Contracts & Transactions

Bilateral Power Trading Contracts:

Long-term/Medium Term Bilateral Contract market:

In long-term/medium term contract customers, traders, generators and other market players have a choice of entering into contractual arrangements which typically cover long-term/medium term (12 to 25 years/3 months to 3 years) commitments between buyers and sellers of electricity and have a fixed volume over a specified period of time. These contractual agreements are purely financial trade instruments. Typically, these long-term/medium term bilateral contracts are the cornerstone of all electricity trading markets. Alternative mechanisms are mainly developed to cover additional demands, shortages, as a risk management tool, etc.

Short-term Forward Trading Market:

The Short Term Trading market is a market for buying and selling electricity in advance. A forward contract is an agreement to buy electricity from another party at a specified time in the future at a specified price with money changing hands at the future delivery date. These are bilateral physical trades, which mean that two parties such as a generator and a trader may enter into a bilateral contract to deliver electricity at an agreed time in future which may be saying, for the coming winter or the following summer.

In international power markets like UK these types of contracts are used both to manage price risk and speculate against futures prices to avoid the risk of having to buy or sell electricity at the last minute through balancing mechanism or the spot market where prices are very volatile. However, such market has not emerged in current scenario but it holds a significant importance in future of Indian power sector.

Types of Transactions:

Bilateral transactions: A transaction for exchange of energy (MWh) between a specified buyer and a specified seller, directly or through a trading licensee or discovered at Power Exchange through anonymous bidding, from a specified point of injection to a specified point of drawl for a fixed or varying quantum of power (MW) for any time period during a month. In bilateral transactions a PPA is signed between the buyer and seller, which are generally facilitated by a trader for a little margin.

Collective transactions: A set of transactions discovered in power exchange through anonymous, simultaneous competitive bidding by buyers and sellers. In case of collective transactions the electricity is traded through exchanges, by exchange members for a very small margin fixed by commission. Currently India has two exchanges PXIL and IEX.

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