FEASIBILITY OF ELECTRICITY ONLINE TRADING IN INDIA

N. Sasidhar.
(Abstract: This paper explains how online bulk electricity purchase and sale can be
implemented in Indian context. It also lists its potential contributions to the power
sector)

The ongoing Availability Based Tariff (ABT) has ensured grid discipline preventing
grid failures due to low frequency. It also discouraged high frequency grid operation.
It was instrumental in achieving metering / auditing infrastructure in the entire power
grid system. It is mainly devised to share power generation on day-to-day basis by the
states from the central sector power stations, which were under negotiated two part
tariff agreements. It has established merit order generation with respect to the
running/variable cost of existing power stations. It does not consider the cost of power
generation at the doorsteps of various consumers by considering transmission losses
and transmission cost.

After the enactment of Electricity Act 2003, most of the new capacity addition will be
through competitive biding process wherein power tariff is quoted as single lump sum
value per KWH without clearly distinguishing from fixed cost and variable cost.
Variable cost based merit order is not feasible in future. ABT identifies three parties
for its implementation. These are central generating power stations, regional load
dispatch centers (RLDC) and state load dispatch centers (SLDC). After major reforms
in electricity sector, the SLDC were divided in to state transmission company
(Transco), few state distribution companies (Discom) and few state generation
companies (Genco) in many states. All these companies will gradually become fully
autonomous and independent in their activities and will be responsible for their
profitability and growth.

Also private sector can enter in to generation, transmission and distribution on large
scale in post Electricity Act 2003 scenario. The future situation would be more
complex in fixing the merit order generation in the presence of many generating,
transmission and distribution companies. There is requirement to device a broad
mechanism to take care of all the participants’ needs and interests and also to optimize
the investment in fuel sourcing, generation, transmission and distribution of
electricity. Implementation of electricity online trading is a solution for
accommodating changing needs without effecting the ongoing agreements.

The demand for electricity fluctuates on day to day basis and place to place in India
due to following weather conditions:
 During summer, hot weather conditions lead to more domestic electricity
consumption.
 During winter, cold weather leads to more domestic electricity consumption.
 During cropping season, hot weather leads to more electricity consumption by
agriculture pump sets due to more water requirement.
 During cropping season, rainy/cloudy days lead to very less electricity
consumption by agriculture pump sets due to less water requirement.
 Heavy monsoon rains lead to excess secondary power availability from
hydropower stations.
 Failure of normal monsoon rains leads to drastic increase in electricity
consumption by agriculture pump sets due to fast depleting soil moisture.

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  Below average monsoon rains reduce drastically hydropower generation
potential.
 Windy day/season contributes to more secondary electricity from wind power
generators.

It is very difficult to forecast accurately electricity requirements and availability in a

place on any particular day of the year. Import/export of power on day to day basis
with ‘online electricity trading’ facility will bridge the gap between the demand and
availability of electricity.

FEATURES OF ONLINE ELECTRICITY TRADING:

Generators are at liberty to generate power within acceptable band of grid frequency
and sell at their quoted / acceptable price.

Every Transco is at liberty to quote the acceptable price for energy made available to
its immediate Transco or Discom at tie in points of its network. A participant can
make electricity transactions on real basis with another participant who is directly
connected to it. So a participant can not make valid trading transaction deal with a
distant located participant bypassing intermediate participants. In this regard, please
refer to detailed study paper “Integrating European Electricity Markets” available at
www.iefe.unibocconi.it/wps/allegatiCTP/RR_No_2_ERI_viola_1.pdf for technical
explaination.

The power will be consumed / routed as per the available grid transmission capability
depending on the connected load of Dicoms at a particular point of time with respect
to the location of Generators.

A transaction / deal have taken place only when power has exchanged between the tie
in point of the two grid participants. The break up of receivables and payables are
logged automatically for every 15 minutes duration at all tie in points of a participant.
The net receivables or payables are settled by the exchange for that settlement period.

