CERC Charts Plan to Redesign India’s Power Market
Proposes a mechanism that aims at incentivizing generators
In a recent discussion paper titled Market Based Economic Dispatch of Electricity: Re-designing of Day-Ahead Market (DAM) in India, the Central Electricity Regulatory Commission (CERC) has analyzed India’s power market, highlighting the scope for further optimization of scheduling and dispatch of generation.
Understanding the need to bring about improvements in the current market design, for better optimization of scheduling and economic dispatch of generation capacities, the paper has underlined various challenges in the market while proposing a new mechanism that could forge the way ahead.
At present, under the self-scheduling mechanism, the DISCOMs prepare their schedule from their portfolio of contracts to meet the expected load. There are consequential issues that arise due to self-scheduling. For instance, DISCOMs do not have the opportunity to identify cheaper generation outside their portfolio due to the lack of visibility of such available capacity. The other challenges arising from the practice of self-scheduling include lack of flexibility to meet seasonal and diurnal variation in demand. Given these and other associated challenges with self-scheduling, the commission has proposed a new framework suitable for the Indian market. The Market Based Economic Dispatch (MBED) model, it says, would function on a day-ahead time horizon and schedule and dispatch all generation purely on economic principles, subject of course to technical constraints. The objective of the MBED will be to meet the system load by dispatching the least-cost generation mix while ensuring that the security of the grid is maintained.
Key Benefits of Market Based Economic Dispatch Mechanism
- It is expected to lead to cost savings for the system.
- In this mechanism, since the dispatch of generation is based on aggregated merit order, the un-requisitioned surplus of generation companies would be utilized and would replace some of the more expensive projects in the system.
- The distribution company (DISCOM) will earn additional revenue based on 50:50 revenue sharing mechanisms from the sale of the un-requisitioned surplus to the market.
- Revised generation will optimize on the unutilized low-cost generation to meet the load, so that the total load is met at a significantly lower variable cost than the current dispatch framework.
- As a result of optimization of the generation cost under the mechanism, the cost of power procurement for the state (constituting all DISCOMs in the state put together) is also likely to reduce.
- Dispatch optimization through this framework increases utilization of low-cost generators while reducing and backing down in certain cases, the expensive generators. Total cost of fuel input reduces as expensive generators are being backed down. Consequently, reduction in fossil fuel consumption has positive environmental impact that can help India progress towards its climate goals.
- There would be production cost savings of up to 2.8 percent annually with only 1.3 percent renewable energy curtailment if regional scheduling and dispatch were implemented according to this mechanism for all generation and load.
- If scheduling and dispatch are implemented at a national level, it would lead to 3.5 percent cost savings with only 0.89 percent renewable energy curtailment.
- It will incentivize the generators to offer their generation at the least possible cost.
- Price discovery will take place at low cost if all buyers and sellers go through the market. The day ahead prices will also allow the buyers and sellers to identify which new contracts can be mutually beneficial to enter.
- There will be utilization of low-cost stranded assets.
In the proposed mechanism, it has been envisaged that a generator will get dispatched if its variable cost is lower than the marker clearing price (MCP). Those generators whose variable costs are above the MCP, would not be dispatched but will recover their fixed costs through existing contracts. Additional revenue from cheaper generators would be shared with DISCOMs in the ratio of 50:50. Thus the proposed mechanism with bilateral contract settlement (BCS) provision will safeguard interest of both buyers and sellers.
In August 2018, the CERC amended the regulations for Open Access in Interstate Transmission, which were first passed in 2008. The new regulations are called the CERC (Open Access in Interstate Transmission) (Fifth Amendment) Regulations, 2018.
In May 2018, CERC released procedural regulations for granting inter-state transmission system (ISTS) connectivity to renewable energy projects. Recently, CERC issued regulations for Draft Central Electricity Regulatory Commission (Deviation Settlement Mechanism and related matters) for 2018.