Electricity Act, 2003:
Marking the era of
competition?
Rajesh K Mediratta
Director (B.D.), IEX
In this presentation
•
•
•
•
Elements of Competition in EA 2003
Spot Power market - Status
Open access- Status
10-year EA Score Card
Essentials of Competition
EAct,2003
Key Elements
COMPETITION
Objectives
1.Privatisation
To create incentives for improved performance
Preventers: Political will
2, Unbundling
Separate competitive businesses from regulated
business.
Prevent cross-subsidisation
Competitive suppliers should be able to access T&D in
non-discriminatory manner
3. Competitive
Generation
Adequate number of generators to be competitive
4, Non-discriminatory •No barriers to flow of power on ecoonomic principles
Open Access
without any regard to ownership of transmission
Essentials of Competition
EAct,2003
Key Elements
COMPETITION
Objective
5. Voluntary Spot
Wholesale Market
•Support near real-time managing systems
• Allocates scarce generation/transmission resources
• Discovers price
• Competitive and Transparent Trades
• Facilitate economic trading opportunities among buyers
and sellers
6. Independent
Regulatory
Framework
Technically sound with understanding physics and
financial sides of power sector. Neutral and
unbiased.Objectives decisionmaking.
7. Independent
System Operator
SLDC Ringfencing - Separation from all market elements
8. Trading as distinct
Activity
• Traders should facilitate economic transactions
between generators and consumers.
• Act as aggregators
Spot Wholesale market – Status
Electricity Act enabled competition in the
sector
Intent of the Act was to promote competition by
“freeing” all possible avenues of procurement and sale of
power:
• Delicensing of generation
• Promoting Captive Generation
• Promoting open and non-discriminatory access to
transmission and distribution system (OPEN ACCESS)
• Development of Power Market
• Section 66 of the Electricity Act 2003 gives powers to the regulatory
commissions to develop the power market including trading
Transition to
Wholesale Spot Market
2013
2009
2008
• Guideline
s for
Collective
• Guidelin
Transacti
June 2003 es on
on,
setting
Schedulin
• Enactment of up of PX
g
EA, 2003
2007
• First
Industrial
Consume
r buys
from
Spot
Market
• 2000+
Entities
part of
Spot
market
Contribution of Exchanges vis-à-vis total
generation
Source: CERC MMC Monthly Reports FY 2012-13
Key statistics: Electricity & REC Market
ELECTRICITY
REC
97%
77%
27 States I 5 UTs
16 States I 5 UTs
Generators
191
467
Industrial
Consumers
1900+
1265
>70,000 MWh
>3 million RECs
Highest : 101,000 MWh
Highest: 3,09,892 RECs
Market Share
(FY 12-13)
State
Utilities
Average Daily
Volume
IEX Data as on 30th June, 2013
Growth in Volumes & Participation
Increasing Consumers participation
Members+Clients
2500
Open access consumers
2286
2080
1804
1989
1812
1609
1530
1500
1237
1334
1063
924
1000
756
606
411
500
804
954
1149
357
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Apr-10
Feb-10
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
IEX Data as on 30th June, 2013
702
873
1059
110
23
9
0
Dec-09
72
58
251
156
Jun-10
No. of Participants
2000
Key milestones achieved by the exchange
2011 Mar
2009 May:
2010 May:
100
Participants
100
Consumers
REC Market
Launched
2012 Oct:
2000 MU+ Monthly
Volume,
1300 participants,
90 MUs Highest daily
trade
2011 May:
1000 +
Participants
2009 Aug:
1st
registered
Industrial
Consumer
2009 Sep:
2013 June:
TermAhead
Market
Launched
2000+ Consumers &
2600+ participants
2010 Aug:
1000 MUs Monthly Vol
50MU highest daily Vol
Spot Market- Wish list
• Intra-day Market
• Less procedures for trade to delivery
• Online Open Access Clearances
• Common SLDC clearance for DAM, TAM contracts
• Forward Markets
• Contracts for delivery monthly and upto 1 year
• Better Price Signals for future
• Ancillary Markets
• Access to all generating resources for contingencies
• Market based service available to SLDCs/RLDC for better system
operation
Non-discriminatory Open Access – Status
Status of Open Access
• Electricity Act, 2003 envisages States to implement open access for
1MW+ customers by Jan, 2009
• First retail open access realised thru IEX August, 2009
• Several operational and regulatory impediments have led
consumers to choose partial open access and not full open access
• Consumer maintains its supply agreement with local distribution
company and leverages market for economical and contingency
power.
