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(Abstract: This paper explains how online bulk electricity purchase and sale can be implemented in Indian context. It also lists its potential contributions to the power sector) The ongoing Availability Based Tariff (ABT) has ensured grid discipline preventing grid failures due to low frequency. It also discouraged high frequency grid operation. It was instrumental in achieving metering / auditing infrastructure in the entire power grid system. It is mainly devised to share power generation on day-to-day basis by the states from the central sector power stations, which were under negotiated two part tariff agreements. It has established merit order generation with respect to the running/variable cost of existing power stations. It does not consider the cost of power generation at the doorsteps of various consumers by considering transmission losses and transmission cost. After the enactment of Electricity Act 2003, most of the new capacity addition will be through competitive biding process wherein power tariff is quoted as single lump sum value per KWH without clearly distinguishing from fixed cost and variable cost. Variable cost based merit order is not feasible in future. ABT identifies three parties for its implementation. These are central generating power stations, regional load dispatch centers (RLDC) and state load dispatch centers (SLDC). After major reforms in electricity sector, the SLDC were divided in to state transmission company (Transco), few state distribution companies (Discom) and few state generation companies (Genco) in many states. All these companies will gradually become fully autonomous and independent in their activities and will be responsible for their profitability and growth. Also private sector can enter in to generation, transmission and distribution on large scale in post Electricity Act 2003 scenario. The future situation would be more complex in fixing the merit order generation in the presence of many generating, transmission and distribution companies. There is requirement to device a broad mechanism to take care of all the participants’ needs and interests and also to optimize the investment in fuel sourcing, generation, transmission and distribution of electricity. Implementation of electricity online trading is a solution for accommodating changing needs without effecting the ongoing agreements. The demand for electricity fluctuates on day to day basis and place to place in India due to following weather conditions: • During summer, hot weather conditions lead to more domestic electricity consumption. • During winter, cold weather leads to more domestic electricity consumption. • During cropping season, hot weather leads to more electricity consumption by agriculture pump sets due to more water requirement. • During cropping season, rainy/cloudy days lead to very less electricity consumption by agriculture pump sets due to less water requirement. • Heavy monsoon rains lead to excess secondary power availability from hydropower stations. • Failure of normal monsoon rains leads to drastic increase in electricity consumption by agriculture pump sets due to fast depleting soil moisture. • Below average monsoon rains reduce drastically hydropower generation potential. 1 of 8

Windy day/season contributes to more secondary electricity from wind power generators.

It is very difficult to forecast accurately electricity requirements and availability in a place on any particular day of the year. Import/export of power on day to day basis with ‘online electricity trading’ facility will bridge the gap between the demand and availability of electricity. FEATURES OF ONLINE ELECTRICITY TRADING: Generators are at liberty to generate power within acceptable band of grid frequency and sell at their quoted / acceptable price. Every Transco is at liberty to quote the acceptable price for energy made available to its immediate Transco or Discom at tie in points of its network. A participant can make electricity transactions on real basis with another participant who is directly connected to it. So a participant can not make valid trading transaction deal with a distant located participant bypassing intermediate participants. In this regard, please refer to detailed study paper “Integrating European Electricity Markets” available at for technical explaination. The power will be consumed / routed as per the available grid transmission capability depending on the connected load of Dicoms at a particular point of time with respect to the location of Generators. A transaction / deal have taken place only when power has exchanged between the tie in point of the two grid participants. The break up of receivables and payables are logged automatically for every 15 minutes duration at all tie in points of a participant. The net receivables or payables are settled by the exchange for that settlement period. Online electricity transactions settlement with payment guarantee mechanism will be implemented under the Regional / Central Electricity Exchanges. The purchaser of every transaction shall pay nominal commission to the exchange. Discoms need to provide security deposit or revolving letter of credit for the maximum notified energy requirements to the regional / central electricity exchange. The yearly surplus revenue of the exchange would be paid back to the Discoms in proportion to their security deposit or revolving letter of credit. Grid discipline is achieved by imposing penalties on the erring participants below the acceptable frequency band (i.e. between 49 to 50 hz) operation similar to Unscheduled Interchange (UI) charge in ABT. Least cost electricity generation will be given priority in case of high grid frequency. The high cost Generators are to back down or their generation would be settled at lower price. The ongoing agreements between Generators / central transmission companies with the state government companies are fully implemented. DEFINATION OF TERMINOLOGY: Generator: They produce electricity for sale and are physically connected to transmission network of at least one Discom or Transco. The maximum capacity of 2 of 8

