The government has allowed trading of surplus electricity generated from “linkage coal” in India’s power markets, aiming to meet peak power demand during hot summers.

Traditional PPAs vs. Power Markets

• PPAs: Long-term Power Purchase Agreements (PPAs) commit generators to fixed-rate supply to buyers over 25 years, losing favor due to inflexibility.
• Power Markets: Offer flexibility, allowing generators to sell surplus power independently at market-determined prices, responding to short-term demand fluctuations effectively.

Working of Power Markets

• Bid-Offer System: Buyers bid for electricity purchases, and sellers make offers, determining the market clearing price.
• Categorization: Power markets are categorized based on delivery timing and contract duration, including spot markets (real-time and intraday) and contract markets (day-ahead and term-ahead).

Role of Renewable Energy Certificates (RECs)

• RECs Mechanism: Allows utilities to meet Renewable Purchase Obligations (RPOs) by buying RECs representing 1 MWh of renewable electricity, promoting green energy adoption.

Power Exchanges in India

• Establishment: Power exchanges were introduced in India in 2008, facilitating competitive pricing, improved resource allocation, and market liquidity.
• Market Dominance: Indian Energy Exchange Ltd (IEX) holds over 90% market share, followed by Power Exchange India Limited (PXIL) and Hindustan Power Exchange Ltd (HPX).

Road Ahead for Power Exchanges

• Market Coupling: Matching bids from all exchanges to discover a uniform market clearing price, leading to efficient price discovery and increased market stability.
• Capacity Markets: Aimed at incentivizing investment in generation capacity for long-term grid reliability, aligning with mature international markets.

Global Perspective

• Comparison: Few countries like the UK, parts of Australia, and South Korea have developed capacity markets, aligning with India’s efforts to attract investment and foster competition in the power sector.

Overall, India’s power markets are evolving towards greater flexibility, efficiency, and competitiveness, with a focus on integrating renewable energy and ensuring reliable grid operations