Development of Power Markets and Market Monitoring

Transcription

1 Department of Industrial and Management Engineering Indian Institute of Technology Kanpur 3 rd Capacity Building Programme for Officers of Electricity Regulatory Commissions August, 2010 Development of Power Markets and Market Monitoring Rahul Banerjee Senior Advisor, CERC Forum of Regulators 1 Market Development S- Curve Indian market is here Continuous Trading OTC Derivativ es Financially settled Derivatives Exchange/ Options Structure d Products financially settled Market Maturity Spot Markets on Exchanges Auction markets Individual Buyer /Seller Multiple buyers - sellers OTC Markets Time Liquidity Improves, Pricing more efficient In matured markets all these types of markets exist Interplay between markets improves price discovery 2

2 Market Structure Markets Contracts Participant Grid Connected Entities Licensed Traders Power Exchange Clearing Corporation Exchange Member Other Exchange Other Transacting parties The Foundation - Market related Sections in EA 03 Development of power markets including trading - Section 66 NEP suggests 15% of new capacities to be sold outside long-term PPAs NEP stipulates power exchanges Generation delicensed Sec 7 Trading, Transmission, Distribution are licensed - Sec 14 Regulatory oversight only in on trading margin,not on sale price by trader Max & Min tariff for a period of 1 yrs in periods of shortages Sec 62 (3) 4

3 The Foundation - Market related Sections in EA 03 Determination of tariff by Bidding process based on guidelines issued by GOI Sec 63 Preventing market domination- responsibility of Regulators - Sec 60 Open Access to Generation,consumers by Transmission, Distribution cos -Sec 38, 40, 42? Cornerstone of the act? Bring competition? Similar to FERC order 888, 889 in 1996 Access to line on payment of charges Allow transmission to recover stranded cost through energy customers All info in open market OASIS Open access same time information system 5 Need for Power Markets Markets - Ultimate payment security mechanism - superior to government guarantee? Induces price risk,reduces liquidity risk Price acts as signal for new investments Merchant Power capacity and private sector investment Match short-term surplus with demand variation in a diverse country optimal asset utilization Bring latent generation capacity - captive power plants to market Access to markets -Open Access Key to competition? Alternative to consumers - by using open access? Industrial consumers getting access through PX and technology 6

4 Features of Power Markets Large number of trading licensees (44) Top 5 control 80 % of market Traders also facilitating investments in new capacities New smaller category created to penetrate market Two Power exchanges are electronic platform for day ahead markets Assured payment security and risk management Prices Dissemination across country Reduce information asymmetry Provide equal bargaining power to all players in a supply deficit environment 7 Features of Power Markets Adequate Inter-state transmission system, specific bottleneck to be removed? Capacitor banks? Voltage profile improvement? Use Congestion revenue fund for this Congestion observed in some days? Market splitting in power exchange Even zonal splitting happening 8

5 Benefits at ground level New investment climate POWERGRID has got 225 open access applications seeking grid connectivity for 1,70,000 Mw generation capacity More than 160 open access consumers have procured power from power exchanges More than 80 captive power plants are now supplying power through open access 45% of capacity addition was by private sector in FY Some Statistics on Indian Power Markets 10

6 Market Breakup Short term market is only 5% of total generation,px is 1 % of total generation Year Short Term Market Size Transactions through Traders Weight ed Averag Volume in e Price Volume Billion (Rs/kWin Billion Units* h) Units Transactions through Power Exchanges Weighted Average Price (Rs/kWh) Size of Market through Traders (Rs. Crore) Size of Market for Exchanges (Rs. Crore) Total Size of Short Term Market Excluding UI, Bilateral Through DISCOMs, and Input from Bhutan (Rs. Crore) * = Excludes imports from Bhutan and banking volumes Short Term market size is large,although in % term it looks small (4%) 12

7 Short term volumes are increasing Traders market is 3 times PX in volume terms 13 Short Term Price Range in 2009 ( Jan Dec 09) Power Price Traders Power Exchange Maximum ( Rs/ Kwh) Minimum ( Rs / Kwh) Weighted Average Average prices lower in PX than license traders but more volatile reflects immediate demand supply, better bargaining power Prices have risen to Rs 17/ Kwh & gown down to Rs 0.13 / Kwh as well in PX 14

