Unit V Indian Power Market

UNITV: INDIAN POWER MARKET

Current Scenario– Regions–Salient features of Indian Electricity Act2003–Regulatory and

Policydevelopment in Indian power Sector–Availability based tariff–Necessity–Working
Mechanism– Unscheduled Interchange Rate– Operation of Indian Power Exchange.

5.1 Current scenario of restructuring the choices and salient features of Indian electricity Act
2003

National Power Scenario Indian power sector is facing challenges and despite significant growth in
generation over the years, it has been suffering from shortages and supply constraints. Energy and
peak load shortages were 7.8 % and 13 % respectively in the year 2000-01. The per capita electricity
consumption in India is about400 kWh/year, which is significantly lower than the world average of
around 2,100 kWh/year. As GDP growth accelerates to an ambitious 8 to 10 %, the shortage of
power will become more severe.

The power situation in India is characterized by demand in excess of supply, high Transmission and
Distribution (T&D) losses, low Plant Load Factor (PLF), peak demand and energy shortages, poor
financial health of the State Electricity Boards (SEBs) and severe resource crunch. The power sector
reforms in the country and consequent privatization of generation, T & D have been sluggish, due to
complexities involved. The Ministry of Power has been making continuous efforts for promoting
reduction of T&D loss and re-structuring of SEBs. The electricity regulatory commissions, recently
formed as a part of the reforms, have been still learning to exercise adequate control on power tariffs.

With reference to above power and energy scenario, Ministry of Power (MoP) and Ministry of Non-
conventional Energy Sources (MNES), Government of India, has been promoting viable renewable
energy technologies including wind, small hydro and biomass power, energy conservation, demand
side management etc. MNES has been promoting various sources of renewable energy since 1990.

Wide spread need of power generation has created the need for a cheap and readily available
commercial fuel for generating electricity at low cost. Coal was the first to be selected in India as a
commercial fuel in early thermal power stations and is still king of the power market.

Central Electricity Authority (CEA) has initially projected a shortfall of 1,50,000 MW in 15 years
and therefore, a capacity addition target of 10,000 MW every year, the actual capacity addition has
been far short of targets. The CEA has recently revised the capacity addition target to 1, 00,000 MW
from earlier target. This implies an annual addition of 8,500 MW as against earlier fixed of 10,000
MW. Capacity addition in the last five years including financial year 2000 was average 3,000 MW
per year. Out of the total capacity added during last five years, 49% was added by the states and

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balance by central plants,excluding only 4% contributed by private sector. This indicates that, the
states have been the largest contributors to incremental capacity.

The sustained economic development in India has created a critical need for additional power
generation capacity. To augment the existing installed capacity of about 101,154 MW (year 2000-
01), the Government of India has encouraged private sector participation in the power generation.

To assess the all India capacity requirements by the end of eleventh plan to meet the demand
projected by 15th Electric Power Survey (EPS) report, Central Electricity Authority (CEA) carried
out planning studies using updated version of Integrated System Plan (ISPLAN) model, which
optimizes generation capacity additions in an integrated manner with power transmission and fuel
transportation. The studies are based on updated data base, keeping in view the development in
power sector in recent past, likely achievement during 9th Plan, the perspective plans prepared by
Central Power Units (CPUs) and also latest status of Independent Power Producers (IPP) and state
sector projects.

The CEA report “Power on Demand By 2012” has indicated that the level of satisfaction would be
85% only with the identified installed capacity of about 2,10,000 MW by the end of eleventh Plan
(2011-12), leaving a gap of about 22,600 MW in demand. Additional projects to the tune of 30, 000
MW capacity need to be identified to meet the full peaking requirements. On the other hand, if the
demand in terms of peak as well as energy is reduced by 15%, then the present level of identified
projects including projects covered in CPUs perspective plan is found to be adequate. Hence, energy
conservation activities and power generation from renewable sources have an important role in
management of demand and energy requirement.

Out of total existing generation capacity, nearly 72% is contributed by thermal power. With a need
for sustainable economic growth, the Government of India, through the Ministry of Non-
Conventional Energy Sources (MNES), is encouraging and catalyzing the growth of renewable
energy based power including biomass, wind, hydro, solar photo-voltaic etc. It is expected that a
judicious mix of centralized fossil fuel power plants and decentralized renewable energy based
power plants will lead to an environmentally friendly augmentation of the power sector in India. In
addition to this central government and all the State Governments are encouraging the Energy
conservation activities in all the sectors like industrial, domestic, commercial, agricultural etc.
Implementation of electrical energy conservation projects / programmes at various sectors will also
help in reduction of peak demand along with the financial gains through reduction of energy
consumption.

5.2 Regions

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The Indian Power System is made of 3 synchronous grids, the NorthernRegion, Western-
Eastern-North Eastern Region (W-E-NE R), and the Southern Grid. The installed capacityis greater
than 110 GW and a demand of 70 GW is met (2005). The synchronous regions areinterconnected by
asynchronous (HVDC) ties. Therefore, it is possible to operate the three gridsindependently since the
power through the HVDC links can be independently controlled.