power generation (MW) shall be notified and should have access to adequate capacity evacuation system. The type of Generators is utility power plants, cogeneration power plants, captive power plants and storage power plants. Discom: They purchase electricity from Transco or Generators to cater to various ultimate consumers with their established power distribution and metering network. Providing adequate quality and quantity power whenever required by its consumers is its responsibility. Even a bulk consumer can be a Discom provided it is adequately connected to at least one Transco. Every Discom is to notify its maximum load requirements and availability of adequate distribution assets. Captive power plants and storage power plants are also Discoms. Transco: They purchase power from a generator or another Transco and transmit electricity for sale to at least one Discom or another Transco. Every Transco is required to notify their transmission capacities. Power Trader: This is a trading company authorized by a grid participant to conduct trading of electricity on its behalf. Generally, it is a finance company with interest in day-to-day power trading business. This company enters in to a short or long term agreement with a grid participant and exercises rights to participate in day-to-day trading of that participant. Many of the existing private and central government power and transmission companies are governed by long term Power Purchase Agreements (PPA) with state Discoms / Transcos. The trading rights of these assets will be given to the state Discoms / Transcos as per these PPAs. Grid: All the infrastructure of Discoms and Trancos, which are interconnected for the transmission and distribution of electricity. Grid participant: Any one of Transco, Discom and Generator Tie in point: This is a terminal point between two participants where electricity can be exchanged from one to another. Every tie in point will be equipped with required accuracy tariff meters and check meters. Tariff meters are calibrated and accessible to the participants and the readings are logged every 15 minutes and made available for remote indication. Electricity Exchange: The organization owned by the grid participants to conduct and settle online electricity trading. Electricity exchange will be governed by central government such as central electricity regulatory commission (CERC). Unscheduled Interchange (UI) penalty: The penalty imposed on an erring participant when grid is operating below the allowed frequency band. Utility power plants: They produce power exclusively for exporting / selling power to the grid. They consume some part of generated power towards auxiliary power requirements in the process of generating power. On occasional basis, these power plants draw power from the grid for start up requirements. They are eligible for selling power to the grid and power purchase for start up requirements when not exporting power. Cogeneration power plants: They produce power as byproduct during the intended production process. They can produce surplus energy to export to the grid. On occasional basis, these power plants draw power from the grid for start up requirements. 3 of 8

They are eligible for selling power to the grid and power purchase for start up requirements when not exporting power. Captive power plants: They produce power required for the electricity requirements of their internal consumption located in the same premises. They import /purchase power from the grid when the captive generation is falling short of their consumption. They export / sell power when their power generation is in excess of the consumption. They are eligible for selling and purchasing power from the grid but not simultaneously. Storage power plants: They consume surplus power from the grid and store for future requirements in the form of battery power, compressed air, water energy, etc. The stored energy is converted back in to electricity later to cater peak load requirements. The electricity is sold at attractive prices during peak load requirements. They are eligible for selling and purchasing power from the grid but not simultaneously. ONLINE ELECTRICITY TRADING PROCEDURE: There will be daily trading session for electricity purchase and sale. The purpose of the trading session is to take sell and purchase contracts from the grid participants, which are to be honored by the participants physically. The contracts are of two types. Committed contracts: These are compulsory contracts, which are to be honored by both parties. Failure in their commitment would attract penalties as per defined method. Open bids: These are the quotations of the participants, which are not clinched in to contracts by matching takers. However these open bids will be executed physically during power grid operation as per necessity and technical feasibility of the grid. Penalty is not applicable for not meeting these quotes. All the participants should quote minimum 30% of the total contracted load under this category at every tie in point. Mainly peak load Generators such as open cycle gas turbine power plants, peaking load hydro power stations, pumped storage hydro power stations, etc will use this window to maintain the rated grid frequency. If there is possibility of Transco to bid highly abnormal prices, it can be stipulated that sale bid price should not exceed purchase bid price at a tie in point of Transco. The generators/Transco who quoted lower sale prices in open bids has first right to generate/supply power to Discoms. They supply power one by one in ascending order of quoted open bid prices as power demand increases and vise versa as power demand decreases. The Discoms/Transco who quoted higher purchase prices in open bids has first right to consume/receive the power from generators/Transco. They consume power one by one in descending order of quoted open bid prices as power availability increases and vise versa as power availability decreases. The quoted prices by sellers (Generators/Transco) are considered for settlement when the frequency is in 49.0 to 49.7 Hz range. The quoted prices by purchasers (Discoms/Transco) are considered for settlement when the frequency is in 49.71 to 50 Hz range. The transactions for all the power fed in to the grid and drawn from the grid should be traded in the Electricity Exchange. The trading session is for two hours duration from 9.30 hr to 11.30 hrs for the 24 hrs duration of electricity delivery period starting from 12.00 hours time of the same day to 11.59 hours of next day. The delivery session starting time is selected at 12.00 hours because the daily peak load starts around 18.00 hrs time and Generators can have sufficient time to start the units and bring to full load for meeting peak load demand. The quoted sale / purchase price should not exceed the applicable UI penalty. Sale and purchase bids shall be offered for all the possible transactions at every tie in point. 4 of 8

