The Central Electricity Regulatory Commission (CERC) has authorized a shadow pilot on power systems and cost optimization through a market coupling of various segments of all three energy exchanges – Indian Energy Exchange, Power Exchange India, and Hindustan Power Exchange.

The shadow pilot will include three coupling methods – coupling of the Real-Time Market (RTM) segments across the three power exchanges, coupling of the RTM and Security Constrained Economic Dispatch (SCED) segments, and coupling of Day-Ahead Market of the three power exchanges for four months.

Market Coupling, as defined by the Commission, is a process under which collected bids from all the power exchanged are matched after taking into account all bid types to discover the uniform market clearing price for DAM or RTM or any other market as notified and subjected to market splitting.

It is expected to help optimize the use of the transmission infrastructure, maximize economic surplus considering all bid types, and create simultaneous buyer-seller surplus.

The CERC staff carried out several simulations using the bid data from the power exchanges to study the impact of market coupling on volume, prices, and economic surplus.

Coupling in DAM and RTM segments

Based on the results of simulations for coupling in DAM and RTM, the Commission identified the possibility of uncleared bids (buy and sell) getting cleared in a coupled scenario. However, the overall gains in terms of increase in volume and economic surplus may not be significant. The peak time blocks witnessed an increase in economic surplus in a coupled scenario, but over a longer time horizon, the gains remained insignificant. Further, the impact on MCP and volatility varies across different time durations depending on the elasticity of demand and supply curves.

The Commission finds these results broadly in conformity with the largely accepted view that under the prevailing market structure, where one dominant power exchange holds about 99% market share in DAM and RTM, merely coupling bids of all the power exchanges will not yield substantial improvement in market outcome.

Despite these findings, the Commission believed there are insights worth pursuing, such as increasing market depth, optimizing system cost, and enhancing power system reliability and flexibility. It feels it is important to increase participation in the market to improve supply availability and encourage competition. While coupling bids marginally contributes to this, CERC feels it is important the other alternatives should be explored.

The current power market is demand-driven, and bringing in commensurate supply is necessary to utilize market efficiency gains fully. A resource adequacy framework is being developed to ensure reliable and cost-effective supply, but in the meantime, existing capacity should be optimally utilized, the CERC said.

RTM and SCED segment coupling

Security Constrained Economic Dispatch (SCED) is an optimization method designed to maximize generation while maintaining a steady demand schedule. SCED is a controlled cost-based optimization metric, whereas RTM is an auction/price-based market segment. The Commission believes that pairing RTM with SCED will increase market depth and enhance power system cost optimization without adversely affecting SCED savings.

The Commission has proposed a coupling of Renewable Thermal Power (RTM) with Solar Cell Energy (SCED) to optimize the power system. The simulations showed that the maximum increase in cleared volume was around 1100 MW, and the price variation range was reduced by 5%. The average coupled MCP was lower than the dominant exchange’s average by Rs. 0.422/kWh.

The simulation also revealed potential benefits in terms of power system reliability, such as a reduction in ramping-related infeasibility, cheaper electricity generated by SCED generators, higher availability of spinning reserves, reduced cycling instructions to generators, and better congestion management.

The Commission believes that the proposed coupling of RTM with SCED could enable unutilized generation, serving unmet demand and resulting in significant cost optimization. The Commission plans to implement the model in a shadow pilot to determine the operational, market, and regulatory impacts on the existing system.

Implementing Agency

The CERC has appointed Grid India as the implementing agency to run the shadow pilot in accordance with the procedure followed by the participating market segments after market hours.

It will also develop the necessary software to run the shadow pilot within two months from the order date.

The results of the shadow pilot run will not affect the price and volume discovery on the actual RTM and DAM segments and the final schedule and settlements.

The implementing agency will be required to frame operating procedures in consultation with the power exchanges and should cover operational aspects, the sharing of bids by power exchanges, uniform market price discovery, indicative revisions in schedules, and accounting.

Grid India and the power exchanges must establish reliable communication links to share the actual quantum and price offers received in the RTM and DAM for each session for both buy and sell bids after-market hours on each day.

Grid-India will aggregate the bids received from the power exchanges running the shadow pilot, i.e., for coupling RTM; for coupling RTM at exchanges with DC of generators in SCED considering technical constraints on the supply side and the requisition by the SCED beneficiaries on the demand side; and for coupling of DAM of the three power exchanges and run the algorithm.

The agency has to make sure the SCED demand is met under all the circumstances.

Grid-India will have to share its findings from running the shadow pilot through a monthly report for four months, encompassing details of bid volume, clearing volume and clearing price obtained block-wise, observations with empirical data on economic surplus, comparison of price discovery and cleared volume in the shadow pilot. They must also inform the Commission about any displacement of the bids offered at the power exchanges and changes in the schedule on account of the shadow pilot.

The feedback report will be available on Grid India’s website for stakeholders to access.

The agency must maintain the relevant data during the operation of the shadow pilot, including but not limited to installed and declared capacity, schedule and revisions, variable cost, quantum offered in RTM and DAM, and requisition by states/beneficiaries.

Based on the findings shared by Grid India and power exchanges on the shadow pilot, the Commission will decide whether it would create the regulatory framework for market coupling.

The Commission is concentrating on optimizing the power system and costs in RTM/SCED and DAM, with the goal of enhancing market depth by running DAM alongside Security Constrained Unit Commitment (SCUC). SCUC strives to secure appropriate system reserves by bringing off-bar producing stations back online or preventing on-bar generating stations from going down. Grid-India is required to conduct SCUC three days in advance and update requirements daily.

The Commission has directed Grid-India to design the appropriate software for the shadow pilot, deploy it for four months, discuss operational experience, and suggest the feasibility of coupling DAM and SCUC within two months.

Last May, a committee of experts constituted by the Ministry of Power noted that the electricity market in India faces significant challenges that hinder the integration of renewable energy and limit the participation of distribution companies in power exchanges.

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