Emerging Power Markets

By:-
Bikram Singh
AVP (Business Development)

www.iexindia.com
Outline

• Key Characteristics of Power Markets

• Aspects of various PX Model

• Market Design in India – (IEX)

• Market Design in Europe – (Nord Pool)

• Comparisons of different Power Markets

• The Way Forward

www.iexindia.com
Power Market Design

www.iexindia.com
Evolution of Indian Power Market

www.iexindia.com
 Components of Power Sector

Source: EIA www.iexindia.com

An Electricity Supply Chain
Vertically Integrated Supply and Monopoly

Large
LargeScale
ScaleConsumption
Consumption

Vertically Integrated Supply

Small
SmallScale
ScaleConsumption
Consumption

www.iexindia.com
An Electricity Supply Chain
Competition and Natural Monopoly

Large
LargeScale
ScaleConsumption
Consumption
--hourly
hourlymetered
metered- -

Power
PowerPlant
Plant

Main
Main Grid
Grid&&System
System Regional
Regional
Operation
Operation Grid
Grid

Local
Local Grid
Grid

Small
SmallScale
ScaleConsumption
Consumption Small
SmallScale
ScaleConsumption
Consumption
--hourly
hourly metered--
metered --not
not hourlymetered
hourly metered--

www.iexindia.com
 Monopoly Vs Retail Competition

Source: EIA www.iexindia.com

 How retail Competition can work ?

Source: EIA www.iexindia.com

An Electricity Supply Chain

Grids & System Operation Regulation

POLITICAL DECISION
MARKET BASED
electricity supply
structure shall be market
demarcation between part of electricity supply structure
based
exposed to competition and natural monopoly (infrastructure)
(thus not vertically
integrated)

ENERGY ACT
COMPETITION NATURAL MONOPOLY
definition of envisioned
competition in the sector, establishment of new departments establishment of new regulation

+
roles, responsibilities and within existing authorities (market authority
a legal foundation of the surveillance)
reform

regulation of
regulation of
business
terms of
reference
premises,
structure, rate
arrangement
of return,
and facilitation
commitments
of competition
etc.

This
This enables
enables aa
person
person oror an
an Issues
Issues like
like
Monopoly
Monopoly
organization
organization to to Rules
Rules are
are equal
equal toto unbundling,
unbundling, grid
grid
responsibilities,
responsibilities,
take
take initiative.
initiative. other
other markets’
markets’ access,
access,
commitments
commitments and and
rules,
rules, i.e.
i.e. cancellation
cancellation of of
earnings
earnings are
are
This
This “driving
“driving established
established supply
supply monopoly,
monopoly,
defined
defined and
and
force”
force” can
can “drive”
“drive” authorities
authorities transparency,
transparency,
approved.
approved.
the
the development
development expand
expand their
their metering
metering
Licenses are
Licenses are
towards
towards aa assignment.
assignment. procedures
procedures etc.
etc.
issued.
issued.
competitive
competitive are
are defined.
defined.
power
power market.
market.

Competition Electricity
Market

www.iexindia.com
Power Markets
The players and their function

network owners
system operator(s) Infrastructure
regulators

power exchange(s) Market Places

generators
consumers
Market Participants
suppliers
traders

portfolio managers
Service Providers
balance responsible

www.iexindia.com
Reasons for different market structures

Electricity - Commodity not like a Commodity.

• Electricity cannot be stored

– TIME LINE OF PARTICIPATION
– Spot & Forwards
• Competitive segments – Generation, Retail/Supply
– Generation characteristics
• Thermal (coal/nuclear/gas) – minimum guaranteed
• Wind – infirm
– Demand – generally inelastic
– North America – chose system + market operation
– Europe – Chose System Operation, Market Operation
• Transport of Electricity – either flow or break (no delay)
– Congestion to be checked for the period of transaction
• Transport Cost
– Transmission Pricing – Nodal, Zonal, Postage stamp, MW-mile.

www.iexindia.com
Market Participation
The Timeline

Timeline of Participation

more than one day ahead one day real-time

ahead

dispatching
hedging against the price risk
according
and
to the
optimizing the financial part
commitments
of the power portfolio

optimizing the
physical part scheduling
of the own generation
power portfolio for real-time

www.iexindia.com
Reasons for different market structures

• Requirement may change till actual delivery period

– Closer to delivery markets -Day-Ahead, Intra-day Markets
• Move from cost-plus to market prices
– Bid-based Markets
• Real competitive forces
– Double-sided, closed AUCTION in Day-ahead and
CONTINUOUS in other markets
• Competition breeds insecurity and risks
– Hedging tools – futures & options etc.

www.iexindia.com
Evolution of Electricity Market

1998…
1996..