State-wise Open Access Consumers at IEX
(As on 30th June 2013)
No. of Open Access Consumers
700
600
500
State-wise OA Consumers at IEX
597
Today almost 2000 plus consumers are availing OA through IEX
499
400
300
303
226
200
146
121
100
40
0
26
11
8
4
3
5
State-wise Participation at IEX
State
Generators
Consumers
Jammu & Kashmir
3
0
Himachal Pradesh
3
1
Punjab
2
303
Haryana
1
146
Uttarakhand
1
40
Rajasthan
13
121
Madhya Pradesh
10
11
Gujarat
20
225
Maharashtra
10
3
Goa
1
0
Orissa
11
1
Chhattisgarh
10
0
West Bengal
2
0
Arunachal Pradesh
1
4
Meghalaya
3
2
Karnataka
45
26
Andhra Pradesh
22
597
Tamil Nadu
0
499
Kerala
0
8
Others
30
1
Total
178
1988
OA status in India…is it really open?
East & North Eastern Region
Northern Region
States
Buy
States
Sell
Sell
Assam & Bihar
Haryana
Manipur & Mizoram
Punjab
Tripura & Sikkim
Rajasthan
Jharkhand
HP
Arunachal Pradesh
J&K
Meghalaya
Uttaranchal
Orissa
Delhi & U.P.
West Bengal
Western Region
States
Madhya Pradesh
Buy
Southern Region
Sell
States
Andhra Pradesh
DNH & DD-UT
Gujarat
Karnataka
Chhattisgarh
Tamil Nadu
Maharashtra
Kerala
9-Apr-15
Buy
Buy
Sell
Barriers to Open Access:
Act or its implementation?
Legislative
Impediments
Prohibitive Open
Access Charges
Operational
Hurdles
• Misuse of certain statutes in the EA 2003
(Section 11, Section 37, Section 108, etc.)
• High Cross subsidy surcharge
• High wheeling charges
• Additional surcharge
• Procedural Bottlenecks
• Physical infrastructural constraints
Open Access: Prevented and denied
• Restrictive Open access regulations across states:
 Punjab: High wheeling charges are deterrent to OA
 Haryana: Notification for only RTC & peak hour procurement
 Tamilnadu: Section 11
 West Bengal: Very high OA charges; CSS not determined in consistence
with mechanism in NTP 2006
 Maharashtra/UP/Jharkhand/Delhi/ East& NE: Resistance by utility
Enablers for facilitating implementation of
Open Access
Legislative
Open Access Charges
Operational
•Strengthen Sec 11, 37, 108 to remove ambiguity and facilitate OA
•Sec 11: OA to generators restricted by state government by citing extraordinary
circumstances
•Sec 37: State governments can direct LDC to restrict power sale outside state in
lieu of maintaining smooth and stable supply
•Sec 108: Directions of state government will prevail where public interest is
involved
•Sec 42(4) : Define uniform methodology of determination of additional surcharge
Strengthen EA 2003 by expanding, restricting and/or clarifying scope under certain statues concerning OA
Enablers for facilitating implementation of
Open Access
Legislative
Open Access Charges
Operational
•Sec 42 (2) :“….Provided also that such surcharge and cross subsidies shall be
progressively reduced in the manner as may be specified by the State Commission…”
•Tariff Policy 8.3.2: Tariff to be +/-20% of cost of supply by 2010-11
•NEP, 2005 Sec 5.8.3: “…..the amount of surcharge and additional surcharge levied
from consumers who are permitted open access should not become so onerous that
it eliminates competition…….”
Implement existing statutes in EA 2003 and NTP 2006
Enablers for facilitating implementation of
Open Access
Legislative
Open Access Charges
Operational
• Equip SLDCs
• Use revenue accrued to SLDC from OA consumers for Infrastructure
development, automation, capacity and capability building. 100 OA consumers
imply a yearly revenue of appx Rs 9 crores to SLDC
• Leverage technology solutions and automate processes for NOC issuance,
energy scheduling and energy settlement
• IEX has introduced SLDC interface to help manage NOCs of customers in the
state of Punjab and Tamil Nadu. The same can be adopted for other states
• Open Access Registry (OAR)
• OAR will bring in transparency and facilitate faster transactions using automatic
rule-based open access clearance while removing manual discretions
Open Access Wish list
• Separate ‘retail’ and ‘wires’ business charges
• Accounting and Financial Separation
• Legislative Changes to avoid misuse of
Sec11
• Rationalization of OA charges
• Automating the clearance process
Implementing open access in its true spirit:
Promoting retail competition
The concept of Open Access rests on the premise
that electric energy as a product can be
separated from transmission as a service
• Separate ‘content’ and ‘carriage’ business
– SERC to segregate charges in terms of energy charge, network
charge (including wheeling, transmission and regional
transmission charges, as applicable) and surcharges and insist
Discoms to reflect these charges in their consumer bills.
