Power Exchange provides a spot market, mainly day-ahead, for electricity, which like any other market matches demand and supply for each time block, while providing a public price index. It is a neutral platform, which provides the necessary electronic trading platform and associated infrastructure to facilitate buying and selling of electricity by the participants. Also, it is a competitive bidding platform which enables participants to compete with each other to get the commodity at the best possible price and from all possible avenues for exercising their freedom and choice in terms of the products, the market place and time. Power Exchange in no way influences the price determination process, which is dependent on the offers and bids placed by the market participants i.e., the sellers and buyers. Trading through the Power Exchanges is a non-cooperative game. Both the sellers and the buyers place bids on the electronic platform independent of each other. No negotiation is involved in the process and the identity of the player (buyer or seller) is not known to the other participants.
India has progressed fast in the development of Electricity Market in a short span of four years from an almost no organized market situation prior to 2004 to implementation of Multiple Power Exchanges in 2008. In India, Power Exchange is a private sector initiative under the Regulatory oversight of CERC. The Regulator has adopted an approach of light handed regulation while providing an enabling framework for the development of Power Exchange. The objective was to provide operational freedom to the Power Exchange within a given framework and Regulation would be minimal and restricted to requirements essential for preventing derailment of the process. Private entrepreneurship was allowed to play its role so as to facilitate provision of value added and quality service to the customers. The Power Exchanges formulate their own Business Rules, Rules and Bye Laws, subject to the approval of CERC.
Need of a Power Exchange
In market driven economy market forces are contradictory. Buyer wants low price, seller wants otherwise. These conflicting forces determine the correct price of a commodity at a given time. It is thus important that market forces must remain faceless and anonymous. Facelessness and anonymity creates a level field for all players. Today’s power is no more a service, it is a commodity. On an electronic power exchange, buyers and sellers of power from the length and breadth of the country can converge without revealing their identity. For this we need a nationwide Power Exchange to allow the Power Market to be driven by genuine market forces of demand and supply. Along with trans-losses and UI risks, payment uncertainties prevented the true market driven economy in power market.
A Power Exchange wipes off all these issues by: -
- Empowering the Market to discover a uniform market clearing price (MCP) and market clearing volume (MCV).
- Evenly distributing transmission losses at both ends.
- Enabling participants to hedge against UI risks.
- Guaranteeing secure & timely payment to sellers.
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