8 Yearly Average Price in OTC (through traders) and Power Exchange Short term prices showing downward trend 15 International Electricity Prices Wholesale Exchange Country Units Delivery Base Price Peak Price Nordpool Norway Euro/ MWH May Rs/ MWH APX UK Pound/ MWH May Rs/ MWH EEX Germany Euro/ MWH May Rs/ MWH EEX France Euro/ MWH May Rs/ MWH PJM US East Coast $/MWH May Rs/ MWH Market Monitoring Report India Avg of Power Exchange Electricity Trader Rs/ MWH Short Term power prices in India higher than other markets, in PPP terms prices will be even higher

9 Price cap 17 Price of Electricity for OTC contracts and Transactions in Power Exchanges on contracted day 18

10 Forward Curve for OTC Market, July- September Post Delivery Comparison for July

11 Power Exchange Price Slab - Volume 21 OTC Market Price Slab- Volume Price >10 Cumulative % % of Total

12 Congestion in Power Exchange June 10 Table-14: Details of Congestion in Power Exchanges for June 2010 Details of Congestion IEX PXIL A Unconstrained Cleared Volume* (MU) B Actual Cleared Volume and hence scheduled (MU) C Volume of electricity that could not be cleared as hence not scheduled because of congestion (MU) (A- B) D Volume of electricity that could not be cleared as % to Actual Cleared Volume 3% 2% E Percentage of the time congestion occurred during the month (Number of hours congestion occurred/total number of hours in the month) 15.83% 15.69% F Congestion occurrence (%) time block wise hours 54% 55% hours 30% 30% hours 10% 10% hours 6% 5% * This power would have been scheduled had there been no congestion. 23 Concerns 1 High price burdening buying state distribution utilities? Higher consumer tariff if cost passed on? If higher cost cannot be passed on Financial health deteriorating, Cash flow problems, trueing up at end of year? Increased load shedding if cannot pass the cost? Share of short term purchase in portfolio low but rising? Is upto % of total portfolio ( Rel Infra- JVVN), Avg 5 % Allegation of regulatory capture / Nelsons Eye

13 Concerns 2 Profiteering by some market participants? Portfolio Sellers -Certain State Discoms, State Trading Companies Have low generation cost or procurement cost Portfolio price avg Rs 2.76, profit approx Rs 4.5 /kwh Making abnormal profit,total approx10000 Cr May be used to keep retail tariff low in state Not always investing in new capacity addition? Private Gencos Mostly ploughing back to increase generation capacity Perverse incentive for states to stymie open access to embedded generators Wealth transfer from power deficit state to surplus another Planning not done in this line 25 Market behaviour Analysis 1? Excessive profit motive or rent seeking behaviour by portfolio sellers and generators Not likely in our situation as: Generally buyers (being mostly Govt. Owned entities) float tenders for purchase Generally,sellers (especially portfolio sellers who are Govt. Owned entities) float tenders for identifying buyers Through competition 26

14 Market behaviour Analysis 2 Reflection of market condition? Demand-supply mismatch Generally present in Indian condition? No option for buyers, but to buy Not generally true in Indian condition Universal service obligation not stipulated (no load shedding not mandatory ) Can undertake load levelling Can undertake Demand Side Management Bring higher operational efficiency Bring Time of day tariff? Less liquidity Generally true? Imperfect markets/low competition (few sellers/buyers) Generally true? Congestion experienced for transacting through power exchanges Some times true 27 Market behaviour Analysis 3 High prices more a reflection of market condition, which has allowed sellers to make excessive profits? Prices have not remained high continuously? Have varied, depending on demand/supply situation (higher in times of transient events such as elections, draught, etc;? Have come down on conclusion of transient events Due to shortages, there is competition among buyers to purchase scarce resource (power)? Quoting higher prices in times of need due to transient events such as elections, low rain fall, etc. 28

15 Regulatory Initiatives for Market development 29 Power Market Regulation Market Structure Market design and principles Power Exchange? Approval, Prudential Norms? Various Committees for governance? Trading systems? Risk management and Default settlement Market Oversight? Market monitoring? Reports and analysis 30

16 Short Term Open Access Regulations Short Term Open Access Regulations facilitated power trading in orderly manner 3 month Advance reservation, first come first serve, power exchange corridor reservation, day basis opened again Energy agreements and transmission clearance to be arranged separately Open Access charges are reasonable and simple to apply Increasing Competition in wholesale market 31 Long / Medium term Open Access Regulation Framework for connectivity medium term ( 3 months - 3 yrs) and long term access ( Yrs) to ISTS,inter-state transmission, non discriminatory? Thermal 500 MW, Hydro 250 MW, Central gencos and IPP being treated by CTU in same manner for connectivity to interstate grid? Bring parity between central gencso and IPP? Improves access to markets for all gencos? Reduce operational risk for gencos and make projects more bankable In line with NEP/Tariff policy stipulation Based on anticipated transmission needs, expected regional flows Prior agreement with beneficiaries not be a pre-condition for network expansion 32