All DC links as shown in the figure are back to back, except for the one at Talcher-Kolar,
which is a longHVDC line.

Most of the power generation is likely to come up in the coal richcentral-eastern region and
the hydropotential rich north eastern region. Therefore adequate capacitytransmission is necessary to
transmit thispower to the load centers.

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Plan for a National Grid

The plan for formation of national grid includes synchronous interconnection of the Northern
Region withthe W-E-NE-Region around 2006. Synchronous operation will allow for subsequent
interconnection atseveral other locations using AC lines, thereby increasing the power exchanges
between regions. Ofcourse, one may increase the number and capacity of asynhronous links and
achieve the same thing.

Eventually, it is a tradeoff between the technical considerations and costs.What are the
challenges in the integration of 2 large systems synchronously ? Among the problems whichone will
encounter are control of power flows between the interconnected regions and ensuring
themaintainance of synchronism between interconnected generators subsequent to disturbances.

The Talcher - Kolar HVDC link is a high capacity link which transfers power from Talcher in the
EasternRegion to Kolar in the Southern Region. In case the link trips, the W-E-NE Region is left
with surpluspower. Most of the surplus power rushes towards the western region (which has a large
load) throughrelatively weak AC tie lines. The ensuing power swings (relative motion between
generators) are not stableand the system separates into two regions due to loss of synchronism.

Therefore, in order to prevent ER-WR system separation, the following emergency scheme was
concieved:

In case due to an unexpected contingency, the heavily loaded HVDC link trips, then a few generators
atTalcher are also tripped immediately. This ensures that the W-E-NER system is not left with too
muchsurplus power.Note that the other asynchronous links to the Southern Region (e.g. the one at
Gazuwaka) are of limitedcapacity and cannot suddenly push the excess power to the Southern
Region unless they are lightly loaded.Moreover power flow through these links is regulated.
Therefore, power can be ramped slowly by manualintervention. However, a strategy specifically
suited to deal with this situation can be concieved.

The proposed plan for synchronous operation of NR and WR-ER-NER brings out interesting
questions:

What will be the role of the existing back-to-back HVDC links (which asynchronously interconnect
the twosystems at present), when NR and WR-ER-NER systems are synchronized?

Can the back-to-back HVDC links regulate the total power exchange between the two regions once
they aresynchronized?

5.3 Salient Features of Indian Electricity Act 2003

THE ELECTRICITY ACT 2003

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The Electricity Act 2003 gave rise to a new regime of power sector reforms in India. This Act
consolidates and supersedes previous electricity acts of 1910, 1948 and 1998. The major aim of the
act stands in providing competition in the power sector by providing open access, making power
trading a legitimate activity and removing captive power plants from the ambit of licenses. In one
sense, the Electricity Act 2003 is a revolutionary piece of legislation that aims to transform the power
sector of India. The Act is a move towards creation of market based regime in the Indian power
sector. In the following sections, we provide important sector-wise provisions of the act for each
sector.

Provisions in the generation sector

1. Generation has been de-licensed and captive generation is being freely encouraged and
permitted. This provision is important because so far the issue of setting up CPP was hindered
due to procedural hassles with a whole range of permissions required to set up and operate the
CPPs. The multiple permissions also often delayed the projects and hindered transparency in
the system. For hydro projects, approval of the state government and clearance from the CEA
are needed to check the safety aspects and optimum utilization of water resources.
2. Promotion of CPPs and distributed generation (DG) by allowing distribution licensees to
undertake generation.
3. In accordance with EA2003, CERC has issued new generation tariff regulations for the period
2004–2009 that would follow a light-handed cost-plus approach based on normative
parameters. The tariff principles should encourage utilities to run their business on
commercial principles and should gradually be cost reflective in order to reduce cross-
subsidies.
4. The IPPs can access transmission lines without any discrimination or can construct their own
dedicated lines.

Provisions in the transmission sector

1. here will be government-owned transmission utilities at the central as well as state level with
the responsibility of ensuring that the transmission network is developed in a planned and
coordinated manner to meet the requirements of the sector. The load dispatch function can be
integrated with or separated from the transmission utility, and in either case it will remain
under government control.
2. A provision has been made to allow private transmission licensees to take up transmission
business.

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3. Open access in transmission with provision of surcharge for cross-subsidy and the surcharge
to be gradually phased out. The non-discriminatory open access means that if there is spare
capacity available, transmission lines should be made available to whoever demands it for
transferring power.
4. Establishment of a center at national level for optimum scheduling and coordination of power
exchanges between various regions. This center will be called National Load Dispatch Center
(NLDC).

