Center, states compete for a centralized electricity market

A FRESH brawl between the Center and the States is brewing in the country’s electricity sector, the trigger being a Union government plan to abandon the existing decentralized and voluntary pool-based electricity market at the profit from a radically different mandatory pool model on a pan-India basis.

Called the Market-Based Economic Allocation Mechanism (MBED), the Union Department of Energy’s proposal envisions centralized planning to allocate the entire annual electricity consumption of about 1.4 trillion units. This will mark a clear change from the decentralized model currently being followed, which was reinforced by the Electricity Act 2003 and subsequent reforms.


Centralized vs Decentralized Power Model

The new model offers centralized planning of power distributions, both interstate and intrastate. This, experts say, will encroach on the relative autonomy of states in managing their electricity sector, including their own power plants, and will make discoms entirely dependent on the centralized mechanism.

The MBED model is seen as encroaching on the relative autonomy of states in managing their electricity sector, including their own power plants, and rendering discoms (mostly state-owned distribution companies) entirely dependent on centralized mandatory market pool requirements. It is feared that this will rob states of their freedom to decide their own electricity needs while managing seasonal and local demand patterns. Experts said states are already discussing these aspects.

As the Union Department of Energy touts MBED as a way forward to deepen power markets in line with the Centre’s “One Nation, One Grid, One Frequency, One Price” formula, concerns are reported at state level and by a range of industry experts The Indian Express spoke with. Implementation of the first phase of MBED was previously scheduled to begin with effect from April 1, but has been postponed until later this year, with a date yet to be announced.

SL Rao, former chairman of the Central Electricity Regulatory Commission and a member of the advisory board of the Competition Commission of India, said the proposed MBED is “inconsistent with the constitutional provisions, the existing legislative framework and market structure” and could “end up creating more challenges”. than it solves”. He said the proposal has implications from an overall network management perspective, apart from how it undermines state autonomy.

The problem on the power distribution side (where there are questions about the viability of discoms) is what really needs to be addressed, Rao said. But on the generational side, the new proposal violates existing structures and mechanisms, he said, adding that he expects to see a legal challenge coming from the states if the Center pursues it.

The Centre’s argument is that the current model of states doing the programming is not optimal. In this framework, an algorithm developed by the NLDC called Security Constrained Economic Dispatch (SCED) is cited as a solution, which aims to help regulators make informed decisions on nationwide planning decisions. A query sent to CERC President PK Pujari did not elicit a response.

When contacted for comment, a senior government official involved in the exercise said the MBED is “consistent with the One Nation, One Network, One Frequency, One Price Centre’s framework”. “This will ensure that the cheapest power generation resources across the country are provided to meet overall system demand and will therefore be a win-win for distribution companies and generators and result in savings for consumers. “, said the official.

Electricity is on the Constitution’s concurrent list, with the power grid divided into self-governing state control areas operated by State Load Dispatch Centers (SLDCs), which in turn are supervised by State Load Dispatch Centers (SLDCs). Regional Load Dispatch Centers (RLDCs) and National Load Dispatch Centers (RLDCs). Load Dispatch Center (NLDC). At present, each control zone is responsible in real time for balancing its demand with the means of production.

The MBED model proposes to change this by setting up a central market operator to allocate interstate and intrastate generation plants. Additionally, there is an inference that the new model will reduce the multiple options currently available under the voluntary market design; with daily contracts becoming redundant and, from a state’s perspective, discoms and SLDCs must buy or sell power in the market in real time, even if it is to maintain the balance between the supply and demand in their areas of control.

There are concerns that the new model will clash with emerging market trends, given the rise of renewables in the overall generation mix and the growing number of electric vehicles plugging into the grid – all of which require greater decentralization of markets and voluntary pools for efficient network management and operations, said an official with a background in regulation.

India has a diversified power market ranging from long-term power purchase agreements (PPAs), cross-border PPAs, short-to-medium term bilateral agreements, daily power exchanges and a live market. online in real time. A significant percentage of installed electricity capacity – over 87% – is tied to long-term PPAs of approximately 25 years. The remaining 13% is traded on the electricity markets, of which almost half on the electricity exchanges and the rest in the framework of short- and medium-term bilateral agreements.

At present, each control area or state follows the allocation in order of merit (cheapest electricity distributed first) from the basket of intrastate and interstate resources and buys or sells on the daily power exchange . Long-term PPA schedules may be revised, but not for electricity traded on the next day’s power exchange. Unrelated private sector generators are currently seeking buyers on the bilateral market as well as on power exchanges on a voluntary basis.

This means that there is pan-India visibility of tradable energy available daily on the power exchange. Much of this is set to change under the MBED model.

An official with experience working at the Central Electricity Authority, the planning arm of the Union Department of Energy, said that under the proposed model, there are additional questions about operations from some power stations such as Trombay TPS, Mumbai or Dadri TPS. in the NCR region which are critical for the security of supply of key cities such as Mumbai or Delhi and in islanding operations in the event of grid failure. Given the mandatory pooling provision, the mandatory operating status of these critical power plants could be called into question.

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“Furthermore, it is imperative that each state generally have some capacity available, regardless of the order of merit for grid voltage and security. This is critically important from a stability and security perspective. network resilience,” the official said. A proposed bilateral contract settlement or BCS mechanism under the system for refunding the difference between the market clearing price and the contract price under the PPA, primarily to keep PPA prices intact, is another potential sticking point. This, he said, diluted the stated goals of “market-determined prices” while complicating the whole process of accounting and of settlement.

“There is a thought that has emerged to change this outdated uniform MCP market design. We should not rush into MBED while it is under review internationally,” an official said. In Europe, for example, the gas crisis has revealed vulnerabilities in markets such as the UK, where marginal electricity prices are tied to the prices of the cheapest producer, typically a gas-fired power station in normal times. When the price of gas soars, there are consequences: a nuclear power plant is paid as if its supply costs had just quintupled since the “equilibrium price” model has its faults. European electricity markets.” The whole idea of ​​MBED seems to be to erode the sanctity of time-tested PPAs and create a volatile wholesale market with a uniform clearing price for each 15-minute block of the day,” said the former manager. ble from the CEA cited above.

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