CERC Orders Power Exchanges to Cap Market Clearing Price at ₹12kWh

Central Electricity Regulatory Commission (CERC) directed the power exchanges to re-design their bidding software so that members can submit their buy bids at the maximum price of ₹12 (~$0.16)/kWh for Day-Ahead Market and Real-Time Market. The Commission passed the order in response to a suo moto petition.

Power exchanges have designed the bidding software so that members can submit their bids in the price range of ₹0/kWh to ₹20 (~$0.26)/kWh. In the present scenario, where demand at power exchanges is nearly double the supply volume, buyers place bids at the maximum price range to ensure that their bids are cleared.

The Commission believes that this price moderation will reflect the present market realities and will not significantly impact the volume transacted and safeguard the consumer interests.

Background


The rise in temperature causing the early onset of summers and increase in economic activities with the lifting of COVID-19-related restrictions have contributed significantly to the increase in electricity demand across the country. In March, electricity demand increased substantially and peaked at 199 GW on March 17, 2022. Since then, it has been averaging around 195 GW.

Against this increase in demand, the power sector faced an outage of 58.72 GW of installed generation capacity due to various reasons, of which 4.32 GW of thermal capacity was out due to a coal shortage.

The high price of imported coal has led to a high variable charge for power generated through imported coal-based plants. Similarly, due to an increase in the international gas price, the existing gas-based projects could also not sell power in the market.

Power Exchange is generally the last resort of procurement by the consumers to meet demand when faced with a power shortage. In the absence of an adequate power supply, the exchanges have witnessed a desperate buying scenario.

In the Day-Ahead Market at Indian Energy Exchange (IEX), the market-clearing price of ₹20 (~$0.26)/kWh was observed in 31 blocks from February 24 to March 24, 2022. Similarly, the market-clearing price of ₹18 (~$0.24)/kWh and above was seen in 81 blocks and ₹15 (~$0.20)/kWh and above in 183 blocks.

On March 24, 2022, the market-clearing price was higher than ₹18 (~$0.24)/kWh for 14-time blocks, and it was higher than ₹15 (~$0.20)/kWh for 57-time blocks. On 25-03-2022, the market-clearing price was higher than ₹18 (~$0.24)/kWh for 66-time blocks, leading to an average of ₹18.67 (~$0.25)/kWh for the day.

Buy bids have doubled the sell bids in some time blocks, indicating higher demand and lower supply. The average buy to sell bid ratio was 2.03:1 when the market-clearing price touched ₹20 (~$0.26)/kWh, which is the ceiling price imposed by the exchange. The Commission found that the aggressive bidding by buyers is leading to high prices.

From the sell side, it was observed that up to 99% of the sell bids were in the price band of ₹0.01/kWh to ₹12 (~$0.16)/kWh, while only 1% of the sell bids were higher than ₹12 (~$0.16)/kWh. A similar trend has also been observed in the Real-Time Market segment, where the market-clearing price touched ₹20 (~$0.26)/kWh.

Commission Analysis

The Commission noted that the power exchanges designed the bidding software to allow members to submit their bids in the price range of ₹0/kWh to ₹20 (~$0.26)/kWh. However, in the present scenario, where demand at power exchanges is nearly double the supply volume, buyers are placing bids at the maximum price range to ensure they are cleared.

The Commission observed that while high demand has been the cause of price rise, the absence of adequate supply has also contributed to this trend. Despite the price rise, which generally signals more supply, there has not been a commensurate increase in supply. Based on the Power System Operation Corporation Limited (POSOCO) feedback, the current demand-supply position is likely to persist. Demand will increase as summer intensifies, and supply may not increase until May, when wind and hydropower are expected to pick up steam.

Since higher price has not led to a commensurate increase in supply and such a position is likely to remain for some time in the coming days due to supply constraints, 99% of the supply bids have been in the range of ₹12 (~$0.16)/kWh.

The Commission directed the power exchanges, until further orders, to re-design the bidding software in such a way that members can submit their bids in the price range of ₹0/kWh to ₹12 (~$0.16)/kWh for Day-Ahead and Real-Time Market. The exchanges are directed to submit their compliance within two days from the issuance of the order.

The Commission believes that this price moderation will be in keeping with the present market realities and will not significantly impact the volume transacted and safeguard the consumer interests.

The Green Day-Ahead Market traded 205 million units of energy during March with the weighted average price of ₹6.70 (~$0.089)/kWh. It has traded 921 MU since its inception in October 2021.

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