Provisions in the distribution sector

1. Open access is to be introduced by the state regulatory commissions in a time bound manner.
2. Distribution licensees are free to undertake generation and generating companies are free to
take up distribution licensees.
3. For rural and remote areas, stand-alone systems for generation and distribution would be
permitted. Due to this, rise in the number of Distributed Generators (DGs) is expected.
4. For rural areas, the decentralized management of distribution system through Panchayats,
cooperatives, etc., would be permitted.
5. Provision for private participation in distribution.
6. Parallel distribution networks allowed. Permitting more than one licensee in same
geographical area is an important policy change. Except in Mumbai, there has never been
more than one distribution company active in the same geographical area. Even in Mumbai,
where Tata and Reliance operate in the same area, the overlap has been limited to HT
consumers. Otherwise their operation has been more or less mutually exclusive.
7. Subsidies, if any, would be paid in advance.

Power Trading

1. The Electricity Act recognizes power trading as a separate licensed activity.

2. The regulatory commission is vested with the responsibility to fix the criteria for becoming a
trader.

There are two CERC functions that are directly related to trading. First one is the issuing of
licenses to entities to function as electricity trader with respect to inter-state operations. Second is to
fix the trading margin in the inter-State trading of electricity. The Act excludes all the load dispatch
centers, CTU, STUs and transmission licensees from engaging in the trading activity. After the
enactment of the act, the number of traders in the business is rising. Currently, CERC has issued
license to 22 traders to do the trading business.

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Other Important Changes

1. State governments to convert SEBs into corporate bodies in the field of generation,
transmission, and distribution.
2. A central administrative tribunal (CAT) has been created for the speedy disposal of appeals
against the decision of CERC and state electricity regulatory commissions (SERCs).

The institutional changes after the Electricity Act are depicted in Table 4.

Before The
Segment After The Act
Act

Majority
Increasing private
government
Generation participation in
owned, less
Captives and IPPs
of private

Government Both, government and

Transmission
owned private owned

Corporations -
Government increasingly Private
as well as (especially in urban
Distribution
private areas), Multiple
owned licensees, Standalone
systems in rural

Through multiple
Trading Bilateral traders as well as power
exchange

Table 4: Segment-wise changes after The Electricity Act 2003

5.2 Regulatory and policy development in Indian power sector briefly:

 The Electricity Act of 2003 is one of the key policy acts in the Power Sector „
 This act encourages private sector involvement in Generation, Transmission and Distribution
„
 Open Access Provisions are provided in the Act wherein private generators can sell
directly to consumers „
 Privatization and Corporatization of SEB‟s is encouraged „
 State Governments pay off or write-off the debts of the SEB‟s „
 Competition is promoted in Generation and Distribution „
 Unbundling of Generation, Transmission and Distribution is proposed in order to increase the
number of players in this sector and thereby promote efficiency, consumer choice and
satisfaction „

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 Cross subsidies will be reduced and State governments will pay SEBs the subsidies they
mandate. SEBs can also set appropriate tariffs so that they are financially viable
 Multi-year Regulation through CERC (Central Electricity Regulatory Commission) and
SERC (State Electricity Regulatory Commission) have been established to monitor activity in
this sector „
 Although these reforms have been well intended, the current taxation structure and
government bureaucracy have not allowed these reforms to have their intended effect
 APDRP – Accelerated Power Development and Reform Program. Some highlights are …
 States unbundle Generation, Transmission and Distribution, and take over SEB debts
…
 States agree to an audit, use of IT and Metering …
 Investment is provided to upgrade infrastructure „
 Preference is given to programs aimed at removing commercial losses „
 Funding is contingent on whether targets were met for previous projects …
 Incentives provided for improved reliability, loss reduction, billing and metering „
 Incentive amount is pegged to reduction in difference between cost of production and
revenue „
 Bottom Line – there were initial improvements in some SEBS like WB, AP. However, now
enthusiasm to implement reforms has decreases.

5.3 Availability Tariff

The term Availability Tariff, particularly in the Indian context, stands for a rational tariff
structure for power supply from generating stations, on a contracted basis. The power plants have
fixed and variable costs. The fixed cost elements are interest on loan, return on equity, depreciation,
O&M expenses, insurance, taxes and interest on working capital. The variable cost comprises of the
fuel cost, i.e., coal and oil in case of thermal plants and nuclear fuel in case of nuclear plants. In the
Availability Tariff mechanism, the fixed and variable cost components are treated separately. The
payment of fixed cost to the generating company is linked to availability of the plant, that is, its
capability to deliver MWs on a day-by-day basis. The total amount payable to the generating
company over a year towards the fixed cost depends on the average availability (MW delivering
capability) of the plant over the year. In case the average actually achieved over the year is higher
than the specified norm for plant availability, the generating company gets a higher payment. In case
the average availability achieved is lower, the payment is also lower. Hence the name „Availability
Tariff‟. This is the first component of Availability Tariff, and is termed „capacity charge‟.

