The Central Electricity Authority (CEA) has responded to the Central Electricity Regulatory Commission’s (CERC) draft order, which addresses concerns related to price discovery mechanisms, market liquidity, and contract structuring in the power exchanges. The CEA provided feedback, especially on segments like Term Ahead Market (TAM), Day Ahead Contingency (DAC), and Intraday contracts.

CERC’s draft order proposes withdrawing intraday contracts from all power exchanges due to their low liquidity and the presence of the real-time market as an alternative. CEA has supported the move, as it would help streamline and consolidate the currently fragmented market.

TAM

The Term Ahead Market (TAM) offers short-term power procurement for delivery dates ranging from T+2 to T+90 days. This segment includes four contract types: Daily, Weekly, Monthly, and Any-Day Single-Side Reverse Auction. The price discovery for daily, weekly, and monthly contracts uses a Uniform Price Step Auction, while the Any-Day Single-Side Contract relies on a Reverse Auction mechanism.

The TAM bidding window is open from 12:00 to 17:00 for daily, weekly, and monthly contracts, after which orders are matched based on predefined rules. However, CEA observed irregular trading patterns, with some days seeing no transactions and others having only one buyer and one seller. Additionally, data analysis for March 2024 revealed that most bids were submitted close to the 4:00 PM mark.

On multiple days, a single buyer or seller submitted bids during the final minutes of the auction window, sometimes receiving a counteroffer within seconds. This behavior raises suspicions of potential collusion; as such, last-minute bids give little time for other participants to respond.

In TAM, most trading volume occurs through any-day single-side and daily contracts, which allow market participants to customize delivery profiles. However, in weekly and monthly contracts, only fixed-duration products are available. Different exchanges offer various delivery-based products, categorized into specific slots for daily, weekly, and monthly contracts, allowing trades during specific periods like evening peak, morning peak, and round-the-clock (RTC) slots.

The Hourly product, available only for daily contracts in IEX and HPX, allows customized delivery but is non-standardized, which can hinder competition. PXIL offers hourly slots for all contract types, further fragmenting the market. Power exchanges generally promote competition through standardized contracts rather than customized ones.

Although TAM contracts (daily, weekly, and monthly) can trade daily, analysis shows transactions occur on a limited number of days each month across exchanges.

The multitude of trading sessions available for varying delivery dates or custom ranges has fragmented market liquidity. Other segments like GTAM and HPTAM add to this fragmentation.

To mitigate last-minute bidding, CEA proposed a time extension for bids received after 16:45. For any bid submitted in the last five minutes of this extension, the market should extend by another 15 minutes, with extensions allowed until midnight if necessary.

CEA also recommended limiting trading days for monthly contracts to twice per month and weekly contracts to one day (e.g., Tuesday of the previous week) to enhance liquidity.

It has also proposed limiting daily contract deliveries to a maximum of six days per trading session for delivery between T+2 to T+8. For example, if a participant seeks delivery from November 7–17, 2024, they could use daily contracts for November 7–11.

DAC

DAC market operates from 13:00 to 23:30 each day, beginning after the close of the Day Ahead Market (DAM). In DAC, matching is continuous, meaning that buy or sell offers are immediately matched when a counteroffer appears, and bids exit the system once matched. Market participants can view the best available buy and sell offers for specific delivery periods and product categories.

DAC offers several delivery-based products across exchanges, including:

• Standard Contracts: Available in 15-minute and hourly blocks and for round-the-clock power.
• Green DAC Segment: Available for solar, non-solar, and hydro power in 15-minute and hourly blocks. Participants can bid on either regional or national levels, with the standard and green DAC segments accessible on both IEX and HPX.

For DAC Continuous Static products, delivery ranges are split into hourly bids (e.g., a bid from 03:00 to 06:00 would split into hourly bids from 03:00 to 04:00, 04:00 to 05:00, and 05:00 to 06:00). In DAC Dynamic, however, a delivery bid like 13:15 to 15:45 remains a single block and matches only with an identical delivery range bid.

Data analysis from March to May 2024 shows low market depth across exchanges. The data also highlights a low level of liquidity in DAC, further complicated by the long trading window (13:00 to 23:30) and the ability to submit customized delivery bids. Most transactions conclude before 18:00, exacerbating low liquidity later in the day.

DAC data reveals low liquidity often results in limited open offers for particular delivery periods. When a buy or sell offer is made, it frequently receives an immediate counteroffer, which raises concerns about pre-arranged transactions between specific participants. Furthermore, DAC Dynamic, which allows bidding only within customized blocks, fosters a non-standardized and less competitive environment.

DAC and TAM allow sellers to submit regional or national bids, while buyers can choose any contract. Ideally, bids should match at the national level. However, due to congestion in certain transmission zones, regional bids are permitted, further fragmenting the market as regional bids match only with others from the same region. This results in price disparities across regions for the same delivery period.

The DAC market is a backup for participants needing power the following day, either because their DAM bids weren’t cleared or due to unforeseen contingencies. While DAC operates under a continuous matching framework, CEA’s analysis suggested that its low liquidity, extended trading hours, and continuous matching methodology limit competition, making non-competitive transactions more likely.

CERC’s draft order proposed a temporary solution by requiring buy and sell offers to be visible 10 minutes before processing, allowing for best-offer matching. However, CEA raised concerns that this solution lacked clarity, such as when the 10-minute window begins or how to handle unmatched offers. Proper testing and a structured framework are necessary for effective implementation.

To enhance competition and efficiency in DAC, CEA recommended:

Switching from continuous matching to an open auction system, similar to the one used in daily, weekly, and monthly contracts, could increase competitiveness. This approach, also recommended by CERC, would involve splitting the current trading session (13:00 to 23:30) into three separate sessions:

• Session I: 13:00 – 15:00
• Session II: 17:00 – 19:00
• Session III: 21:00 – 23:00

This structure ensures that the third session covers contingencies occurring late in the day, while the first session provides time to address early-day needs.

Given that DAC Dynamic allows matching only within customized delivery blocks, which restricts standardization and competition, CEA suggests discontinuing this product to foster a more standardized and competitive environment.

To address transmission congestion, CEA recommends adjusting matching algorithms to prioritize national-level bids. This approach could also be extended to TAM for improved liquidity and competition.

Any-Day Single-Sided Contracts (ADSS)

The draft order outlines timelines for various stages of ADSS contracts, such as the bid receiving period, initial public offer (IPO) auction, reverse auction, and bid acceptance window.

CEA sees this as a positive development but notes that only maximum time limits have been set for the bid-receiving window and IPO auction. To enhance transparency and competition, CEA suggests also defining minimum time limits for these stages.

Additionally, CEA recommends holding the reverse auction exclusively during regular business hours.

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