Incase applicable quote is not available most recent contract price will be considered for the settlement of actual power transfer. Intra day speculative trading is allowed by squaring up to the extent feasible. This is helpful in the price discovery mechanism. Futures and options trading could also be introduced in future. Settlement of contracts: The following possibility can take place in physical execution of the contracts. Generators: Failing to supply contracted power at the tie in point (frequency within acceptable band): The purchaser will source the power from another participant, who has quoted higher price from the open bids category and meet the commitment. The deferential amount would be charged to the failed generator. Failing to supply contracted power at the tie in point (frequency falling below acceptable band): The generator will pay UI penalty to the Discoms, which have reduced the load to correct the frequency drop. Generator feeding excess power (frequency above the band): Generator feeding excess power without valid contract will not be paid any price. The Discoms will use the available excess power free of cost. However they will bear the associated Transcos cost subject to maximum tariff equal to their open quotes. Transco: Transco has failed to draw the power from the Generator / Transco: The seller would supply power to another participant who has quoted lower price from the open bids (can be same Transco but at different tie in point) and charge the differential price to the failed Transco Transco has not received contracted power at the tie in point from another Transco: The purchaser will source the power from another Transco, who has quoted higher price in open bids (can be same Transco but at different tie in point) and meet the commitment. The deferential amount would be charged to the failed Transco. Transco has failed to supply power to the Discom: The Discom would source power from another participant who has quoted higher price from the open bids (can be same Transco but at different tie in point) and charge the differential price to the failed Transco Discoms: Discom has failed to draw the power from the Generator / Transco (frequency within acceptable band): The Transco / Generator would supply power to another participant who has quoted lower price from the open bids and charge the differential price to the failed Discom. Discom has failed to draw the power from the Generator / Transco (frequency above the acceptable band): The generator with valid contract who has reduced the load to bring down the frequency within limits would be paid fully as per contract by the failing Discom. Alternatively, another Discom with lower price quotation will absorb the excess load to 5 of 8

reduce the frequency with in limits. The differential price would be paid by the failing Discom. Discom has drawn excess power from the Generator / Transco (frequency in the acceptable band): Transco would source power from another Generator / Transco, who has quoted higher price from the open bids and charge the price to the Discom. Discom has drawn excess power from the Transco (frequency below the acceptable band): Discoms, which have reduced the load to correct the frequency drop, will be paid UI penalty by the erring Discom. Small consumer’s participation in grid management: Discoms can also achieve better automatic load management by installing frequency switches in consumer connections. One percent (0.5 Hz) dip in electricity grid frequency will reduce the power generation load demand by 5000 MW (5%) approximately in India. Every consumer would be given option to draw power based on grid frequency in addition to the normal power connection (not frequency based). If a consumer opts for frequency based power additionally, his existing connection would be bifurcated in to two from the common supply line Case 1: through the existing energy meter Case 2: through the frequency switch cum energy meter. The interruptible loads for few hours such as geysers, air conditioners, refrigerators, electric stoves, microwave ovens, etc are connected to Case 2 power line. The offered electricity tariff would be cheaper in this Case 2 compared to Case 1 to induce the consumers for taking this additional power supply mode. Since Discoms can get cheaper power from the Transco/generators on their pricing terms when the grid frequency is above 49.7 Hz, It would not be financial burden to supply cheaper power to Case 2 consumers. When the frequency is normal (49.7 to 50 Hz) only, power will be available in Case 2 supply line. When the frequency is below normal (49 to 49.7 Hz), power supply is not available in Case 2 (i.e. frequency switch will operate/switch off the line) but always available in Case 1 line to meet the uninterruptable power requirements such as lights, fans, TV, etc. Case 1 power supply would be made available without any power cuts by Discoms except during emergencies. In this way, Discoms can achieve effective automatic load management without any additional investment and its consumers would get uninterrupted essential power without any extra cost. The Discom consumers need not purchase inverters at huge cost and also avoid substantial recurring cost of replacing inverter batteries. At present, the Case 1 energy tariffs are of telescopic type (in three slabs). The Case 2 energy tariff would be fixed less than 3rd slab price in Case 1 energy tariff. There is no possibility of misuse by the consumers (i.e. diverting uninterruptable (Case 1) load to interruptible load (Case 2) because Case 1 power is priced higher than Case 2 power. Most of the domestic consumers are small consumers and would enjoy uninterruptible supply by getting preference over the Case 2 consumer loads. At present, more than two billion US$ every year is spent by Indians for installing inverters in their houses to ward off from the regular energy/power cuts to meet the 6 of 8