The second component of Availability Tariff is the „energy charge‟, which comprises of the
variable cost (i.e., fuel cost) of the power plant for generating energy as per the given schedule for

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the day. It may specifically be noted that energy charge (at the specified plant-specific rate) is not
based on actual generation and plant output, but on scheduled generation. In case there are deviations
from the schedule (e.g., if a power plant delivers 600 MW while it was scheduled to supply only 500
MW), the energy charge payment would still be for the scheduled generation (500 MW), and the
excess generation (100 MW) would get paid for at a rate dependent on the system conditions
prevailing at the time. If the grid has surplus power at the time and frequency is above 50.0 cycles,
the rate would be lower. If the excess generation takes place at the time of generation shortage in the
system (in which condition the frequency would be below 50.0 cycles), the payment for extra
generation would be at a higher rate.

To recapitulate, the Indian version of Availability Tariff comprises of three components: (a)
capacity charge, towards reimbursement of the fixed cost of the plant, linked to the plant's declared
capacity to supply MWs, (b) energy charge, to reimburse the fuel cost for scheduled generation, and
(c) a payment for deviations from schedule, at a rate dependent on system conditions. The last
component would be negative (indicating a payment by the generator for the deviation) in case the
power plant is delivering less power than scheduled.

How do the beneficiaries share the payments?

The Central generating stations in different regions of the country have various States of the Region
as their specified beneficiaries or bulk consumers. The latter have shares in these plants calculated
according to Gadgil formula, and duly notified by the Ministry of Power. The beneficiaries have to
pay the capacity charge for these plants in proportion to their share in the respective plants. This
payment is dependent on the declared output capability of the plant for the day and the beneficiary's
percentage share in that plant, and not on power / energy intended to be drawn or actually drawn by
the beneficiary from the Central station.

The energy charge to be paid by a beneficiary to a Central station for a particular day would
be the fuel cost for the energy scheduled to be supplied from the power plant to the beneficiary
during the day. In addition, if a beneficiary draws more power from the regional grid than what is
totally scheduled to be supplied to him from the various Central generating stations at a particular
time, he has to pay for the excess drawn at a rate dependent on the system conditions, the rate being
lower if the frequency is high, and being higher if the frequency is low.

How does the mechanism work?

The process starts with the Central generating stations in the region declaring their expected output
capability for the next day to the Regional Load Dispatch Centre (RLDC). The RLDC breaks up and
tabulates these output capability declarations as per the beneficiaries' plant-wise shares and conveys
their entitlements to State Load Dispatch Centres (SLDCs). The latter then carry out an exercise to

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see how best they can meet the load of their consumers over the day, from their own generating
stations, along with their entitlement in the Central stations. They also take into account the irrigation
release requirements and load curtailment etc. that they propose in their respective areas. The SLDCs
then convey to the RLDC their schedule of power drawal from the Central stations (limited to their
entitlement for the day). The RLDC aggregates these requisitions and determines the dispatch
schedules for the Central generating stations and the drawal schedules for the beneficiaries duly
incorporating any bilateral agreements and adjusting for transmission losses. These schedules are
then issued by the RLDC to all concerned and become the operational as well as commercial datum.
However, in case of contingencies, Central stations can prospectively revise the output capability
declaration, beneficiaries can prospectively revise requisitions, and the schedules are correspondingly
revised by RLDC.

While the schedules so finalized become the operational datum, and the regional constituents
are expected to regulate their generation and consumer load in a way that the actual generation and
drawls generally follow these schedules, deviations are allowed as long as they do not endanger the
system security. The schedules are also used for determination of the amounts payable as energy
charges, as described earlier. Deviations from schedules are determined in 15-minute time blocks
through special metering, and these deviations are priced depending on frequency. As long as the
actual generation/drawal is equal to the given schedule, payment on account of the third component
of Availability Tariff is zero. In case of under-drawal, a beneficiary is paid back to that extent
according to the frequency dependent rate specified for deviations from schedule.

5.3.1 Necessity of Availability Tariff

Prior to the introduction of Availability Tariff, the regional grids had been operating in a very
undisciplined and haphazard manner. There were large deviations in frequency from the rated
frequency of 50.0 cycles per second (Hz). Low frequency situations result when the total generation
available in the grid is less than the total consumer load. These can be curtailed by enhancing
generation and/or curtailing consumer load. High frequency is a result of insufficient backing down
of generation when the total consumer load has fallen during off-peak hours. The earlier tariff
mechanisms did not provide any incentive for either backing down generation during off-peak hours
or for reducing consumer load / enhancing generation during peak-load hours. In fact, it was
profitable to go on generating at a high level even when the consumer demand had come down. In
other words, the earlier tariff mechanisms encouraged grid indiscipline.

