What is market coupling in power sector, and how it will change electricity pricing in India, ETEnergyworld

New Delhi: In a major reform move, India’s electricity regulator—the Central Electricity Regulatory Commission (CERC)—has ordered a phased rollout of market coupling in the Day-Ahead Market (DAM) by January 2026. While this may sound technical, it is expected to reshape the way electricity is bought and sold in India, and could eventually help lower prices for consumers and improve efficiency in the power system.

So what exactly is market coupling, and why is it being introduced now?

What is Market Coupling: Think of it like airline ticket booking

Imagine there are three different travel apps—say App A, App B, and App C—where you can book airline tickets. Right now, each app has a different price for the same flight, even though the airline is the same. Some apps may show lower fares, others may not. Now imagine if all the apps were connected to a central system that pooled all the tickets together and offered you the best price across all platforms—automatically. That’s what market coupling aims to do for electricity.

Currently, India has three power exchanges—IEX (Indian Energy Exchange), PXIL (Power Exchange India Ltd), and HPX (Hindustan Power Exchange). All three allow electricity buyers (like DISCOMs and large industries) and sellers (like power generators) to trade power for the next day. But each exchange operates independently, leading to different prices for the same commodity—electricity.

With market coupling, there will be a common price for power across all exchanges, determined by a single Market Coupling Operator (MCO). The goal is to ensure the most efficient match of supply and demand, regardless of which exchange the bid is placed on.

Why is this being done now?

Electricity markets are becoming more dynamic, with large variations in demand and supply throughout the day—especially with the rise of solar and wind energy. Ensuring that power is dispatched efficiently and at the lowest cost is becoming critical.

Between December 2024 and March 2025, a shadow pilot project was conducted by Grid-India to test if market coupling can actually deliver results. The findings were promising:

1. In the Real-Time Market (RTM), market coupling could save ₹1.4 crore per day.

2. Price volatility went down.

3. Power was allocated more efficiently.

These results gave the CERC confidence to roll out the reform—starting with the Day-Ahead Market.

What changes can consumers and the industry expect?

In the long term, market coupling could lead to lower and more stable power prices, especially during periods of surplus supply. For instance, when wind power is high at night or solar is abundant in the afternoon, prices fall sharply on one exchange but remain high on another. Market coupling will eliminate these gaps.

Also, it will discourage arbitrage behaviour—where buyers deliberately choose the exchange with lower prices—because now there will be one national clearing price.

For industries and DISCOMs, this could simplify buying decisions, make costs more predictable, and reduce administrative complexity.

Who will run the new system?

Rather than appointing one central operator, the CERC has adopted a round-robin model, where the three exchanges will take turns acting as the Market Coupling Operator. Grid-India will act as a standby body and oversee audits, ensuring transparency.

For now, market coupling will be implemented only in the Day-Ahead Market, where the bulk of scheduled electricity is traded. Real-Time Market (RTM) and Term-Ahead Market (TAM) coupling have been deferred due to operational and technical complexities.

What are the challenges ahead?

Market coupling may sound simple, but its execution is highly complex. All exchanges will have to align their bidding formats, upgrade their software systems, and coordinate closely in real-time. There are also concerns about whether market coupling could reduce competition among exchanges.

However, the CERC has clarified that while price discovery will be centralised, competition will continue in services, user experience, and innovation, keeping exchanges relevant.

What comes next?

The CERC has directed its staff to work with Grid-India and stakeholders to propose regulatory changes needed to implement the reform. Another pilot is expected in the Term-Ahead Market, and broader consultations will follow.

If successful, India could become one of the few countries globally with a unified, efficient, and transparent electricity market, helping ensure both cost-effective power and grid stability—key to supporting rising demand, especially from electric vehicles, industry, and green hydrogen.

• Published On Jul 25, 2025 at 08:58 AM IST

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