essential electricity needs. Inverters consume power continuously to meet the zero load losses and also at least 5% of electricity routed through them. The purpose of power / energy cut is to reduce the power demand / consumption in the grid when the generation is not adequate. Use of inverters by the ultimate consumers is actually enhancing the power demand during the period electricity is made available and increasing the distribution losses (i.e. avoidable energy inefficiency though borne by the consumer). As explained above, frequency based retail tariff would reduce the avoidable energy losses and save the huge investment spent on inverters and their annual maintenance costs. The disposal of used lead acid batteries also cause environmental and health problems. OTHER DATA: Fortnight duration expected availability (power stations and transmission infrastructure), planned outage reports and fuel (coal, liquid fuel, gas fuel, etc) availability, fuel stock data at various stock points (power plant, transshipment and mine end) are to be provided on daily basis to the Exchange for information to participants. Hydro electric power plants fortnight duration expected availability, planned outage, reservoir water storage, corresponding power potential, water inflow and water out flow data are to be provided on daily basis to the Exchange for information to participants. Every generator or Transco needs to provide their annual planned maintenance and availability schedule to the Exchange for information to participants at least one month earlier. Live on line information of the grid would be made available to all participants. A computer program to simulate the grid performance / response will also be provided to educate the grid participants about transmission system capabilities and its bottlenecks. Online trading for power factor improvement can also be implemented at later date. ADVANTAGES OF ONLINE TRADING: 1. The procedure is simple, reliable and unambiguous and settles online from electricity sale or purchase to its financial settlement. 2. It encourages all the participants to maximize the use of power sector infrastructure for supplying electricity to the ultimate consumer at competitive price. This is achieved by creating competition among the participants. 3. It will lead to need based generation and transmission infrastructure growth by highlighting the bottlenecks in the existing infrastructure. 4. It will ensure the grid discipline and stability similar to ongoing ABT mechanism. 5. It will encourage induction of energy efficient and appropriate power generation and transmission technologies for the new installations. 6. There is no need of any power purchase agreement (PPA) for a generator to install any type of power plant. They can comfortably perform as merchant plant feeding power in to the grid. There is no need of escalation formula in the yearly tariff based on consumer price index and wholesale price index. 7. There is no need of any prior commercial agreement to install transmission infrastructure. They can comfortably perform power transmission as part of the grid. 7 of 8

8. Whenever a developer intends to establish power generation or transmission infrastructure, the associated uncertainty / risk in the returns on the deployed capital can be avoided at investment phase itself. The developer will enter in to a long-term agreement with a Power Trader and insulates his profitability from the uncertainty in future revenue. Similarly the developer will tie up with an O&M company for the reliable performance of the assets. 9. All the bulk consumers can become Discom licensee and source uninterrupted power from the accessible Transco. Bulk consumers can also establish power plants at suitable locations to meet their power requirements with or without owning transmission lines or Transco license. 10. Wheeling and banking of power is fully met since a captive power plant is at liberty to draw power from the grid as per its requirements by taking Discom license. 11. Cogeneration plants can sell their surplus power in to the grid optimizing their resources. 12. The online trading leads to ‘time of the day’ pricing for the power supplied to Discoms. Base load Generators would quote higher prices during peak load hours similar to peak load Generators. This would also decrease the power price during off peak hours since the availabity is in excess of demand. Higher peak hour prices would also force the Discoms for better load management, which would reduce the excessive transmission and distribution losses. 13. Lower prices during off peak hours would encourage the storage power plants to consume the excess grid power. These storage power plants would contribute to bridge the gap between demand and availability during peak load hours. 14. Generators driven electric grid would be achieved to maximize electricity generation which will try to reduce perennial energy / power shortages. 15. It will bring clarity to privatize the state owned infrastructures which are under utilized due to internal problems. Online electricity trading is an essential requirement to make power sector further free from time-consuming procedural difficulties. It would contribute immensely in encouraging both foreign and local private developers to achieve faster growth in power sector. It would also be a major thrust in proliferation of cogeneration and captive power plants contributing to energy conservation. REFERENCES: “ABC of ABT – A primer on availability tariff” by Mr. Bhanu Bhushan. “Integrating European Electricity Markets” “Economics of gas turbine power plants in utility industry” by N. Sasidhar. The first revision of this paper was written in July, 2007

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