Online electricity transactions settlement with payment guarantee mechanism will be

implemented under the Regional / Central Electricity Exchanges. The purchaser of
every transaction shall pay nominal commission to the exchange.

Discoms need to provide security deposit or revolving letter of credit for the
maximum notified energy requirements to the regional / central electricity exchange.
The yearly surplus revenue of the exchange would be paid back to the Discoms in
proportion to their security deposit or revolving letter of credit.

Grid discipline is achieved by imposing penalties on the erring participants below the
acceptable frequency band (i.e. between 49 to 50 hz) operation similar to
Unscheduled Interchange (UI) charge in ABT.

Least cost electricity generation will be given priority in case of high grid frequency.
The high cost Generators are to back down or their generation would be settled at
lower price.

The ongoing agreements between Generators / central transmission companies with

the state government companies are fully implemented.

DEFINATION OF TERMINOLOGY:
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Generator: They produce electricity for sale and are physically connected to
transmission network of at least one Discom or Transco. The maximum capacity of
power generation (MW) shall be notified and should have access to adequate capacity
evacuation system. The type of Generators is utility power plants, cogeneration power
plants, captive power plants and storage power plants.

Discom: They purchase electricity from Transco or Generators to cater to various

ultimate consumers with their established power distribution and metering network.
Providing adequate quality and quantity power whenever required by its consumers is
its responsibility. Even a bulk consumer can be a Discom provided it is adequately
connected to at least one Transco. Every Discom is to notify its maximum load
requirements and availability of adequate distribution assets. Captive power plants
and storage power plants are also Discoms.

Transco: They purchase power from a generator or another Transco and transmit
electricity for sale to at least one Discom or another Transco. Every Transco is
required to notify their transmission capacities.

Power Trader: This is a trading company authorized by a grid participant to conduct

trading of electricity on its behalf. Generally, it is a finance company with interest in
day-to-day power trading business. This company enters in to a short or long term
agreement with a grid participant and exercises rights to participate in day-to-day
trading of that participant. Many of the existing private and central government power
and transmission companies are governed by long term Power Purchase Agreements
(PPA) with state Discoms / Transcos. The trading rights of these assets will be given
to the state Discoms / Transcos as per these PPAs.

Grid: All the infrastructure of Discoms and Trancos, which are interconnected for the
transmission and distribution of electricity.

Grid participant: Any one of Transco, Discom and Generator

Tie in point: This is a terminal point between two participants where electricity can be
exchanged from one to another. Every tie in point will be equipped with required
accuracy tariff meters and check meters. Tariff meters are calibrated and accessible to
the participants and the readings are logged every 15 minutes and made available for
remote indication.

Electricity Exchange: The organization owned by the grid participants to conduct and
settle online electricity trading. Electricity exchange will be governed by central
government such as central electricity regulatory commission (CERC).

Unscheduled Interchange (UI) penalty: The penalty imposed on an erring participant

when grid is operating below the allowed frequency band.

Utility power plants: They produce power exclusively for exporting / selling power to
the grid. They consume some part of generated power towards auxiliary power
requirements in the process of generating power. On occasional basis, these power
plants draw power from the grid for start up requirements. They are eligible for
selling power to the grid and power purchase for start up requirements when not
exporting power.

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Cogeneration power plants: They produce power as byproduct during the intended
production process. They can produce surplus energy to export to the grid. On
occasional basis, these power plants draw power from the grid for start up
requirements. They are eligible for selling power to the grid and power purchase for
start up requirements when not exporting power.

Captive power plants: They produce power required for the electricity requirements of
their internal consumption located in the same premises. They import /purchase power
from the grid when the captive generation is falling short of their consumption. They
export / sell power when their power generation is in excess of the consumption. They
are eligible for selling and purchasing power from the grid but not simultaneously.

Storage power plants: They consume surplus power from the grid and store for future
requirements in the form of battery power, compressed air, water energy, etc. The
stored energy is converted back in to electricity later to cater peak load requirements.
The electricity is sold at attractive prices during peak load requirements. They are
eligible for selling and purchasing power from the grid but not simultaneously.