2008

2001….

2004

www.iexindia.com
Indian Power Market

Indian Power Market

Medium
Long Term Short Term
Term
Bilateral Bilateral
PPA’s 1 Direct 1 Direct
Exchange UI
2 Trader 2 Trader
Real
1.Day Ahead Day Ahead
Time
2. Same day
3. FCFS 1. Intra day
2. DAC
4. Upto 3
3. Daily
months 4. Weekly
5. Banking 5. Monthly

www.iexindia.com
 IEX Market Segments

Day-Ahead Market Term-Ahead Market REC Market

(Since June,2008) (Since Sep,2009) (Launched in Nov, 2010)

•Hourly Contracts • Intra Day

Matching through
Close Auction*
• Day-Ahead Contingency REC Contracts
• Daily
Matching through
Matching through
Continuous Trade Session
Auction*

Weekly Contracts
Matching through
Open Auction

• Market splitting feature * Without Market split feature * Without Market split feature

www.iexindia.com
Day-ahead Market

www.iexindia.com
IEX - DAM Product Description [1/2]

• Order Types:
– Hourly or Portfolio Orders
• Min 1 hour
• Different Price-Quantity Pairs
• Partial Execution Possible
– Block Orders
• Relational Block Bid
• Consecutive hours during the same day
– Customized block bid allowed
• Firm commitment to purchase or sell
• Order Characteristics
– SLDC Clearance should be ≥ 1 MW
– Minimum Order quantity can be less than 1 MW
– Minimum volume step: 0.1 MW
– Minimum price step: Rs 1 per MWh ( 0.1p/kWh)

www.iexindia.com
IEX - DAM Product Description [2/2]

• Trading Availability
– Every Calendar Day
• Bidding
– Double sided Closed Auction
• Order Entry / revise /cancel
– Entry of orders on D-1 from 10:00 hrs to 12:00 hrs
related to Delivery Day (D day)

• Contract
– Clearing Price : Area Clearance Price
– Cleared Volume
– Total Contract Value: Cleared Volume multiplied by ACP
– Final settlement adjusted for any force majeure deviations
• Delivery Point
– Periphery of Regional Transmission System in which the grid-
connected entity, is located
www.iexindia.com
Time Line for scheduling of Collective
Transaction – Day Ahead Market
10:00 12:00 13:00 14:00 15:00 17:30 18:00

RLDCs/SLDCs
to incorporate
Collective
NLDC to Transactions
Market confirm in the Daily
Participants to acceptance. Schedule
place their NLDC to check PX to send
Bids for congestion. files to SLDCs
PX to send In case of for scheduling
provisional congestion
unconstrained shall intimate
solution to PX regarding
to the period PX to send
NLDC and
flow on TS as for congestion Scheduling Request
informed by and available to NLDC based on
NLDC margins margin specified by
NLDC

www.iexindia.com
Price Calculation Algorithm ….each hour

Price (Rs./kWh) 0 1 1.1 2 2.1 2.5 3 3.1 4 4.1 20

Portfolio A, MW 20 20 20 0 0

Portfolio B, MW 60 60 40 40 40 40 40 20 20

Portfolio C, MW 40 20 0 0 -40 -60 -80 -81 -120 -120

SUM, Purchase 120 100 80 80 60 60 60 40 40 20 20

SUM, Sale 0 0 -40 -60 -80 -81 -120 -120

Net transaction 120 100 80 80 20 0 -20 -21 -80 -100 -100

250
5
Price

4 Purchase 200
4
Sale

Price ($/MWh)
MCP: 3
150
3 Rs./kWh 2.5
2.5
Rs/kWh 100
2
2
50
1

MW 0
40
80 120
-150 -100 -50 0 50 100 150
60 MW
MW balance
MCV (Market clearing volume):

www.iexindia.com
 Over 2 years of Adequate Liquidity

IEX Market Share (as on January 31, 2011)