The Availability Tariff directly addresses these issues. Firstly, by giving incentives for
enhancing output capability of power plants, it enables more consumer load to be met during peak
load hours. Secondly, backing down during off-peak hours no longer results in financial loss to
generating stations and the earlier incentive for not backing down is neutralized. Thirdly, the shares

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of beneficiaries in the Central generating stations acquire a meaning, which was previously missing.
The beneficiaries now have well-defined entitlements, and are able to draw power up to the specified
limits at normal rates of the respective power plants. In case of over-drawal, they have to pay at a
higher rate during peak load hours, which discourages them from overdrawing further. This payment
then goes to beneficiaries who received less energy than was scheduled, and acts as an
incentive/compensation for them.

How does it benefit everyone?

The mechanism has dramatically streamlined the operation of regional grids in India. Firstly,
through the system and procedure in place, constituents‟ schedules get determined as per their shares
in Central stations, and they clearly know the implications of deviating from these schedules. Any
constituent which helps others by under-drawal from the regional grid in a deficit situation, gets
compensated at a good price for the quantum of energy under-drawn. Secondly, the grid parameters,
i.e., frequency and voltage, have improved, and equipment damage correspondingly reduced. During
peak load hours, the frequency can be improved only by reducing drawls, and necessary incentives
are provided in the mechanism for the same. High frequency situation on the other hand, is being
checked by encouraging reduction in generation during off-peak hours. Thirdly, because of clear
separation between fixed and variable charges, generation according to merit-order is encouraged
and pithead stations do not have to back down normally. The overall generation cost accordingly
comes down. Fourthly, a mechanism is established for harnessing captive and co-generation and for
bilateral trading between the constituents. Lastly, Availability Tariff, by rewarding plant availability,
enables more consumer load to be catered at any point of time.

5.4 Daily scheduling process:

Suppose a 1000 MW Central coal-fired power station has three beneficiaries (States – A, B
and C) with allocated shares of 30, 30 and 40% respectively. Suppose the station foresees a
capability to deliver 900 MW (ex-bus) on the next day, and advises the same to the RLDC by 9 AM.
The RLDC would break it up, and advise the three SLDCs by 10 AM that their entitlements in the
Central station are 270, 270 and 360 MW respectively, for the next day. Entitlements in the other
Central stations would also be advised by RLDC to the SLDCs similarly.

Simultaneously, the SLDCs would receive availability status from their intra- State stations as
well. They would then carry out a detailed exercise as to how best to meet the expected consumer
demand in their respective States over the 24 hours. For this, they would compare the variable costs
of various intra - State power stations inter-se, and with energy charge rates of the Central stations,
and also consider the irrigation release requirements vs. energy availability of the hydro-electric
stations. After this exercise, the SLDCs will issue the dispatch schedules for the intra - State stations,

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and their requisition from the Central stations (restricted to the States‟ respective entitlements).
Suppose States – A and B fully requisition their shares from the Central station under consideration
(270 MW each, throughout the 24-hour period), while State – C requisitions 360 MW during the day
time, but only 200 MW during the night hours.

Summation of the three requisitions would thus produce, for the Central generating station,
the total dispatch schedule of 900 MW during the day time and 740 MW during the night hours, as
illustrated in figure - 1. This would be issued by the RLDC by 5 PM, and would be effective from the
following midnight (unless modified in the intervening hours). States – A, B and C shall pay capacity
charge for the whole day corresponding to plant availability of 270, 270 and 360 MW, and the
generating station would get capacity charge corresponding to 900 MW. Energy charge payments by
the three States would be for 270 x 24 MWh, 270 x 24 MWh, and (200 x 24 + 160 x 16) MWh of
energy respectively, at the specified energy charge rate of the generating station.

Figure –5.1

5.5 DEVIATIONS FROM SCHEDULE

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As mentioned earlier, the energy charge, at the specified energy charge rate of a generating
station, is payable for the scheduled energy quantum. The energy actually supplied by the generating
station may differ from what was scheduled. If actual energy supplied were higher than scheduled,
the generating station would be entitled to receive a payment for the excess energy (the deviation
from schedule, technically termed as Unscheduled Interchange (UI) in Availability Tariff
terminology) at a rate dependent on frequency at that time. If the energy actually supplied is less than
what is scheduled, the generating station shall have to pay back for the energy shortfall, at the same
frequency - linked rate.

Figure – 5.2

The relationship between the above UI rate and grid frequency, for the inter- State system, is
specified by CERC. The present relationship, applicable from 1.10.2004, is shown in figure - 2.
When the frequency is 50.5 Hz or higher, the UI rate is zero, which means that the generating station
would not get any payment for the extra energy supplied. It would burn fuel for producing this extra
energy, but would not get reimbursed for it at all. Conversely, if the actual energy supplied were less
than scheduled energy, the generating station would still be paid for the scheduled energy (at its
energy charge rate) without having to pay back anything for the energy shortfall. It would thus be
able to save on fuel cost (for the energy not generated) and retain the energy charge as net saving.
There is thus a strong commercial incentive to back down generation during high frequency
situations, and help in containing the frequency rise.

