Real-time market for power procurement to enable efficient price discovery and support grid balancing: ICRA

Representational image. Credit: Canva

The launch of real-time market (RTM) for power trading on June 1, 2020 is expected to lead to an efficient price discovery in the power trading market. The RTM power trading would enable the distribution utilities and the open access consumers to bid for electricity within one hour of the requirement, against the prevailing day-ahead market (DAM). In ICRA’s view, this would enable the discoms and system operators to lower the cost of grad balancing by reducing dependence on deviation settlement mechanism (DSM) and ancillary services.


Commenting on the RTM trading, Mr. Sabyasachi Majumdar, Group Head & Senior Vice President – Corporate ratings, ICRA Ltd says, “The introduction of RTM trading would enable efficient price discovery for electricity and support grid balancing activities. This is especially significant in the context of rising share of renewable energy in the electricity generation in India. Considering a 50 paise per unit saving under RTM trading against DSM and assuming a 50% transition in procurement from DSM to RTM in the near to medium term, the annual savings for discoms and open access consumers is estimated to be Rs. 550 crore. Further, a robust communication and software systems remain crucial for implementation of real time market.”

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With the strong policy support and improved tariff competitiveness of wind and solar power, the share of renewable energy in the all India electricity generation has increased to 10.0% in FY2020 from 5.6% in FY2016. This coupled with the variable nature of renewable generation adversely impacts the grid balancing process. While the gradual implementation of forecasting and scheduling mechanism for wind and solar power projects is expected to ease the grid balancing process, the availability of RTM power trading would provide an enabling mechanism for efficient grid management.


“The prices on the power exchange market (both RTM and DAM) are expected to remain subdued (i.e. less than Rs. 3/unit) in the near term, given the surplus capacity scenario and subdued demand growth expectations for the current year, with the adverse impact of the ongoing lockdown / restrictions imposed to control Covid-19 pandemic. Subdued power tariffs on power exchange thus remain positive for the discoms and open access consumers and in turn, would also augment the open access transactions. However, such spot tariffs remain unviable for the thermal IPPs which do not have long term PPAs” added, Mr. Girishkumar Kadam, Sector Head & Vice President – Corporate ratings, ICRA Ltd.

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Given the attractive spot tariffs, the industrial and commercial consumers may increase their power procurement through open access using RTM and DAM on power exchanges. This in turn may negatively impact the revenues and profitability for discoms, given that such consumer segments cross subsidise the supply to domestic and agriculture consumers of the discoms. Considering open access charges at the higher end of Rs. 4 per unit and spot power tariff of Rs. 2.5 per unit, the procurement from open access is likely to be more economical for the industrial and commercial consumers at the prevailing grid tariff rates. This in turn may also lead to an upward pressure on cross subsidy surcharge and additional surcharge imposed by the discoms so as to discourage such open access

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