trading

Long term contracts and Bilateral trading

1) O&M costs and Fixed costs

ABT is a two-part tariff system, consisting of the following components :

ABT attempts to promote financial incentives to promote grid discipline.

Pricing on the exchange

Price 0 1 1.1 2 2.1 2.5 3 3.1 4 4.1

C, MW 40 20 0 0 -40 -60 -80 -80 -120 -120

Purchase 120 100 80 80 60 60 60 40 40 20

Sale 0 0 0 0 -40 -60 -80 -80 -120 -120

Net 120 100 80 80 20 0 -20 -40 -80 -100

Figure 6 : Determination of Equilibrium Price

GSEG manages its electrical utility with the following initiatives :

Combined Cycle Power plant at Hazira

A diagrammatic representation of a combined cycle power plant is enclosed as Exhibit 2.

Generation capacity of 156.1 MW

The statistics for the usage of NG is as under :

Gas Source : GSPL Niko, hazira

Quantity : 0.8 MCMD (33600 Nm3/hr for 2 GT)

Total gas consumption : GT11 + GT12 = 0.78 MCMD

The comparative analysis of the four fuels is given as Exhibit 3.

Days in a Month Generated Capacity (in MWh)

Month Production Data (in MWh)

Short term market

Bilateral market – Power exchange : Relative Comparison

The generation cost,

1) Indian Energy Exchange (IEX)

Indian Energy Exchange

Power Exchange India Limited

2) Identification of areas of probable congestion, transmission bottlenecks