On the other hand, when frequency goes down, the UI rate (for both oversupply and under-
supply) ramps up, reaching a ceiling level of Rs. 5.70 per kWh at a frequency of 49.0 Hz. At a
frequency of 49.5 Hz, the UI rate is Rs. 3.45 per kWh presently. Under this condition, any extra

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energy sent into the grid would get the generating station a UI payment at the rate of Rs. 3.45 per
kWh. For any shortfall, the generating station shall have to pay back at the same rate. It would thus
have a strong commercial incentive to maximize its generation during periods of such low frequency.

A similar scheme operates for the States (beneficiaries) as well. Any State drawing power in
excess of its schedule has to pay for the excess energy at the same frequency - dependant rate. The
high UI rate during low-frequency conditions would induce all States to reduce their drawal from the
grid, by maximizing their own generation and/or by curtailing their consumer load. If a State draws
less power than scheduled, it pays for scheduled energy quantum at the normal rate and gets paid
back for energy not drawn at a much higher UI rate. On the other hand, during high-frequency
conditions, a State can draw extra power at a low rate, and is thus encouraged to back down its own
costlier generating stations. An underdrawal during high-frequency conditions means that the State
pays for the scheduled power quantum unnecessarily. It should either reduce its schedule, or increase
its drawal.

For the above purpose, the energy is metered in 15-minute time blocks, since frequency keeps
changing (and the UI rate with it). The metered energy is then compared with the scheduled energy
for that 15-minute time block, and the difference (+ or -) becomes the UI energy, as illustrated in
figure - 3. The corresponding UI rate is determined by taking the average frequency for the same 15-
minute time block into account.

Figure -5.3

Also, for each Central generating station and State, the actual energy has to be metered on a
net basis, i.e., algebraic sum of energy metered on all its peripheral interconnection points, for every
15-minute time block. All UI payments are made into and from a regional UI pool account, operated
by the concerned RLDC.

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5.5 POWER EXCHANGE

The power trading in India so far has been facilitated by the bilateral transactions.
Though this is the simplest way of getting into a trade for smaller number of players, it becomes
more and more complex and inefficient as volume traded and number of private participants
increases. The important features of power trading in India are as follows:

1 Sellers dictate prices by inviting bids from the traders. Traders bidding the highest obtain
the limited supplies and sell it to deficit entities after topping it with trading margin.
2 Separate arrangement is required for transmission.
3 Trading is taking place through non-standard loose bilateral contracts. Generally, there is
little or no penalty if the supplier fails to supply or the buyer backs out.
4 The private generation (captive and IPPs) are not coming up in a big way due to absence
of proper accounting mechanism etc. Thus, there is a barrier to entry.
5 Pancaking of transmission charges do not provide equal footing to sellers spread across
the region.
6 The trend of price and volume for bilateral transactions shows that day by day, the
demand is being stagnant as price keeps on growing.

These features indicated need for establishment of a power exchange that would overcome the
lacunae in the current trading mechanisms. The establishment of power exchange would achieve
following objectives:

1 Efficient, transparent and equitable trading.

2 Standardization of electricity as a tradable product.
3 Easy access to new entrants.
4 Optimal utilization of existing resources.

With these objectives in mind, first power exchange in India was established in January 2008 and
was named India Energy Exchange (IEX). At the time of writing this book, IEX was not fully
functional, but was expected to start its activity soon. This market will be 24hour day-ahead
market. Some of the features of IEX are given next. However, some of the features are likely to
change in due course of time, depending on the feedback of market entities.

The Auction

The RLDCs allocate the grid capacities to the PX trades. The auction period will be between
10:00 A.M. to 12:00 noon. Bids are to be submitted as price-quantity pair. The cumulative supply
and demand curves decide the market clearing price (MCP) and the market clearing quantity. The
trade schedules are then sent to market participants and the RLDCs.

The Congestion Management

The contractual flows and allocated grid capacity are compared and if flow exceeds the capacity,
the demand and supply curves on either side of the bottleneck are given a lateral shift such that
flow on the bottleneck is within the limit. This leads to different market clearing prices across the
bottleneck. This essentially forms the variant of price area congestion management scheme.

