Mumbai: As director, power purchase, Tamil Nadu Electricity Board (TNEB), D.E. Shanmugam has to manage the utility company’s daily power needs.
Given that the state faces a deficit of around 8,000MW and has a long-term power purchase agreements for only 6,000MW, Shanmugam has to juggle around to buy 1,000-2,000 MW of power daily. Much of his day is spent on the phone, calling up generators and traders to find what is available in the day-ahead market. And, depending on the day’s situation, the price that he pays can vary between Rs2 per unit and Rs9 a unit, and this could go up to even Rs15 per unit of electricity on a bad summer day.
But all that is set to change soon. Once the Indian Energy Exchange (IEX)—the electronic online platform for open trading in electricity being set up by Financial Technologies (India) Ltd, under the aegis of the Central Electricity Regulatory Commission (CERC), comes up, Shanmugam says, the price of the electricity he buys will be rationalized.
Financial Technologies, which floated the Multi Commodity Exchange of India Ltd, India’s largest commodity exchange by volumes controlling around 75% of the commodity trade, holds 46% stake in the power exchange, and the state-owned power trading firm PTC India Ltd, holds a 26% stake in the exchange. Other stakeholders in the exchange include Tata Power Co. Ltd, Reliance Energy Ltd, Infrastructure Development Finance Co. Ltd, Lanco Infratech Ltd, the state-run Rural Electrification Corp. Ltd, and Adani Enterprises Ltd.
India’s other commodity exchange, the National Commodity and Derivatives Exchange Ltd, is also planning to set up a power bourse. IEX already has registered more than 50 members with 50 others currently undergoing the vetting process. “The power exchange will even out the price variations and ensure process of discovery, which is only the price of power,” said Joseph Massey, director, IEX. “The discounts on account of reputation for meeting payment targets, etc., will no longer be reflected in power price. The blind bids of today will be a thing of the past. The whole process of power purchase will become transparent.” But the exchange is not expected to be functional for another two months. Meanwhile, it is training the traders and the utilities and helping them set up the terminals and other back-end systems, including the payment systems.
Currently, 2.41% of the power produced in India is traded (15,000 million units (mu) of energy), most of it bilaterally or through traders such as PTC India who tie-up excess power from surplus generators and offer it to deficit states. The exchange is targeting to capture around 50% of this trade.
Power trading in India has been growing rapidly and over the past three years, between 2004-05 and 2006-07, it has grown from 11,846.53mu to 15,022.74mu. At the same time, price at which the majority of the trade takes place also has gone up.
For instance, in 2004-05, 87.61% of the power traded was in the Rs2-3 per unit range but by 2006-07, maximum quantum of power was being sold between Rs3-6 a unit.
The exchange will allow power distribution utilities such as Maharashtra Electricity Distribution Co. Ltd or Mahavitran, the power distribution company that distributes electricity in most of Maharashtra, to buy power at market discovered prices.
Initially, the exchange will provide day-ahead trades— that is, a utility can bid today for tomorrow’s requirements. This can be down in two ways —one is hour-by-hour trade round 24 hours, called single trades, and the second is block bids—bidding for a block of six hours.
In either case, both the buyers and the sellers put in their bids for how much energy they plan to sell at what price or how much energy they are willing to buy at what price at any given hour. The same process is also applicable for block trades. The discovered price is the point where the two curves meet on the graph. For example, if a seller wants to sell 100 MW of energy at Rs5 a unit at 5pm, while there is a buyer who has put in bid for the same amount of electricity at the same price for that hour, then Rs5 is the discovered price of power for that hour.
Once the price is discovered, the exchange then notifies the national and regional load dispatch centres to allocate the required transmission corridors, while at the same time ensuring that the buyer makes payments into an exchange-controlled account. But payments will be released to the seller only after the power has been delivered.
“We are ensuring that all payment risks are mitigated with our counter-party guarantee,” said Massey. IEX has already tied up with HDFC Bank Ltd and Canara Bank for the purpose. According to government estimates, India currently faces a shortage of 70,000MW of power nationally, with the northern, western and southern regions being in deficit and the eastern and north-eastern regions being power surplus. However, there are pockets of occasional surpluses, which currently are not traded. “The exchange mechanism will allow all such pockets of surplus power to be traded,” said Ajay Bhushan Panday, managing director, Mahavitran.