CERC to initiate ‘market coupling’ of power exchange, decision receives mixed response

By Manish Gupta

The Union power ministry has directed the Central Electricity Regulatory Commission (CERC) to initiate the process of “market coupling” of power exchanges, in order to have uniform prices across multiple exchanges.

While the decision has been hailed by some analysts saying it could improve price discovery, Indian Energy Exchange (IEX), the largest platform handling more than 90% of power deals in India, said it will “kill innovation.” Citing many stakeholders want market coupling of multiple power exchanges, the ministry, in a letter dated June 2, directed the regulator to initiate the process of implementation of market coupling.

Also read: Khadi and Village industries register a 332 per cent growth in sales revenue over nine years

“CERC is requested to take suitable action, so that the process of consultation and the finalisation of the construct for its implementation is done expeditiously and the same can be implemented,” the ministry’s letter said.

Market coupling refers to aggregation of all buy and sell bids from all power exchanges in the country under a single power trading entity, matching them and discovering a uniform market clearing price.

Shares of IEX took a major hit in the last two days as news of market coupling spread. It fell more than 8% on Thursday and saw another decline of over 10% on Friday. It closed at Rs 122.60 from above Rs 153 five days back. “India has a voluntary market framework where all exchanges have equal opportunities. Market coupling is done to couple different markets operating in different geographies, which is not applicable in our case. In India all the regions are already coupled and we have one market and one price,” said IEX business development head Rohit Bajaj.

He, however, hoped that as CERC will initiate process of consultation and finalization of construct, all aspects such as the objective of market coupling and need in the current market framework will be examined.

IEX CMD SN Goel, in a conversation with a TV channel, said that coupling in spot power trading can kill innovation and competition in the sector. He likened the step as coupling NSE and BSE or Ola and Uber.

Apart from IEX, India has two more power exchanges. These are Hindustan Power Exchange (HPX) and Power Exchange of India. Currently, the National Load Despatch Center (NLDC) acts as market coupler for a small market.

“The decision to implement market coupling on power exchanges is an extremely welcome move for the power market. This will give a fillip to the service levels in the power market, ensure better transparency and uniform prices discovery across exchanges. The move is also expected to bring down the power tariff in the country significantly,” said HPX business development head Naveen Singh.

Also read: IRB Infra May toll collection jumps 20 per cent on continued momentum

Power analysts believe that the decision on market coupling is good for price discovery, but would wait for the consultative paper to comment on the risks to innovation. They also see it as a step towards market based economic dispatch of power (MBED).

“Concept-wise it is good for better price discovery, more competition and more exchanges coming in. I think they want the market coupling to happen first and then once successful they would move towards MBED, where all the discoms and everybody will procure the low cost power irrespective of the power purchase agreements (PPAs) that has been signed,” said Vikram V, vice-president and sector head – corporate ratings, Icra.

PPAs will be there and they will continue to work but on the variable cost front it will utilise the lowest cost producer, Vikram said, adding that the government seems to be working with the key objective to ensure lowest cost producer to the consumers and discoms.