The Central Electricity Regulatory Commission (CERC) has issued a draft order addressing concerns related to price discovery mechanisms, market liquidity, and contract structuring in the power exchanges. The proposals focus on Day-Ahead Contingency (DAC) and Term-Ahead Market (TAM) contracts.

Stakeholders can submit their comments and suggestions by November 4, 2024.

Stakeholders had expressed concerns about high prices in DAC contracts, especially since October 2023, when prices consistently exceeded those in the Day-Ahead Market (DAM). The price discrepancy, coupled with the introduction of new competing contracts such as Real-Time Market (RTM), had led to fears about potential price manipulations and inefficiencies in the current price discovery mechanism.

CERC observed that while DAC prices usually follow DAM trends, the former commands a premium because of its contingency nature. However, starting in October 2023, DAC prices have consistently remained higher than DAM prices, raising both regulatory and policy concerns.

The introduction of the RTM in June 2020 has led to significant market growth compared to the Intraday Market. RTM has been more successful in attracting market participants due to its closer-to-real-time trading opportunities and uniform clearing price methodology.

To address these concerns, CERC has proposed several changes to the operation of power exchanges and their contract offerings.

Uniform Price Discovery for DAC Contracts

CERC proposes shifting the price discovery mechanism in DAC contracts from continuous matching to a Uniform Price Step Auction. This shift prevents price disparity and increases transparency by ensuring that all participants for the same time block are subject to a single, uniform price.

To facilitate this, the CERC has proposed implementing software changes allowing all participants to view buy and sell offers for 10 minutes before clearing trades. CERC also proposed displaying real-time data on buy and sell bids, volumes, and trading activities on Power Exchange websites.

Withdrawal of Intraday Contracts

Intraday contracts have failed to gain significant market liquidity despite being introduced to address electricity trading closer to real-time. This is attributed to several factors, including the inertia of DISCOMs, the absence of gate closure, limiting flexibility in operational decisions, and low liquidity and market participation.

As a result, CERC has proposed withdrawing intraday contracts from all power exchanges, given the success of the RTM, which addresses similar needs with better liquidity.

Changes to Term Ahead Market (TAM) Contracts

CERC has observed that longer-duration TAM and GTAM contracts have experienced increased liquidity since September 2022. However, the current structure of TAM contracts allows for overlapping time slots, fragmenting the market and diluting liquidity.

The regulator has recommended limiting contracts to a few established pre-specified slots such as base/round-the-clock, peak, off-peak, and night to improve liquidity.

Restrictions on Any-Day Single-Sided Contracts (ADSS)

CERC has expressed concerns about ADSS, where buyers are allowed excessive flexibility in specifying bid validity and acceptance windows. To ensure serious participation and better liquidity, the Commission has proposed timelines for ADSS contracts as follows:

• Bid Receiving Window: Max. 2 days (48 hours).
• IPO Auction: Max. 2 hours (120 minutes).
• Reverse Auction: Min. 2 hours, with possible extensions up to 24:00 hours on auction day.
• Acceptance Window: Max. 2 days (48 hours).

In February, CERC authorized a shadow pilot on power systems and cost optimization through the market coupling of various segments of all three energy exchanges: the Indian Energy Exchange, Power Exchange India, and the Hindustan Power Exchange.

Early last year, the CERC approved the introduction of the Tertiary Reserve Ancillary Services market segment on all three power exchanges.