17%
IEX
• 29 State Utility
PXI
• 850+ Portfolios
• 641 Direct consumer 83%
• 505+ participants on single day
• Cleared Volume :17.5 Billion Units
• DAM Volume Record
• 59.98 MUs constrained (23rd September ’ 10)
• 61.58 MUs unconstrained (23rd September 10)

www.iexindia.com
 Participation at IEX
Open Access
STATE No. of CPP's
Industrial Consumers
Maharashtra 4 0
Rajasthan 7 22
Karnataka 5 0
Andhra Pradesh 5 17
Punjab 3 209
Orissa 1 2
Madhya Pradesh 9 3
Chhattisgarh 29 0
Haryana 2 17
Tamilnadu 0 357
Gujarat 6 2
Uttarakhand 0 8
Arunachal Pradesh 0 2

Total 75 641
www.iexindia.com
Increasing Participation

www.iexindia.com
 IEX monthly Average Price
IEX Monthly Average Spot Price

12
10.78
Average Price in Rs/kWh

10
8.46 8.36
7.667.737.507.68 7.56 7.91
8 7.29
6.14 6.42 6.216.41
5.62 5.76
6
4.67 4.54 4.52
4.08 3.90
4 3.14 3.183.24 3.433.433.37 3.41
2.78 2.66
2.34 2.36
1.99
2

Months Monthly Avg Price

(Rs/kWh)

www.iexindia.com
 IEX Monthly Volume

IEX Monthly Cleared Volume

1400

1181 1205
1200 1163
1128 1121
Monthly Volume(MUs)

1089

1000
888 873

800 723 748

638 656
600 536 541 563 563 591
450 478 472
434 425
376 355 377 379
400 323
279 291
233
180
200
75
0.42
0

Months
Total Monthly Volume (MUs) Linear (Total Monthly Volume (MUs))

www.iexindia.com
Term Ahead Market Segment…

1) Weekly Contract

Week Week
1 2

2) Daily Contract

Trading day D1 D2 D3 D4 D5 D6 D7
D-5

3) Day-Ahead Contingency & Intra-day

Delivery day -1 Delivery day

DAM DAC Intra day

www.iexindia.com
Term Ahead Market Segment

Open Auction Continuous

Continuous Continuous

www.iexindia.com
IEX TAM Trading - Timeline

11.30 Hrs
Pre-Trade Session 13.00 Hrs 15.00 Hrs
17.00 Hrs
10.00 Hrs 12.00 Hrs 14.00 Hrs Market Close

Weekly (FBA,FNT,FDY,FPK) Day-Ahead

DAM
Open Auction Contingency
Close Auction (Timeline is extended Cont. Trading
to 16.00Hrs
Wrt Circular IEX/MO/31/2010)

Daily Contracts
Cont. Trading
Intra-Day Market
Cont. Trading

www.iexindia.com
MATCHING OF BIDS
OPEN UNIFORM AUCTION

www.iexindia.com
MCP :Rs 8000/MWh
Selected Volume:
Buyers 125 MW
: B1,B2,B3,B4
The Buyers
Trade
Sellers
Matched
Selected Sellers : S1,S2,S3,S4 (partial)
10 MW @
Rs 6,000
50 MW @ 50 MW @
50 MW @ 40 MW @ 50 MW @
Rs 9,000 Rs 10,000
Rs 5,500 Rs 7,000 Rs 8,000
S5 S6
S4
S3
S1 S2

B1
B2
B3 B4
B5
40 MW @
25 25 B6 B7
MW MW
Rs 9,000 50 MW @ @ Rs @ Rs 50 MW @ 50 MW @
Rs 8,000 8,000 7,000 Rs 6,000
10 MW @ Rs 5,500
Rs 10,000

125

www.iexindia.com
MATCHING OF BIDS
CONTINUOUS TRADING

www.iexindia.com
 TWS Screen
Pending Buy Order Pending Sell Order
Buy 10 MW @ Rs 4500/MWh Sell 15 MW @ RS 5500/MWh