Administration of Physical Delivery

The physical realization of IEX trades is mandatory for every participant of the market. All
transactions validated by IEX are deemed to be physically delivered. If a participant is unable to
fulfill the delivery commitment, he will be liable to pay UI as stipulated by CERC if he is
connected to the CTU system. Else, if he is connected to an STU or Distribution Licensees'

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system within a State, he will be liable to pay/receive charges for deviations to respective SLDCs
as per the methodology determined by State Electricity Regulatory Commission

Timeline of activities

The timeline of activities pursued by RLDC and IEX is shown in Figure

Fig. Timeline of activities by RLDC and IEX

The list of interfaces or control areas or regional transmission systems on which

unconstrained flows are required to be advised by power exchanges is provided to the power
exchanges by the NLDC by 11:00 hours each day. By 13:00 hours, the power exchanges furnish
details of interchange on all the interfaces or control areas or regional transmission systems. In
addition, the information on the total drawal and injection in each region is also provided. The NLDC
checks for congestion based on this information. In case of congestion the NLDC intimates the
period of congestion and the available limit for scheduling on the congested areas for the congested
period. This information is made available to the power exchanges by 14:00 hours. The limit for
scheduling of collective transactions is based on CERC regulation. The application for scheduling of
collective transaction is to be submitted by the power exchanges by 15:00 Hrs each day, to the
NLDC. The scheduling request by power exchanges should be within the limits as specified by the
NLDC for each time block. In addition it should be within the limits for each time block as specified
by the SLDC in the concurrence or no objection or prior standing clearance. The information

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provided by power exchange should be such that all buyers within a state are represented as one
group and all sellers within a state are represented as another group. By 16:00 hours the NDLC sends
the details of scheduling request to the RLDCs for the purpose of final checking and as
accommodation in the respective schedules. RLDC conveys the acceptance to NLDC by 17:00 hours,
which in turn conveys it to the power exchanges by 17:30 hours.

The power exchange aggregates the supply and demand of all zones and calculates the
unconstrained market clearing price (UMCP). Each power exchange submits the unconstrained
solution to the NLDC. Based on this information the NLDC intimates the maximum trading capacity
for all bid areas on a 24-hour basis pro-rata between the exchanges. The maximum trading capacity
is the difference between the ATC and the sum of approved LTOA and STOA transactions. The
power exchanges then calculate the zonal imbalances by aggregating zonal supply and demand. If
this imbalance exceeds the permitted transmission capacity then there is congestion and market
splitting algorithm is applied. In this method the price within the congested zone is adjusted to drive
the demand-supply gap to a level to match the transfer capability.

In case of threat to grid security, the scheduled transactions may be curtailed by the
NLDC/RLDCs/SLDCs. Collective transactions are curtailed after the curtailment of STOA
transactions. RLDCs curtail the transaction at the periphery of regional entities. Individual
curtailment of intra-state entities is incorporated by the SLDCs. In case of transmission congestion it
becomes necessary for the system operator to curtail the open access transactions in the interest of
maintaining grid security. The manner of curtailing of a scheduled transaction is decided by the
NLDC/RLDC/SLDC. Collective transactions are curtailed after curtailing of short term open access
bilateral transactions. Transmission charges for such transactions are based on final implemented
schedules [10].

The RLDC calculates Available Transfer Capability (ATC) and conveys it to IEX at 10:00
A.M. The period between 10:00 to 12:00 noon is kept open for submitting bids for all 24 hours of the
next day. After the market is cleared at 13:00 Hrs, the unconstrained market clearing quantity is
evaluated and RLDC submits freshly calculated ATC. Following congestion management practices
(if required), the final schedules are communicated to market participants as well as RLDCs.

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(2 MARKS)

1. What are the aims and objectives of electricity policy?

The national electricity policy aims at achieving the following objectives:

 Access to electricity- available for all households in next 5 years

 Availability of power – demand to fully met by 2012 energy and peaking shortages to
be overcome and adequate spinning reserve to be available.
 Supply of reliable and quality power of specified standards in an efficient manner at
reasonable rates.
2. What is reliability index?
Reliability index of supply of power to consumers should be indicated by the
distribution license.
A road map for declaration of RI for all cities and towns upto the district headquarter towns
as also for rural areas should drawn up by SERCS the data of RI should be compiled and
published by CEA .

3. Write short notes on Energy Conservation.

There is a significant potential of energy savings through energy efficiency and demand side
management measures. in order to minimize the overall requirement energy conservation and demand
side management is being accorded high priority.

4. Write short notes on Electricity Act 2003.

The Electricity Act, 2003 has been enacted and a provision contained in this Act has
come into enforce w.e.f 10th June, 2003 and the Act extend to the whole of India accept to State of
Jammu & Kashmir. This Act of 2003 is now regulating the generation transmission, distribution,
trading and use of electricity in the country.
5. What is the importance of electricity?

Electricity is an important requirement for all facts of our life. It has been recognized as a basic
human need. It is a critical infrastructure on which the socio-economic development of the country
depends. Supply of electricity at reasonable rate to rural is essential for its overall development.

6. What does availability tariff address?

The Availability Tariff directly addresses these issues. Firstly, by giving incentives for
enhancing output capability of power plants, it enables more consumer load to be met during

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peak load hours. Secondly, backing down during off-peak hours no longer results in financial loss
to generating stations and the earlier incentive for not backing down is neutralized. Thirdly, the
shares of beneficiaries in the Central generating stations acquire a meaning, which was
previously missing.

