A committee of experts constituted by the Ministry of Power has noted that the electricity market in India faces significant challenges that hinder the integration of renewable energy and limit the participation of distribution companies (DISCOMs) in power exchanges.

The group stated that the reliance on inflexible, long-duration contracts by DISCOMs has restricted their engagement in power exchanges, hindering the growth of renewable energy.

Moreover, the current planning practices of DISCOMs need to be revised for systems with high levels of variable renewable energy, necessitating resource adequacy planning and market-based economic dispatch.

Inflexible contracts

One of the primary challenges is the heavy reliance of DISCOMs on inflexible, long-duration contracts, limiting their participation in power exchanges and impeding the integration of renewables.

The planning practices of DISCOMs need to be equipped for systems with a significant share of variable renewable energy, emphasizing the need for scientific resource adequacy planning and market-based economic dispatch.

The fragmented control areas and self-scheduling practices by DISCOMs also lead to suboptimal dispatch decisions and system inefficiencies, necessitating transitioning to market-based dispatch.

Furthermore, market-based dispatch for renewable energy is crucial as it is primarily contracted through long-term agreements and treated as a must-run resource. Ensuring the firmness of reserves becomes critical with increasing levels of variable renewable energy, requiring a new market-based mechanism to access Ancillary Reserves.

Efficiency improvement

The interventions proposed by the group include establishing a mechanism to ensure supply adequacy by state utilities, enhancing the Day-ahead Market through a transition to market-based dispatch, mandating renewable energy participation with revenue protection, and introducing a market for secondary frequency response.

There is a need to implement demand response measures and aggregation of distributed energy resources, strengthen market monitoring and surveillance, establish a 5-minute-based metering and dispatch system, implement a regional-level framework for deviation management, and introduce hedging products to manage price volatility in spot markets. These interventions aim to improve efficiency, optimize costs, integrate renewable energy, and enhance the reliability of electricity markets.

Short-term recommendations

The expert group makes the following recommendation for the short term (one year):

• Introduce a two-part tariff-based bidding system on the e-bidding portal that allows DISCOMs to sell surplus capacity while continuing banking transactions.
• The initiation of security-constrained economic dispatch with unit commitment for the NTPC thermal fleet on D-1/D-3, led by the Grid Controller of India.
• Implementing a mechanism for renewable energy participation in the market, offering revenue protection and tendering capacity through 12- 15-year long-term PPAs under the single price option.
• The operationalization of Central Electricity Regulatory Commission (CERC) ancillary services regulations within one year. Additionally, enabling demand response participation in Ancillary Services through voluntary programs and tariff-based incentives while allowing for the aggregation of demand response.
• Mandate establishing a market surveillance committee by power exchanges, with post-facto audits conducted by CERC to ensure market monitoring.
• Form two task forces—one addressing regulatory aspects under CERC and the other handling metering and communication aspects under the Grid Controller of India—to facilitate the transition to 5-minute scheduling and dispatch, with coordination supported by the CERC.

Medium-term recommendations

For the medium term (1-2 years), the expert group makes the following recommendations:

• The introduction of standardized exchange-based capacity contracts for short-term power trading.
• Expand the security-constrained economic dispatch with a unit commitment to cover all inter-state generating stations (ISGS) thermal fleets under the guidance of the Grid Controller of India.
• Implement a market-based mechanism to procure secondary frequency regulation services. Additionally, enabling additional renewable energy capacities to participate in the market while ensuring revenue protection. Promoting aggregating demand response from lower voltage levels is another crucial step.
• Strengthen the market monitoring function within the CERC to conduct real-time and post-facto audits of Power Exchange activities, with the potential appointment of Market Monitors, is also recommended.
• Transition to a 5-minute-based system for metering, scheduling, dispatch, and settlement is advised.
• A vital objective is establishing a regional-level framework for deviation management at the inter-state transmission system level.

Long-term recommendationsThe long-term recommendations (beyond two years) made by the expert group are as under:

• The formation of distribution system operators to enhance the efficiency and management of the distribution system.
• Implementing long-term capacity markets can provide stability and facilitate efficient resource planning.
• Adopt Market-Based Economic Dispatch (MBED) for the entire fleet of ISGS thermal plants and merchant capacities that can optimize the dispatch of electricity generation, considering market dynamics and system requirements.
• Exploring the introduction of various variants for renewable energy participation in the market instead of relying on a single strike price option would allow for increased flexibility and responsiveness. As investor confidence grows and market penetration expands through the implementation of MBED, all new renewable additions can be treated as dispatchable resources, further supporting the integration of renewable energy into the grid.

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