Trading Engine
Buy 10 MWh @ RS 4500/MWh Sell 15 MWh @ RS 5500/MWh

Buy 10 MW @ Rs 4500/MWh Sell 15 MWh @ Rs 5500/MWh

www.iexindia.com
 TWS Screen
Pending Buy Order Pending Sell Order
Buy
Buy1010MW @ RS@
MWh 5000/MWh
4500 Sell 15 MW @ Rs 5500/MWh

Buy 10 MW @ RS 4500/MWh

Trading Engine
Buy 10 MW @ RS 5000/MWh

Buy 10 MW @ 5000/MWh

www.iexindia.com
 TWS Screen
Pending Buy Order Pending Sell Order
Buy
Buy1010MW @ RS@
MWh 4500/MWH
5000 Sell
Sell515
MWMWh
@ Rs 5000/MWh
@ 5500
Buy 10 MWh @ 4500

Trading Engine
Sell 15 MW @ Rs 5000/MWh

Trade 10 MW @ RS 5000/MWh
Bid Modified

Sell
Sell1515
MWMWh
@ RS 5000/MWh
@ 5500

www.iexindia.com
 TAM : Performance so far…

Weekly Day-ahead Contingency

1,157,030 MWh 32,156 MWh

Total Volume traded

1,222,857 MWh

Intraday Daily

15,671 MWh 18,000 MWh

www.iexindia.com
Introducing an another option… REC

REC Option Feed-in Tariff

[State Regulated Tariff]

Electricity Green Attributes

Sale of electricity to
Sale of Electricity REC DISCOMs at State
at Market Price in [Solar & Non-Solar]
open market regulated tariff

Sell to DisComs at
Price ≤ Pooled Cost
Sale of RECs at
of Power Purchase*
Power Exchange

* - Weighted Average Pooled Price at which distribution licensee has purchased electricity (including cost of self
generation, long-term and short term purchase) in the previous year, but excluding the cost of RE power purchase

www.iexindia.com
APPROVED RE SOURCES

Biomass,
Wind Bio – fuel
co - generation

Solar Municipal
Wastes

Any type/source
Small Hydro approved by
MNRE

www.iexindia.com
Salient Features of REC Mechanism
Participation Voluntary
REC Denomination 1 MWh
Validity 365 Days after issuance
Categories 1. Solar REC 2. Non-Solar REC
Trading Platform Power Exchanges only
Banking Not Allowed
Borrowing Not Allowed
Transfer Type Single transfer only , repeated trade of the same certificate is
not possible
Penalty for Non-compliance ‘Forbearance’ Price (Maximum Price)
Price Guarantee Through ‘Floor’ Price (Minimum Price)
Price Discovery Mechanism Closed Double-sided Auction

Trading Calendar Last Wednesday of the month (T day)

Trading Period 1300-1500 hrs (T day)
Market Clearing 1700 hrs(T day)
www.iexindia.com
Operational Framework of REC Mechanism

www.iexindia.com
RECs Floor/Forbearance Price

Floor Price Forbearance Price

Solar RECs Rs. 12,000/REC Rs. 17,000/REC

Non-Solar RECs Rs. 1,500/REC Rs. 3,900/REC

1 REC is equivalent to1 MWh

Reference : CERC Order in matter of Petition no. 99/2010, dated March 23, 2010

www.iexindia.com
 Trading at IEX

Trading Day Last Wednesday of every Month

Market Clearing Closed Double sided auction

Trading Time 1300-1500 Hrs

Verification by Central agency for Valid REC

By 1530 Hrs by cleared seller at IEX

By 1600 Hrs Central agency confirms REC

By 1630 Hrs IEX finalizes trade

By 1700 Hrs Buyer & Sellers informed to Central Agency

By 1800 Hrs Invoice raised (proof of REC trade)