ONLINE ELECTRICITY TRADING PROCEDURE:

There will be daily trading session for electricity purchase and sale. The purpose of
the trading session is to take sell and purchase contracts from the grid participants,
which are to be honored by the participants physically. The contracts are of two types.
Committed contracts: These are compulsory contracts, which are to be honored by
both parties. Failure in their commitment would attract penalties as per defined
method.
Open bids: These are the quotations of the participants, which are not clinched in to
contracts by matching takers. However these open bids will be executed physically
during power grid operation as per necessity and technical feasibility of the grid.
Penalty is not applicable for not meeting these quotes. All the participants should
quote minimum 30% of the total contracted load under this category at every tie in
point. Mainly peak load Generators such as open cycle gas turbine power plants,
peaking load hydro power stations, pumped storage hydro power stations, etc will use
this window to maintain the rated grid frequency. If there is possibility of a Transco to
bid highly abnormal prices, it can be stipulated that sale bid price should not deviate
from purchase bid price by ± 15% (say) at a tie in point of a Transco.

The generators/Transco who quoted lower sale prices in open bids has first right to
generate/supply power to Discoms. They supply power one by one in ascending order
of quoted open bid prices as power demand increases and vise versa as power demand
decreases. The Discoms/Transco who quoted higher purchase prices in open bids has
first right to consume/receive the power from generators/Transco. They consume
power one by one in descending order of quoted open bid prices as power availability
increases and vise versa as power availability decreases. The quoted prices by sellers
(Generators/Transco) are considered for settlement when the frequency is in 49.0 to
49.7 Hz range. The quoted prices by purchasers (Discoms/Transco) are considered for
settlement when the frequency is in 49.71 to 50 Hz range.

The transactions for all the power fed in to the grid and drawn from the grid should be
traded in the Electricity Exchange. The trading session is for two hours duration from
9.30 hr to 11.30 hrs for the 24 hrs duration of electricity delivery period starting from
12.00 hours time of the same day to 11.59 hours of next day. The delivery session
starting time is selected at 12.00 hours because the daily peak load starts around 18.00

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hrs time and Generators can have sufficient time to start the units and bring to full
load for meeting peak load demand.

The quoted sale / purchase price should not exceed the applicable UI penalty. Sale
and purchase bids shall be offered for all the possible transactions at every tie in point.
Incase applicable quote is not available most recent contract price will be considered
for the settlement of actual power transfer. Intra day speculative trading is allowed by
squaring up to the extent feasible. This is helpful in the price discovery mechanism.
Futures and options trading could also be introduced in future.

Settlement of contracts: The following possibility can take place in physical execution
of the contracts.

Generators:
Failing to supply contracted power at the tie in point (frequency within acceptable
band):
The purchaser will source the power from another participant, who has quoted higher
price from the open bids category and meet the commitment. The deferential amount
would be charged to the failed generator.

Failing to supply contracted power at the tie in point (frequency falling below
acceptable band):
The generator will pay UI penalty to the Discoms, which have reduced the load to
correct the frequency drop.

Generator feeding excess power (frequency above the band):

Generator feeding excess power without valid contract will not be paid any price. The
Discoms will use the available excess power free of cost. However they will bear the
associated Transcos cost subject to maximum tariff equal to their open quotes.

Transco:
Transco has failed to draw the power from the Generator / Transco:
The seller would supply power to another participant who has quoted lower price
from the open bids (can be same Transco but at different tie in point) and charge the
differential price to the failed Transco

Transco has not received contracted power at the tie in point from another Transco:
The purchaser will source the power from another Transco, who has quoted higher
price in open bids (can be same Transco but at different tie in point) and meet the
commitment. The deferential amount would be charged to the failed Transco.

