Introduction
The Central Electricity Regulatory Commission (CERC) has recently issued an order aimed at addressing the increasing demand for electricity in India and the resulting price fluctuations. The order directs Power Exchanges to revise their bidding software to allow members to quote prices within a new range, with the goal of reducing electricity costs for buyers and offering opportunities for high-cost generators and willing buyers to participate in the High Price Day Ahead Market (HP-DAM).
Background and Findings
The CERC has been closely monitoring the power market and analyzing factors impacting the demand and supply of electricity in India. Based on recent data, the Commission observed several trends, including the increasing percentage of blocks in a day with a Market Clearing Price (MCP) at the price ceiling of Rs. 12/kWh, rising peak demand, and a strong correlation between the MCP and buy-to-sell bid ratio. This indicates that buyers’ behavior is driving higher prices in recent months.
Moreover, the CERC observed that despite the general understanding that price formation is a function of demand and supply, this theory does not seem to hold in the current market situation. There is inadequate supply during peak hours, leading to higher prices for buyers, even when the cost of generation by infra-marginal producers is not as high.
The Commission had introduced the HP-DAM segment in the Integrated Day Ahead Market (I-DAM) at Power Exchange and approved the price ceiling of Rs. 50/kWh. However, since its introduction, there has been no trade in this segment. Meanwhile, imported natural gas and coal prices have witnessed significant reductions over the past few months.
New Directions
Taking into account the emerging demand and supply scenario, the phenomenon of price formation in the Day Ahead Market (DAM), and the decline in imported fuel prices, the CERC has deemed it necessary to review the existing price ceiling in DAM, HP-DAM, Real Time Market (RTM), Intra-day, Day Ahead Contingency, and Term-Ahead contracts traded at power exchanges.
Using its powers under Regulation 51(1) of the Power Market Regulations 2021 (PMR 2021), the CERC has directed all Power Exchanges to redesign their bidding software for the period from 04.04.2023 until further orders. Members can now quote the price in the range of Rs. 0/kWh to Rs. 10/kWh for all contracts and Rs. 0/kWh to Rs. 20/kWh in the HP-DAM segment.
Conclusion
This new order by the CERC aims to reduce the cost of power for buyers and provide opportunities for high-cost generators and willing buyers to participate in the HP-DAM market. The Commission acknowledges the possible impact of frequent intervention in the power market and is committed to ensuring regulatory certainty. The staff has been directed to examine and propose measures to bring predictability on market intervention for the Commission’s consideration.