Competition Score Card
EAct,2003
Key Elements COMPETITION
SCORE Way Forward
(/10)
1.Privatisation
2
Implement Delhi Model of
privatisation through PPP with
corrections
2, Unbundling
3
Separate transmission from two
competitive elements
3. Competitive Generation
8
Competitive Bidding has brought
competitive generation. Cautious
approach for SBD.
4, Non-discriminatory Open
Access
5
•Achieved Partial open access to
some extent
•Full open access can only come with
separation of carriage/content
Competition Score Card
EAct,2003
Key Elements COMPETITION
SCORE Way Forward
(/10)
5. Voluntary Spot Wholesale
Market
8
• Better intra-day markets- Reduce
time from trade to delivery
• Forward Market- delivery based
6. Independent Regulatory
Framework
8
Broader role beyond tariff setting
7. Independent System
Operation
4
SLDC ringfencing to be achieved.
8. Trading identified activity
6
• Fair large no. of traders. But still
most of the trading back-to-back.
• Retailer model to develop
THANK YOU
Suggestions to realize full Open Access
1.
Bundled ‘supply’ and ‘wires’ in Electricity Supply
–
Licensee has a natural monopoly of the infrastructure i.e. ‘wires’. He
discourages consumer to switch and also does not provide better quality
power i.e. ‘content’.
–
Consumer apprehends poor network availability when he switches to third
party. This double whammy seriously affects the ability of the consumer to
avail alternative supply.
Solution: Separation of ‘supply’ from ‘wires’ business of a distribution licensee.
Initially ‘accounting separation’ followed by ‘financial separation’ may be specified.
• Additionally, minimum service conditions of distribution licensee may be defined
by State Commission for open access consumer and serious penalties be specified
for non-compliance.
IEX Market Segments
Delivery-based Contracts… CERC regulated
Closed , Double-sided Auction
10-12 am bidding
Each 15-min block , 0.1 MW min NOC required
Day-Ahead
Market
since June,08
Day-Ahead Contingency – Another window 3-5pm
Term-Ahead
Market
since Sep,09
Intra-Day
- for rolling evening peak hours
Daily- for rolling seven days (delivery starting after 4 days)
Weekly- for Next 2 weeks
Renewable Energy
Certificates
since Feb,11
Green Attributes as Certificates
Sellers : RE generators not under feed in tariffs
Buyers: Obligated entities
1MWh equivalent to 1 REC
Next… Energy Saving Certificates
Auction
Continuous
Wish List
•
Default Supplier
– Consumers should have a way of getting supply in case remote supplier fails.
– Every consumer can be assigned a default supplier.
– Ceiling tariff may be fixed by State commission for supply with provision of negotiation.
•
Ceiling tariff for OA consumer category
–
Most serious apprehension observed from large consumer is threat of ‘high tariff’ by incumbent
supplier.
– This concern can be managed by providing in the Regulations, a provision to this effect.
•
Service condition of Distribution Licensee
– Minimum service conditions of distribution licensee for open access consumer can be defined by
SERC and serious penalties be specified for non-compliance.
•
Separation of ‘retail’ and ‘wires’ function
– The process of first separating ‘retail’ from ‘wires’ business of a distribution licensee must start
immediately. Initially ‘accounting separation’ followed by ‘financial separation’ may be specified.
•
Method for cross Subsidy surcharge
– Uniform methodology as per TP.
Status of Open Access
• Before Electricity Act
– Transmission planning based on Generating capacity addition
– Central Sector shared plants added generating capacities and
CTU(POWERGRID) added transmission network (SUPERGrid)
– At State-level, Vertically integrated utility added generating and
transmission capacities based on load growth.
– CPPs could access grid by paying transmission charges
– For usage of transmission grid by third parties, mutually agrees
charges payable.
– Very few trading transactions
• Transmission rights exercised by Utilities having long-term
BPTA with POWERGRID
Electricity Act 2003
• Generation de-licensed. Multiple dist. Licenses.
• Transmission utility at central level to continue with
responsibility of coordinated planning of trans network.
• Private companies can take up transmission
• Open access: Any Genco/Discom/Consumer can access
transmission system without discrimination, subject to
transmission availability. Pay regulated transmission charges
to Transco (wheeling charge and surcharge)
• Open access to distribution in phases.
• Power trading recognized as activity.
• Transco cannot undertake trading.
