Coal and Mining Sector

Power markets in India: their working, advantages, and the road ahead


From UPSC perspective, the following things are important :

Mains level: Power markets working and Power exchanges in India

Why in the news?

Amid rising summer demand, the government has permitted the trading of excess electricity produced from “linkage coal” within the nation’s power markets.

What is the Power Market?

  • A power market is a platform where electricity is bought and sold, enabling generators and consumers to trade electricity based on market-driven prices and conditions.

Types of Markets related to Power exchanges in India include:

  • Spot Markets: These include real-time markets (RTM) and day-ahead markets (DAM). RTM allows for immediate buying and selling of electricity, while DAM involves bidding for electricity to be delivered the next day.
  • Term-Ahead Markets: These markets facilitate trades for longer durations, ranging from hours to several days in advance, providing more certainty and planning for market participants.

Their working and Power exchanges in India

  • Market Operation: Power exchanges in India operate as platforms where electricity generators (sellers) and consumers (buyers) participate in trading electricity. Generators submit offers indicating the quantity of electricity they can supply at various prices, while buyers submit bids indicating the quantity they wish to purchase at various prices.
  • Renewable Energy Certificates (REC): Power exchanges also manage the trading of Renewable Energy Certificates (RECs). RECs represent the environmental attributes of renewable electricity generated and can be sold to utilities to meet their renewable purchase obligations (RPOs).
  • Regulation: Power exchanges are regulated by the Central Electricity Regulatory Commission (CERC) in India. The regulatory framework ensures fair and transparent trading practices, oversees market operations and sets rules to promote market integrity.
  • Market Dominance: The Indian Energy Exchange (IEX) is the dominant power exchange in India, handling the majority of electricity trading volume. Other exchanges include Power Exchange India Limited (PXIL) and Hindustan Power Exchange Ltd (HPX), though IEX holds more than 90% of the market share.

Their advantages 

  • Flexibility: Enables generators to respond swiftly to fluctuating electricity demand by selling surplus power at market-driven prices, enhancing grid stability.
  • Efficiency: Optimizes utilization of coal-based power generation assets, minimizing wastage and maximizing revenue through market-based transactions.
  • Transparency: Promotes transparent pricing mechanisms in the electricity sector, fostering competitive market dynamics and benefiting consumers with potentially lower electricity costs.

The Road Ahead for Power Exchanges:

  • Market Coupling: It matches bids from different power exchanges to discover a uniform market clearing price, promoting efficiency and reducing price disparities across regions.It enhances price discovery, market stability, and regional grid integration by providing a reliable reference price for policymakers.
  • Capacity Markets: It compensates generators for maintaining available capacity, incentivizing investment in reliable generation infrastructure. They ensure long-term grid reliability, especially during peak demand periods, aligning India’s power market with international standards and attracting investment.
  • International Alignment and Competitiveness: India’s adoption of advanced market structures (like market coupling and capacity markets) aims to align with mature international markets.These developments can foster greater competition, attract investment, and enhance overall sector efficiency and reliability.

Mains PYQ: 

Q Write a note on India’s green energy corridor to alleviate the problem of conventional energy. (UPSC IAS/2013)

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