SUMMARY of NVVN

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SUMMARYofNVVNS VIEWS SUGGESTIONS onCERC
STAFF PAPER ON DEVELOPING A COMMON PLATFORM FOR
ELECTRICITY TRADING
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National PX v/s Many (Region Level) Exchanges
View Point As Per Staff Paper NVVN Views
Single National level PX recommended as against region level PXs OK
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Assignment of Transmission Capacity to Day-Ahead
Trading Through PX
View Point As Per Staff Paper NVVN Views
PX shall handle trading and transmission clearance in a composite manner OK. It will be highly convenient to participants and RLDCs
A pre-identified transmission capacity shall be assigned to PX for each inter-regional corridor. Any un-used transmission capacity from that reserved for bilateral trades shall also be added on daily basis To begin with, at least 50 of short-term transmission capacity should be assigned for day-ahead trading on Power Exchange to develop a liquid market. However, the next logical step will be to have all trading on PX and replace physical bilateral contracts with CfD which will eventually prepare the participants for more sophisticated derivatives like futures and options..
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Bids Based On Marginal Costs
View Point As Per Staff Paper NVVN Views
Bids shall be based on marginal costs Market forces shall incentivise bids based on marginal costs in order to win higher volume. Bidders should have freedom to optimize their portfolio.
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Price Mitigation
View Point As Per Staff Paper NVVN Views
Bid caps based on marginal costs can be considered. However, such caps to apply to bilateral trade as well. Double sided bids and uniform clearing price shall incentivise Sellers to bid based on marginal costs to win higher volumes. The clearing price and volume also depend upon the price the buyers are willing to pay for that volume Thus bid caps are not desirable.
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Congestion Management
View Point As Per Staff Paper NVVN Views
Market Splitting method recommended, but congestion revenue to be socialized among participants in deficit areas Classical market splitting method only recommended Congestion revenue may be used for transmission system development.
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Treatment of Transmission Charges
View Point As Per Staff Paper NVVN Views
PX is a transmission user Charges to be levied on per unit basis PX shall socialize all charges among participants PX is not a transmission user, its participants are. Concept of applying transmission charges on an average basis is agreeable and suitable for PX trades. Charges should be applied based on contracted schedule (or implemented schedule in case of curtailment during real time) Other charges (scheduling charges etc) may also be applied on per unit basis and not per contract basis
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Treatment of transmission losses
View Point As Per Staff Paper NVVN Views
Average losses for each inter/intra regional segment of the transmission system To simplify the process, all bids be referred to inter-regional boundaries so that PX contracts are balanced. Actual injection and drawl schedules shall be derived after adjusting respective region and state system losses.
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Organization of PX
View Point As Per Staff Paper NVVN Views
PX is like a trader PX is not like a trader but facilitates trading by others
Multi-owner organization, limit of 25 on individual shareholding Multi-owner OK. Leading Power Sector players should play a major role as key promoters
Independent Board with five full-time Directors, including Chairperson and one nominee of NLDC/RLDCs. Advisory council to recommend names for approval by CERC. Board of Directors to consist of representatives of shareholders as well as CERC/ Government nominee in suitable proportion Only one/two Directors may need to be full time.
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Organization of PX (Contd.)
View Point As Per Staff Paper NVVN Views
Membership for grid connected entities and traders having long/medium term PPAs To be defined more finely. In general, all entities eligible for inter-state Open access to be permitted
Profit is not the motive. Expenses to be met from membership fee and transaction fee. Promoters have to invest money and revenue depends on volumes. There is no guarantee for meeting expenses. So for profit company in principle, for efficient operation.
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Market Regulation
View Point As Per Staff Paper NVVN Views
General Concepts Emphasis on Regulatory intervention Detailed rules to be framed by PX General concepts are OK. However, de-centralized markets are not tightly regulated. Self regulation to be encouraged. Higher level regulations to be framed by CERC suggested. Detailed rule book to be framed by PX Market monitoring procedures to be defined by PX after further study
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Timing for launching PX
View Point As Per Staff Paper NVVN Views
If PX is launched immediately, it may be hampered by lack of liquidity. On the other hand, it may be prudent to launch it in near future to send the right signal to investors and consumers about transparent market development General concepts are OK. However, de-centralized markets are not tightly regulated. Self regulation to be encouraged. Higher level regulations to be framed by CERC suggested. Detailed rule book to be framed by PX Market monitoring procedures to be defined by PX after further study Market development is a challenging task requiring simultaneous effort on multiple fronts with a sense of urgency. There is an urgent need to set up an organized platform for electricity trading. Current trading market size is 12 BU. This is comparable with initial market size in some European PX. Further, massive and unprecedented capacity addition program both in generation and transmission will result in a spurt in trading of electricity in very near future. Thus liquidity does not seem to be a constraint. Availability of an organized market place will in fact catalyze more trading. Development of a Power Exchange involves significant development effort which will take some time. We feel that there is an urgent need to facilitate establishment of a common trading platform for electricity.
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Developing a Common Platform for Electricity
Trading in India
View Point As Per Staff Paper NVVN Views
Power Exchange (PX) is a proven mechanism for efficient and transparent trading OK
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Mandatory v/s Voluntary Participation in PX
View Point As Per Staff Paper NVVN Views
Voluntary participation to begin with, may be made mandatory after gaining experience Voluntary in principle All day-ahead trading shall be through PX only Allocation of open access to day-ahead trading is an issue
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Double-sided Bidding v/s Only Supply Side Bidding
View Point As Per Staff Paper NVVN Views
Double sided bidding is a better option OK
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Uniform Pricing v/s Discriminatory Clearing
Pricing
View Point As Per Staff Paper NVVN Views
Uniform market clearing price OK
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Day-Ahead v/s Same Day Exchange
View Point As Per Staff Paper NVVN Views
PX at present may operate on Day-Ahead basis only OK
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Time blocks for bidding
View Point As Per Staff Paper NVVN Views
Hourly Intervals OK
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Operational Inflexibilities of Generators
View Point As Per Staff Paper NVVN Views
Block bids to be permitted in addition to single-interval bids OK
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Time line for PX
View Point As Per Staff Paper NVVN Views
To fit into day-ahead scheduling process. Final PX schedules to be decided by RLDCs. PX to re-calculate in case of any constraints OK. However, RLDCs to provide binding information on available transmission capacity. PX schedules shall be binding and NO RE-CALCULATION OF SCHEDULES BY PX. In case of a constraint in REAL TIME, RLDC may curtail the PX schedules.
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Other benefits of PX
View Point As Per Staff Paper NVVN Views
Harnessing captive and merchant generation PX as security against PPA defaults Cross border trading Facilitator of consumer choice OK
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Settlement Clearance Mechanism
View Point As Per Staff Paper NVVN Views
Credible and viable arrangement required A separate clearing house It is an important function of PX A separate clearing house is not necessary. If required, it can be outsourced by PX.
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DEVELOPMENTOF POWER EXCHANGE AT NATIONAL LEVEL
NTPC Ltd NVVN Ltd
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An initiative forSelection of PX Model for India