Transco has failed to supply power to the Discom:

The Discom would source power from another participant who has quoted higher
price from the open bids (can be same Transco but at different tie in point) and charge
the differential price to the failed Transco

Discoms:
Discom has failed to draw the power from the Generator / Transco (frequency within
acceptable band):
The Transco / Generator would supply power to another participant who has quoted
lower price from the open bids and charge the differential price to the failed Discom.

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Discom has failed to draw the power from the Generator / Transco (frequency above
the acceptable band):
The generator with valid contract who has reduced the load to bring down the
frequency within limits would be paid fully as per contract by the failing Discom.
Alternatively, another Discom with lower price quotation will absorb the excess load
to reduce the frequency with in limits. The differential price would be paid by the
failing Discom.

Discom has drawn excess power from the Generator / Transco (frequency in the
acceptable band):
Transco would source power from another Generator / Transco, who has quoted
higher price from the open bids and charge the price to the Discom.

Discom has drawn excess power from the Transco (frequency below the acceptable
band):
Discoms, which have reduced the load to correct the frequency drop, will be paid UI
penalty by the erring Discom.

SMALL CONSUMER’S PARTICIPATION IN GRID MANAGEMENT:

Discoms can also achieve better automatic load management by installing frequency
switches in consumer connections. One percent (0.5 Hz) dip in electricity grid
frequency will reduce the power generation load demand by 5000 MW (5%)
approximately in India.
Every consumer would be given option to draw power based on grid frequency in
addition to the normal power connection (not frequency based). If a consumer opts for
frequency based power additionally, his existing connection would be bifurcated in to
two from the common supply line
Case 1: through the existing energy meter
Case 2: through the frequency switch cum energy meter.
The interruptible loads for few hours such as geysers, air conditioners, refrigerators,
electric stoves, microwave ovens, etc are connected to Case 2 power line. The offered
electricity tariff would be cheaper in this Case 2 compared to Case 1 to induce the
consumers for taking this additional power supply mode. Since Discoms can get
cheaper power from the Transco/generators on their pricing terms when the grid
frequency is above 49.7 Hz, It would not be financial burden to supply cheaper power
to Case 2 consumers.
When the frequency is normal (49.7 to 50 Hz) only, power will be available in Case 2
supply line. When the frequency is below normal (49 to 49.7 Hz), power supply is not
available in Case 2 (i.e. frequency switch will operate/switch off the line) but always
available in Case 1 line to meet the uninterruptable power requirements such as lights,
fans, TV, etc. Case 1 power supply would be made available without any power cuts
by Discoms except during emergencies.
In this way, Discoms can achieve effective automatic load management without any
additional investment and its consumers would get uninterrupted essential power
without any extra cost. The Discom consumers need not purchase inverters at huge
cost and also avoid substantial recurring cost of replacing inverter batteries.
At present, the Case 1 energy tariffs are of telescopic type (in three slabs). The Case 2
energy tariff would be fixed less than 3rd slab price in Case 1 energy tariff. There is no
possibility of misuse by the consumers (i.e. diverting uninterruptable (Case 1) load to

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interruptible load (Case 2) because Case 1 power is priced higher than Case 2 power.
Most of the domestic consumers are small consumers and would enjoy uninterruptible
supply by getting preference over the Case 2 consumer loads.
At present, more than two billion US$ every year is spent by Indians for installing
inverters in their houses to ward off from the regular energy/power cuts and meet the
essential electricity needs. Inverters consume power continuously to meet the zero
load losses and also at least 5% of electricity routed through them. The purpose of
power / energy cut is to reduce the power demand / consumption in the grid when the
generation is not adequate. Use of inverters by the ultimate consumers is actually
enhancing the power demand during the period electricity is made available and
increasing the distribution losses (i.e. avoidable energy inefficiency though borne by
the consumer).
As explained above, frequency based retail tariff would reduce the avoidable energy
losses and save the huge investment spent on inverters & their annual maintenance
costs. The disposal of used lead acid batteries also cause environmental and health
problems.

