The Central Electricity Regulatory Commission (CERC) has approved the introduction of the Tertiary Reserve Ancillary Services (TRAS) market segment on all three power exchanges.

TRAS are frequency control ancillary service capacities that are used to keep the grid frequency in the designated range. It comprises qualified power plants, energy storage systems, and interruptible loads readily available for dispatch to restore the secondary reserve and cover variations of renewable energy generations.

The Commission also directed the power exchanges to incorporate provisions in their bye-laws, rules, and business rules concerning the Ancillary Services market segment on their platform and submit them to the Commission for records within a week.

Further, the Central Commission noted that the TRAS framework was scheduled to be made effective from May 1, 2023. However, the Commission decided to give more time to the National Load Despatch Center (NLDC) and the power exchanges to align and test the processes involved in the bidding, information exchange, and price discovery to ensure a smooth rollout of the TRAS from June 1, 2023.

Hindustan Power Exchange (HPX), Power Exchange of India (PXIL), and Indian Energy Exchange (IEX) had filed separate petitions for the introduction of ancillary services on the platforms.

Background

CERC notified the Ancillary Services Regulations on January 31, 2022. The operation of the Ancillary Services Regulations 2022, except for certain provisions about TRAS, came into effect on December 5, 2022. Subsequently, the provisions related to TRAS were notified with an effective date of April 1, 2023.

The Commission later changed the date to May 1, 2023.

The three major exchanges presented their arguments regarding implementing TRAS in their respective petitions.

HPX had sought to introduce ancillary services contracts in Day-Ahead Market (DAM) and Real-Time Market (RTM) contracts on its trading platform to implement the provisions about TRAS.

HPX argued that Order Carry Forward (OCF) basis from Integrated Day Ahead Market (I-DAM) to Ancillary Service Day Ahead Market (AS-DAM) would effectively render the AS-DAM and AS-RTM market segments anti-competitive and hinder market penetration.

Adhering to the OCF mechanism would limit trading to the liquid exchange, leaving stakeholders with no alternative but to engage exclusively in these specific segments. This could result in an unintentional concentration of bidding activity on one power exchange without any clear stakeholder advantages.

According to PXIL, the AS Regulations 2022 provide guidelines for determining prices in TRAS-Up and TRAS-Down. However, there needs to be an indication in the regulations about the approach market participants should take when placing orders to participate in the TRAS market.

PXIL argued that the power exchange platform is responsible for soliciting bids from market participants for TRAS-Up and TRAS-Down contracts and forwarding the bids to the nodal agency for price discovery. This requires ‘PRATYAY,’ PXIL’s trading platform, to operate 24/7 and maintain full exchange infrastructure availability to collect and transmit bid information.

According to IEX, implementing a distinct price cap of ₹12 (~$0.147)/kWh for DAM and RTM and ₹50 (~$0.611)/kWh for the ancillary services market would enable sellers to exploit arbitrage opportunities.

This could incentivize generators to prioritize capacity allocation in the market to increase revenue, potentially exacerbating supply and demand imbalances and driving up energy prices. IEX recommended that the ancillary services market should have two segments with price caps of ₹12 (~$0.147)/kWh and ₹50 (~$0.611)/kWh, similar to the energy market.

Commission’s analysis

The Commission observed that introducing TRAS through a market-based mechanism would play a critical role in ensuring the power system’s smooth operation and the grid’s safety and security while providing a new avenue for market participants under the ancillary services mechanism.

The Commission noted that it was crucial to recognize the inherent differences between the ancillary services market and the energy market. Unlike the energy market, the ancillary services market was characterized by less certainty of dispatch due to its reliance on grid conditions, despite the availability of commitment charges for transactions.

CERC acknowledged that the OCF mechanism effectively promotes participation in the ancillary services market. By doing so, TRAS providers could provide the reserve capacity required for grid stability and security without affecting energy market availability.

The Commission directed that the bids placed under TRAS-DAM should be subject to the same price caps as applicable for the energy segment of I-DAM. Additionally, bids placed under TRAS-RTM will be subject to the same price caps as TRAS-DAM.

The central regulator noted that settlement in the ancillary services market should be retained by NLDC for operational convenience as it performs essential functions in the ancillary services market, such as assessing TRAS requirements, determining prices, and dispatching instructions to TRAS providers.

It added that the ancillary services market needed detailed examination.

The Commission has already directed its staff to examine all the factors that have a bearing on transaction fees, including the risks involved in power exchange operations.

The Commission approved introducing the TRAS market segment on all three power exchanges from June 1, 2023.

Recently, CERC directed all power exchanges to redesign their bidding software to allow members to quote prices within a specified range for different types of contracts. The Commission said that redesigning the bidding software would reduce the cost of power for buyers while also providing an opportunity for high-cost generators and willing buyers to participate in the High Price Day Ahead Market (HP-DAM) market.

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