• Analysis of Indian Electricity Trading Market
• Study of International Electricity markets
• Consultations with MoP, CEA, PGCIL and PTC
• Development of DPR for PX in India
• Consultants
• Consortium of M/s NordPool Consulting AS, Norway
  and M/s CRISIL, India

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Preparatory Work Done

• A professionally prepared DPR
• Consultations with other stakeholders during
  preparation of DPR
• Core Team
• Workshop for stakeholders
• Full implementation plan available
• Hardware software issues
• Procurement, Training Implementation
• Model Agreements
• Business Case

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Our Proposal

• Power Exchange may be promoted as a separate
  company by key players in power sectors and
  gradually provided with more diversified
  ownership and governance structure. CERC Staff
  Paper on PX also recommends a diversified
  ownership. It is common to find examples of PX
  promoted by the stakeholders in European Markets.
• Development of Power Exchange for physical
  delivery market is complex due to nature of
  electricity. Therefore, the design of the
  product, trade system and operational procedures
  require a thorough understanding of generation,
  transmission, consumption and trading of
  electricity as well as system operation.

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Our Proposal

• The focus of PX is market development. In India,
  the trading market is small and limited to
  tradable short-term surplus. Therefore support
  and participation by market players is crucial
  for market development.
• CPSUs under the MoP are respective market
  leaders, possess significant domain knowledge,
  technical managerial expertise and financial
  strength. They also have an experienced pool of
  necessary manpower to support the creation and
  operation of PX. Further, the Government
  Companies playing a leading role in the
  development of PX shall provide significant
  comfort to the market participants with regard to
  neutrality and transparency.

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Our Proposal

• Accordingly, the following may be considered for
  establishing the Power Exchange
• Power Exchange shall be promoted as a separate
  company under the Companies Act with CPSUs under
  MoP as the initial promoters, who shall
  contribute Initial 50 of the authorized capital
  in equal proportion. (Authorized capital shall be
  of the order of Rs. 50 crores.)
• Balance 50 of the authorized capital shall be
  issued subsequently to State power utilities,
  FIs, Banks, Traders etc.
• Shareholding by an individual entity may be
  limited to 25 of the paid-up capital.
• The Company shall have Shareholders
  representatives and also the nominee of CERC/
  Government in suitable proportion on its Board of
  Directors.

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Thank you