www.iexindia.com
Cleared volume : 600 RECs MCP: Rs 2200/REC

100 REC Sell @ Rs 1500

200 REC sell @ Rs 1700

300 REC Sell @ Rs 2000

100 REC Buy @ Rs 3900

2200

200 REC Buy@ Rs

600 REC Buy @ Rs 2200 1700

600
www.iexindia.com
Market Design in Europe

• Mostly decentralized markets

• Voluntary Participation

• Day-Ahead Auctions with Implicit Auction of Capacity

• Trading through OTC markets supplemented by DA auctions

• Explicit auction for others

• DA markets are coupled, intra-day markets are not accessible across

the border

www.iexindia.com
 History of the Liberalisation in the Nordic
Electricity Market
Rapid electricity market opening in the 1990´s.
NORWAY
• Energy Act, Jan 1991
• Full market opening 1992
• Power Exchange 1993
• Nord Pool Norway-Sweden 1996
FINLAND
• Electricity Market Act, June/Nov 1995
• Full market opening 1998
• Part of Nord Pool area 1998
SWEDEN
• Electricity Market Act, Jan 1996
• Full market opening 1999
• Nord Pool Sweden-Norway 1996
DENMARK
• Electricity Act, 1998
• Energy act amandment, June 1999
• Full market opening Jan 2003
• Nord Pool West Denmark 1999, East Denmark 2000
National marketsplaces replaced by
single Nordic market

Source: Statnett www.iexindia.com

The Nordic Market Concept
Hedging and Balancing

The Nordic Power Market

Organized and bilateral market

Nord Pool ASA Nord Pool Spot AS Balancing System

Elspot Elbas Power Operation
Hedging Market Real-Time
Marketequilibrium Operation
1 day - 6 years ahead one day ahead hours ahead Joint Nordic
- continuous trading - - auction trade - - cont. trade -
Futures
Days Weeks

Forwards
Months Quarters Years CfDs

CarbonOptions
EUA & CER European

Services
Nord Pool Clearing ASA during the Real-
Balancing Time-Operation:
Security - Margins - Business reports
Derivatives Mark-to-Market, Risk Management
generation Controlling
and consumption frequency and
in realtime voltage etc.
Additional Services Clearing of Bilateral Derivatives

EUA = European Union Allowances

CER = Certified Emission Reduction

www.iexindia.com
Nordic Market

Nord Pool Nordic TSOs

Spot market Intra-day Market Real time balancing market (BM)
Elspot- DAM Elbas
Price
Price Demand Supply

Bids / Asks MW
Spot price

MW

Auction trade system Continuous trade system Based on merit order bid curve
Single hour contracts and block contracts Single hour contracts Merit order by price only
Auction trade Operates after DAM Demand side bidding
Bid areas approximately national TSO areas Remaining ATC allocated to Elbas Starting price connected to DAM price
Congestion management between bid areas Gate closure 1 hour before delivery Manages all real time congestions
Total ATC allocated to DAM Can manages congestion
Portfolio bidding Germany is included Separate BMs for all Nordic countries
Self dispatch Portfolio bidding Step-wise harmonisation
Balance requirements Self dispatch At present Norwegian hydro power
provide most of the balance power.
Data for 2006: Trade volume (2006): ~ 1 TWh Separate imbalance prices for TSOs
Trade volume: 250 TW h
Market share: ~ 60 %

www.iexindia.com
Nordic Power Market

Source: NVE/ECON

www.iexindia.com
Nordic Spot Market .... Prices year-
year-wise

(10 EUR/MWH ~ 60p/kWh)

Source: NORDPOOL www.iexindia.com

The Nordic Power Market: Characteristics

• All customers have real access to a competitive market

• A common point of connection tariff system is established:
• - A point tariff mean that a grid customer pays the same transmission
tariff regardless of whom they buy or sell power to
• Transmission tariffs are completely independent of trading agreements
• Border tariffs between the countries have been abolished

• The Nordic Power Exchange – Nord Pool - sets a Nordic spot price
• Despatching of the system is based on commercial bids both from sellers and
buyers of electricity in the market
• All actors are free to negotiate bilateral physical contracts
• Prices in all markets are reflecting changes in supply and demand.

Source: NVE

www.iexindia.com
The Nordic power market
Why a success?
• Political signals to form a common Nordic power market

• TSOs who co-operate to facilitate market operations

• Appropriate involvement by Regulator

• Appropriate market concentration

• A non-mandatory power exchange

- A power exchange in competition with the bilateral market
- Participants’ freedom to choose market

• A simple market concept - simplicity pays

• Transparency in price setting.