7. What are the advantages of availability based tariff?

 Facilitates Merit Order Dispatch. Means because of clear separation between fixed
and variable charges, generation according to merit order is encouraged and pithead
stations do not gave the back down normally. The Overall generation cost accordingly
comes down.
 Faster settlement process.
 Voltages improved, Transmission losses reduced, Transmission capacity increased.
 high quality metering and on line connectivity enabling the system operator to know
the actual flows and taking appropriate action.
8. What are the opportunities for IPPs in electricity act 2003?
Independent Power Producers (IPPs) or non-utility generator (NUG) are private entities (under
unbundled market), which own and or operate facilities to generate electricity and then sell it to a
utility, central government buyer and end users. IPPs may be privately-held facilities, cooperatives
or non -energy industrial concerns capable of feeding excess energy into the system.

9. Benefits of IIPs to Consumers?

 Promotes power supply competition and price transparency that results in lower cost and
added value for consumers
 Benefits are realized without cost obligations associated withincludinggeneration assets in
state jurisdictional rate base.
 IPPs add liquidity and price convergence between Day-Ahead and
 Real-Time Markets through their market participation, including taking FTR positions to
hedge asset positions.
 Geographic diversity of generation portfolio capitalizes onregional differences in power
prices and weather driven demand
 IPPs provide an important voice in MISO stakeholder forums –ensure balance of interests
being heard/represented
10. What is ABT?(April/May 2014)(Nov 20102)
The term Availability Tariff, particularly in the Indian context, stands for a rational tariff
structure for power supply from generating stations, on a contracted basis. The power plants have
fixed and variable costs. The fixed cost elements are interest on loan, return on equity,

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depreciation, O&M expenses, insurance, taxes and interest on working capital. The variable cost
comprises of the fuel cost, i.e., coal and oil in case of thermal plants and nuclear fuel in case of
nuclear plants. In the Availability Tariff mechanism, the fixed and variable cost components are
treated separately. The payment of fixed cost to the generating company is linked to availability of
the plant, that is, its capability to deliver MWs on a day-by-day basis. The total amount payable to
the generating company over a year towards the fixed cost depends on the average availability
(MW delivering capability) of the plant over the year. In case the average actually achieved over
the year is higher than the specified norm for plant availability, the generating company gets a
higher payment. In case the average availability achieved is lower, the payment is also lower.
Hence the name „Availability Tariff”.

11. What is the importance of electricity?

Electricity is an essential requirement for all the facts of our life.It has been recognized as a basic human
need. It is a critical infrastructure on which the socio-economic development of the country depends.
Supply of electricity at reasonable rate to rural is essentiall for its overall development.

12. What are the aims and objectives of Electricity policy?

The national Electricity policy aims at achieving the following objectives:

a)Access to Electricity- available for all households in next five years.

b) Availability of power- demand to be fully met by 2012. Energy and peaking shortage to be overcome
and adequate spinning reserve to be available.

c) Supply of reliable and quality power of specified standards in an efficient manner and at reasonable
rates.

13. List out some issues of electricity policy.

 Rural electrification
 Generation
 Transmission
 Distribution
 Recovery of cost of services and targeted subsides
 Technology development and research and development
 Competition aimed at consumer benefits.
 Financing power sector programme including private sector participation.
 Energy conservation

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14. Write short notes on Hydro-Generation.

Hydroelectricity is an clean and renewable source of energy. Maximum emphasis would be
laid on the development of the feasible hydro potential in the country. The 50,000 MW hydro
initiative has been already launched and is being vigorously pursued with DPR‟s for projects
of 33,000 MW capacity already under preparation Hydel Projects call for comparatively
larger capital investment.

15. Give short notes about NON-CONVENTIONAL energy resources.

Feasible potential of non-conventional energy resources, mainly small hydro, wind and bio-mass
would so need to be exploited fully to create additional power generation capacity. With a view to
increase the overall share of non-conventional energy sources in the electricity mix, efforts will be
made to encourage private sectors participation through suitable promotional measures.

16. Write notes on Transmission and Distribution losses.

It would be clearly recognized that power sector will remain unviable until T&D losses have
been brought down significantly and rapidly. A large number of States have been reporting losses of
over 40% in the recent years. By any standards , these are unsustainable and imply a steady decline
of power section operations. Continuation of the present level of losses would not only pose a threat
to the power sector but also jeopardize the growth prospects of the economy as a whole.

17. Give short notes on Energy conservation.

There is a significant potential of energy savings through energy efficiency and demand side
management measures. In order to minimize the overall requirement, energy conservation and
demand side management is being accorded high level priority. The energy Conservation Act has
been enacted and the bureau of Energy Efficiency has been set up.

18. What is reliability index?

Reliability index(RI) of supply of power to consumers should be indicated by the distributional
license. A road map for declaration of RI for all cities and towns up to the district headquarter towns
and also for rural areas, should be drawn by SERC‟s. The data of RI should be compiled and
published by CEA.

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