The Central Electricity Regulatory Commission (CERC) has allowed Hindustan Power Exchange (HPX) to introduce High Price contracts in the High Price Day Ahead Market (HP-DAM), High Price Term Ahead Market (HP-TAM), and High Price Contingency Contracts (HP-Contingency) segments.

The Commission, however, rejected the proposal for introducing HP-Day Ahead Contingency and HP-Intraday Contracts for hydropower generators.

Background

The Commission granted registration to HPX in 2021, allowing it to establish and operate a power exchange. It has since provided services in the  Contingency, Green Contingency Contracts, Renewable Energy Certificates, Integrated Day Ahead Market, and Real Time Market segments.

HPX filed a petition seeking the Commission’s approval to introduce High Price contracts in HP-DAM, HP-TAM, and HP-Contingency.

It had proposed the introduction of HP-TAM and HP-Contingency contracts alongside HP-DAM to ensure a level playing field and flexibility for market participants. It had suggested a floor price of ₹12 (~$0.15)/kWh for the High Price Market Segment to facilitate trading by high variable cost generators.

HPX had also requested permission to include a forbearance price in the contracts to accommodate its software’s matching mechanism effectively.

The HP-DAM contract specifications included collective transactions on a day-ahead basis, with eligible entities who are high-price sellers and are approved by the Commission. The price discovery and matching methodology was to follow the double-sided closed bidding process.

The HP-TAM contract proposals included daily, weekly, monthly, and any-day single-sided contracts.

The HP-Contingency includes day ahead and intra-day contracts for hydropower generators. Eligible entities will be high-price sellers approved by the Commission, and price discovery will follow continuous matching.

HPX proposed risk management mechanisms, pay-in and pay-out procedures, and default penalty/ for each contract type.

CERC approved HPX’s request to introduce high-price contracts in the HP-DAM, HP-TAM, and HP-Contingency. HPX was directed to serve a copy of the petition to the Grid Controller of India (Grid-India) and invite comments from stakeholders and the public through its website.

Grid-India provided comments, including suggestions for the eligibility of sellers in HP-DAM and concerns about introducing a floor price, stating it may not be in the interest of reliable grid operation.

The stakeholders’ comments were positive, expressing support for HP-TAM and HP-Contingency contracts, providing additional avenues for trading power and fostering competition in the power market. Some stakeholders suggested reducing the additional margin for sellers extensively trading on the power exchange.

Commission’s Analysis

The contract specifications for HP-DAM were approved, including double-sided closed bidding and uniform market clearing price mechanisms, with a single bidding window from 10 am to 12 noon. The market clearing will occur sequentially, with GDAM cleared first, followed by DAM and HP-DAM. Participants will have the option to transfer unselected bids from DAM to HP-DAM with different prices specified.

For HP-TAM and HP-Contingency contracts, eligibility is granted to specific categories of high-cost generators, subject to periodic review by CERC. All entities eligible for power procurement through open access are eligible as buyers in HP-DAM. The process of standing clearance for eligible sellers was outlined, along with the need to specify the source of power in the clearance.

The Commission also directed HPX to include the collection of an initial margin at the time of bidding, which will be 5% of the order value for HP-Daily and HP-Weekly Contracts and 1% of the order value for HP-Monthly Contracts.

For HP-Any day single-sided contracts, sellers must provide an initial margin at the rate of ₹30,000 (~$365)/MW/month or part thereof. The Exchange will be allowed to collect an ‘additional margin’ before the scheduling application is made to the Load Dispatch Centre.

The additional margin will vary based on the contract duration: 50% for contracts up to 7 days, 25% for contracts up to 15 days, and 20% for contracts beyond 15 days. In case of default, the collected margins will be utilized to compensate the counterparty. The margins will be collected in both cash and non-cash forms.

Regarding pricing, a floor price of zero was allowed for HP-DAM to avoid negative impacts on the renewable energy integration program. The forbearance price for HP-DAM was set at ₹20 (~0.24)/kWh until further orders.

The HP-TAM and HP-Contingency contracts aim to ensure a level playing field and improve competition in the power market. Introducing high-price market segments is consequential to the Commission’s introduction of price caps.

HP-TAM contracts will include daily, weekly, monthly, and any-day(s) single-sided contracts. The eligible high-cost generators for participation will be gas-based power plants using imported RLNG and naphtha, imported coal-based power plants using imported coal, and battery energy storage systems. The price discovery mechanism for HP-TAM contracts will include uniform price step auction and reverse auction.

HP-Contingency contracts will include High Price Day Ahead Contingency Contracts and High Price Intraday Contingency Contracts. The eligible entities for HP-Contingency contracts will be the same as for HP-DAM and HP-TAM. The contracts will have a floor price of zero and a forbearance price of ₹20 (~0.24)/kWh.

The Commission approved a minimum volume quotation equivalent to 1 MW in HP-TAM and HP-Contingency contracts.

The proposal for introducing HP-Day Ahead Contingency and HP-Intraday Contracts for hydropower generators was not approved by the Commission as it deemed the proposal did not seem to fulfill the requirement of having a separate high-price market segment.

The Commission also directed HPX to specify the penalty fines and penalties in the contract specifications and business rules to ensure transparency in risk management and informed decision-making for the market participants.

Earlier this year, the Commission approved HPX’s plea for introducing hydropower contracts in the Green Term-Ahead Market beyond T + 11 days.

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