• Organised distribution of relevant neutral market information

• Market access for medium sized end-users

- Trade representatives
- Market analyses services
- Portfolio management services

Source: Nord Pool

www.iexindia.com
Consolidated Overview…

Nord Pool PJM NEMMCO IEX

Participation Voluntary for DAM Compulsory for DAM Compulsory for DAM Voluntary

DA spot, hour-ahead, DA spot, real-time

DA spot, Short term
forward, futures, balancing, capacity credit DA spot
Market Offerings forwards
options markets

Bidding Type Double Sided Double Sided Double Sided Double Sided

Elbas: Intra-day auction Bid quantity can be

Adjustment Market market changed till gate closure
-- Intra-day & DAC

Purchase of ancillary
Real-time / Deviations are traded in UI charge for
Counter trade services & reserve
Balancing market real-time deviations
capacity

Pricing Rule Zonal Pricing Nodal Pricing Zonal Pricing Zonal Pricing

Pricing Type Ex-ante(Known before) Ex-post (Known after) Ex-post Ex-ante

Bilateral OTC,
Forwards, futures, FTRs, Bilateral OTC, Multi-
Risk Management options settlement, virtual bidding
Derivatives on Sydney Bilateral OTC
Exchange

Congestion Security constrained Locational signals for

Area splitting Area splitting
Management economic dispatch transmission

To be
Transmission To be purchased by compensated in
Included in zonal price Included in LMP
Losses generators kind by
participants
www.iexindia.com
The Way Forward [1]

• Opening of ‘Open Access’

– Understanding that ‘OPEN ACCESS’ is win-win for States, Industries and
Consumers
– Imposition of Sec 11 by States
– Right open access policies
• Open Access Consumers need different treatment than generators
– Procedures for open access in distribution to be published by Discoms
– Requirement of ABT meters should not be essential for consumers
– Monopolistic pricing of ABT meters in some States
– Cross-subsidy surcharge
• Should be between 20-50 p/kWh
• Should be 0 when Discom is unable to supply (legally correct position)

www.iexindia.com
Open Access Status In India
Northern Region East & North Eastern Region
States Buy Sell
States Buy Sell
Assam & Bihar
Haryana
Manipur & Mizoram
Punjab Tripura & Sikkim
Rajasthan Jharkhand
Arunachal Pradesh No app
HP & J&K Meghalaya
Uttaranchal Orissa
Delhi & UP West Bengal No app

Western Region Southern Region

States Buy Sell States Buy Sell
Madhya Pradesh
Andhra Pradesh
DNH&DD-UT
Karnataka
Gujarat
Tamil Nadu
Chhattisgarh No app
Maharashtra Kerala

www.iexindia.com
The Way Forward [2]
• Adequate Transmission Corridor
– More merchant capacity will be added in future

– More of short and medium term transactions will take place.

– Therefore …. Transmission planning should inherently include

margins for medium and short-term open access.

– The money collected from STOA should be utilized for adding

new capacities for Short-term transactions.
• Introduction of longer duration products
– Approval from CERC for monthly products.
– Design of products
• Payment Security Vs Cost of overheads like LC, BG etc
• Flexibility in delivery
• National products preferred – change in transmission pricing from April,11

• Hedging of price & volume risks – through futures

www.iexindia.com
 The Way Forward [3]

• Implementation of Section 86(1)(a)

– The State Commission shall discharge the following functions, namely:
a. determine the tariff for generation, supply, transmission and wheeling of
electricity, wholesale, bulk or retail, as the case may be, within the State:
PROVIDED that where open access has been permitted to a category of
consumers under section 42, the State Commission shall determine only the
wheeling charges and surcharge thereon, if any, for the said category of
consumers;
Rationale
OA category consumers (Bulk consumers) should pay for Long-Range Marginal
Cost of power. They will have choice of procuring power on their own either as
CPP or IPP or purchase from market or pay LRMC to licensee .
Action Required
Requires mention in Tariff Policy for its implementation.

www.iexindia.com
 Thank You !!!
www.iexindia.com

www.iexindia.com