• Captive generation encouraged. No regulated charge except
wheeling and surcharge.
Changing Structure: Emerging Structure - Post EA 03
Generating
Companies
Own
Generation
Captive Generation
Facilities
Transmission Network (Immediate Open Access)
Distribution
Licensee 1
Distribution
Licensee 2
Distribution Network (Gradual Open Access)
Own Distribution System
Consumers
Power Traders would also
be involved in some of
the transactions
Competitive, Flexible Structure enabling Choice to Consumer
Scene prior to introduction of Power Trading
•
Monopoly Suppliers (SEBs, Private Licensees)
•
Generators (CGSs, IPPs and SEBs) with capacity fully tied up
•
Each SEB had an allocated share in a Central/ Jointly owned station
•
Price setting by Central/ State Governments – SEBs hardly having any say
•
Entire sector developed on fixed rate return
•
Interplay of market forces remained non-existent
•
Utilities would back-down in case of low demand and resort to load shedding in
case of excess demand
•
Power as a resource for earning revenue did not exist in this cost based regime
36
Scene prior to introduction of Power Trading (2)
• Prior to power trading as a business concept: power transfers between the
States/vertically integrated utilities were characterized by:
–
–
–
–
Small , Intermittent volumes
Mostly in the nature of emergency support
Without any commercial arrangements
Non-payment or payment delays with resultant disputes
• The exchanges were further limited due to lack of transmission interconnections
• Sustained shortages, both in energy and peak demand, discouraged
initiatives
• Skepticism about success of trading was widespread
37
Genesis of power trading in India
•
PTC was formed in 1999 as a Government of India initiative for development of
power market and incentivising market based investments to the Power Sector,
specially from the private sector:
 Facilitate development of Power Projects particularly through private investment
 Promote Power Trading to optimally utilize the existing resources
 Develop power market for market based investments into the Indian Power Sector
 Promote exchange of power with neighbouring countries
•
Electricity Act,2003 recognised TRADING as licensed activity.
38
Typical Market Transactions ….
•
Short & Medium Term transactions for peak/off-peak load balancing:
• Duration of Transactions (Few hours to 3 years)
• Hours of Supply
• Round the Clock
• Evening Peak / Morning Peak
• Night Off Peak / After Noon Off Peak
•
“As and When Available” Power for balancing Scheduled Interchanges
•
“Weekend / Holiday Power”
•
Banking of Power
39
Power Trader – Key Success Determinants
•
Credible intermediary
•
Payment Security Mechanism
•
Weekly billing to reduce credit risks
•
Right to divert in case of default
•
Relationship of trust, transparency
•
Comfort to developer of power projects –by addressing market risks
•
Comfort to lender – by addressing credit risks
•
A catalyst for private investment in the sector
40
Strengthening the Act
• Consumer, according to the Electricity Act, 2003 can be supplied electricity for
his own use by a licensee or the Government or any other person engaged in
the business of supplying electricity to the public under this Act or any other
law for the time being in force.
• Further Section 12 authorises any person to transmit, supply, etc. electricity
only if he procures a license under Section 14. Therefore, either a trader can act
as a retail supplier by combining its role as a franchisee, as defined in Section
2(27) as “person authorized by a distribution licensee to distribute electricity on
its behalf in a particular area within his area of supply”.
• Such arrangement, however, can at best be an interim arrangement.
• The Act needs to be amended to create “Retail Electricity Supplier” as a
separate licensee
Impact of Electricity Trading
• Optimization of existing energy resources
• Encouraging commercial outlook in the sector
• Encouraging cross-border exchange of power
• Catalyzing investment into the Power sector, mainly from the private
sector
42
Market Trends
•
•
A new category of Trading Licensee introduced/net worth criteria eased
–
Entry barrier reduced, may lead to more players/competition
–
Strict market monitoring to ensure against market abuse
Industrial segment is increasingly using PX to procure power
– More than 875 participants
•
Volumes and depth increasing slowly
•
Higher liquidity will give right pricing signals
•
New longer duration contracts on PX on the anvil, weekly term ahead picking up
•
PX showing rapid growth, bi-lateral through trader on decline
•
Regulations simplified to enable intermittent RE power such as wind
•
Renewable Energy Certificates being introduced-will help in meeting RPO
– Thrust on RE, particularly Solar power
•
Transmission pricing based on point of connection tariff- expected to help in growth of power
market
43
• The Electricity Act defines Open Access as
“non-discriminatory provision for the use of
transmission lines or distribution system or
associated facilities with such lines or system
by any licensee or consumer or a person
engaged in generation in accordance with the
regulation specified by the Appropriate
Commission”