17 Trading License Regulation Trading - a licensed activity - Capital adequacy needed as taking risk on behalf of participants? Networth, Liquidity criteria Trading margin? To ensure prices do not increase much? Stymied innovation as there was no incentive No margin on long term transactions 4 paisa margin if power price less than Rs 3/kwh 7 Paisa margin if power price more than Rs 3/kwh 33 Transmission Pricing Regulation ARR of PCGIL same, only how beneficiaries pay it changes Point of connection tariff generation access charge, demand charge, Till now only consumers paid STOA lower than long term due to incidental usage,? less incentive to go for long term contracts, free rider allegation Hybrid Model-Based on Marginal + Average Participation Method? Removes like pan-caking of transmission charges? Helps short term power trading, MPP power flows not known Bring geographically distant disadvantaged genco equal to other gencos and compete in competitive bids In line with vision of tariff policy -Sensitive to direction, distance and quantum, ( pay as use) 34

18 UI Interchange Regulation Heavy overdrawls by some of States - a concern? Grid security aspect? Depriving other states from their legitimate and planned procurement Very high rate for overdrawl at low frequency? CEA / CTU - option of isolating a connection for dealing with overdrawl not possible in a meshed grid Decoupled of overdrawl /underinjection rates from over injection /underdrawal rates? Create UI fund to be used for bottleneck removal Disincentivises both genco ( gets paid low) and discom ( pays high ) from using UI mechanism regularly Volume restriction placed through commercial penalty LC to be opened by parties who have defaulted earlier in UI payments Will bring more electricity to organized power markets 35 How DISCOMs Procure Power Long-term regulated Cost-Plus PPA Long Term Competitive bidding based price PPA Medium term contracts > 1 year to up to 7 years through PPA Short-term seasonal contracts (non-standard contracts through Traders or directly ) Term ahead contracts (through PX) Day ahead contracts (through Open Access/PX) UI Drawl 36

19 Market Structure: Medium and long term power procurement State sector GENCOs Central sector GENCOs IPPs Single Buyers Traders DISCOMs CONSUMERS 37 >0.5 % 2-3 % 5-10% % 70-85% Demand Actual Load Forecasted Load Day ahead Contracts Short Term Contracts < 1 yr Medium Term Contracts > 1year up to 7 years Long Term Contracts 7-25 yrs Real Time Market / UI Time

20 Market Monitoring Monthly Reporting of Trades by Trading Licensee? Price, Volume, Margins, Buyers Sellers Monthly Reporting of Trades by Power exchanges? Price, Volume, Members, Clients Both are regulated businesses Focus is on Short Term more 39 Market Monitoring Start monitoring long term, medium contracts These are bilateral contract bewteen parties Look at open positions of traders which is a metric to monitor risk? Not just prices 40

21 Discoms financial health is still poor but large number of generators coming. How will the payment security happen?? Is the market sufficient to mitigate this risk?? Will this create stranded assets? 41 The Future Possibilities Capacity markets? Short term price reduction Ancillary markets? System operator to run this? When demand supply deficit ebbs Market Coupling European experience Evening Markets discusions on Derivative market When demand supply deficit ebbs, liquidity increase Help in risk management through financial contacts Demand side Management Consumer behavior respond to prices 42

22 The Future Possibilities Time of day tariff for Generators in whole sale market will drive DISCOM to introduce Time of Day tariff for consumers? Value of electricity different in different hours Peaking Tariff for generators Competitive bidding for peak load No policy to encourage peak generation, 18 % peak deficit Capacity mix needed, base load genco cannot support peak load More sophistication in trading and risk management? Spread trades, cfds? Hedging? Coal Gas hedge example 43 The Future Possibilities More market monitoring? Economic withholding of assets? Spot and derivatives interplay? Long term markets 92%, new gencos which come up? Generators cost curves, PJM, California do this? Forward looking and not post facto only Hydro dam valuation value of water Negative price bidding must run generators Regulators role transformation from tariff fixation to market oversight Interventions if needed Replicate market conditions In the Long run prices should reduce 44

23 Disclaimer :The view expressed are the personal views of the speaker 45