OTHER DATA:
Fortnight duration expected availability (power stations and transmission
infrastructure), planned outage reports and fuel (coal, liquid fuel, gas fuel, etc)
availability, fuel stock data at various stock points (power plant, transshipment and
mine end) are to be provided on daily basis to the Exchange for information to
participants. Hydro electric power plants fortnight duration expected availability,
planned outage, reservoir water storage, corresponding power potential, water inflow
and water out flow data are to be provided on daily basis to the Exchange for
information to participants.

Every generator or Transco needs to provide their annual planned maintenance and
availability schedule to the Exchange for information to participants at least one
month earlier.

Live on line information of the grid would be made available to all participants. A
computer program to simulate the grid performance / response will also be provided
to educate the grid participants about transmission system capabilities and its
bottlenecks.

Online trading for power factor improvement can also be implemented at later date.

ADVANTAGES OF ONLINE TRADING:

1. The procedure is simple, reliable and unambiguous and settles online from
electricity sale or purchase to its financial settlement.
2. It encourages all the participants to maximize the use of power sector
infrastructure for supplying electricity to the ultimate consumer at competitive
price. This is achieved by creating competition among the participants.
3. It will lead to need based generation and transmission infrastructure growth by
highlighting the bottlenecks in the existing infrastructure.
4. It will ensure the grid discipline and stability similar to ongoing ABT
mechanism.
5. It will encourage induction of energy efficient and appropriate power
generation and transmission technologies for the new installations.

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 6. There is no need of any power purchase agreement (PPA) for a generator to
install any type of power plant. They can comfortably perform as merchant
plant feeding power in to the grid. There is no need of escalation formula in
the yearly tariff based on consumer price index and wholesale price index.
7. There is no need of any prior commercial agreement to install transmission
infrastructure. They can comfortably perform power transmission as part of
the grid.
8. Whenever a developer intends to establish power generation or transmission
infrastructure, the associated uncertainty / risk in the returns on the deployed
capital can be avoided at investment phase itself. The developer will enter in
to a long-term agreement with a Power Trader and insulates his profitability
from the uncertainty in future revenue. Similarly the developer will tie up with
an O&M company for the reliable performance of the assets.
9. All the bulk consumers can become Discom licensee and source uninterrupted
power from the accessible Transco. Bulk consumers can also establish power
plants at suitable locations to meet their power requirements with or without
owning transmission lines or Transco license.
10. Wheeling and banking of power is fully met since a captive power plant is at
liberty to draw power from the grid as per its requirements by taking Discom
license.
11. Cogeneration plants can sell their surplus power in to the grid optimizing their
resources.
12. The online trading leads to ‘time of the day’ pricing for the power supplied to
Discoms. Base load Generators would quote higher prices during peak load
hours similar to peak load Generators. This would also decrease the power
price during off peak hours since the availabity is in excess of demand. Higher
peak hour prices would also force the Discoms for better load management,
which would reduce the excessive transmission and distribution losses.
13. Lower prices during off peak hours would encourage the storage power plants
to consume the excess grid power. These storage power plants would
contribute to bridge the gap between demand and availability during peak load
hours.
14. Generators driven electric grid would be achieved to maximize electricity
generation which will try to reduce perennial energy / power shortages.
15. It will bring clarity to privatize the state owned infrastructures which are under
utilized due to internal problems.

Online electricity trading is an essential requirement to make power sector further free
from time-consuming procedural difficulties. It would contribute immensely in
encouraging both foreign and local private developers to achieve faster growth in
power sector. It would also be a major thrust in proliferation of cogeneration and
captive power plants contributing to energy conservation.

REFERENCES:
http://www.nrldc.org/docs/abc_abt.pdf “ABC of ABT – A primer on availability
tariff” by Mr. Bhanu Bhushan.
www.iefe.unibocconi.it/wps/allegatiCTP/RR_No_2_ERI_viola_1.pdf “Integrating
European Electricity Markets”
“Economics of gas turbine power plants in utility industry” by N. Sasidhar.
http://www.scribd.com/doc/59763540/Selection-of-Thermal-Power-Plant

The first revision of this paper was written in July, 2007

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