Market coupling of power exchanges may be delayed further; Grid India to initiate pilot study – Industry News

While the Central Electricity Regulatory Commission (CERC) directed Grid Controller of India (Grid India) in February to develop a software and run simulations to study the impact of “market coupling” of power exchanges, no major progress has been made on the front so far, according to industry sources. The industry now expects Grid India to initiate the pilot study by the end of September and conclude it by the beginning of FY26.

“While market coupling overhang has not completely ceased, we believe the likelihood of its implementation is low,” UBS, a financial services company said in its latest report.

Talking to FE, Power Exchange India Ltd, one of the three power exchanges in the country said that Grid India has developed the software for real-time market and is now working on coupling the output of real time market (RTM) with SCED (Security Constrained Economic Dispatch).

“Currently, all the exchanges are transferring their bid on DAM (Day-Ahead Market) & RTM to Grid India on a daily basis. The above process is being monitored by CERC and we expect that Grid India will be ready by the end of Sept 2024 to initiate the pilot study,” said Satyajit Ganguly, MD and CEO of Power Exchange India Ltd. “We expect the study to be completed within four months by Grid India, following which it will submit a report to CERC.”

Queries sent to CERC and Grid India remained unanswered till press time.

The Union Ministry for Power last year has proposed market coupling of the three power exchanges in the country in order to determine a uniform market clearing price. Market coupling is a process wherein all the collected bids from all power exchanges are matched to determine a uniform market clearing price for the DAM, RTM or any other market as notified by the CERC.

Industry stakeholders since then have presented mixed views on the proposed system. While some believe it would enable improved competitions and lower transaction costs, others are of the view that it may cause disruption in the power market.

The CERC had directed Grid-India to implement a shadow pilot study on market coupling in an attempt to enhance market efficiency and determine the operational, market, and regulatory impacts of the mechanism on the existing system.

“However, there has been no progress on this yet. Nevertheless, we believe the resultant benefit from market coupling does not exceed the regulatory or implementation risks and it is likely that this overhang is a thing of the past,” UBS said.

The proposed pilot study is supposed to allow coupling of the RTM market of the three power exchanges – Indian Electricity Exchange (IEX), Power Exchange India Limited (PXIL), and Hindustan Power Exchange (HPX), besides coupling RTM with SCED, and coupling of DAM of the three power exchanges.

UBS noted that a large proportion of the 127 stakeholders were against market coupling post the release of a discussion paper by CERC in August 2023. “Given the possible regulatory and implementation risks, we believe market coupling is unlikely to pose a threat. Further, many market participants did not support market coupling, as revealed by their comments in the CERC staff paper.”

Indian Energy Exchange (IEX), the largest power exchange platform handling more than 90% of the power deals, had earlier raised objections to market coupling.

“Majority of the volumes are on IEX right now. Other exchanges have fewer volumes comparatively. Since IEX handles a large part of the volumes, it will be hit (from implementation of market coupling),” said an analyst who did not wish to be identified. “Price discovery is going to be aligned across exchanges.”

PXIL, on the contrary, believes that market coupling, which fosters competition between exchanges, will end the monopoly of the dominant exchange and improve market dynamics.

“With the implementation of market coupling, PXIL believes that the present system of monopoly of one power exchange will end in collective transactions. All the power exchanges will have healthy competition in the collective segment,” Ganguly said. “With PXIL being the leader in Term Ahead Market (TAM) it would facilitate a significant increase in its revenue in collective transactions too.”

The power exchanges in India currently operate DAM and RTM independently, leading to separate price discoveries for the same delivery duration. PXIL argues that this market design traps liquidity in favour of the dominant exchange, hindering recovery in DAM and RTM.

While the policy may impact the three exchanges differently, analysts do not see a major impact on the industry from a generator’s or distributor’s perspective. “There could be challenges in terms of grid connectivity, scheduling and other things, which have to be properly implemented in the software, but it should not be a major challenge,” the analyst said.

Though one of the objectives of the market coupling is optimum use of the transmission network, many experts citing global examples have opined that these goals may not be met.

In the Indian context, the objectives of market coupling include the formulation of a uniform market clearing price, optimal use of transmission infrastructure and maximisation of economic surplus. This likely involves the coupling of all the exchanges in India and may hamper operations,” the Swiss multinational investment bank said.

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