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Power Exchange India Limited

Presentation to APEX

Updates from the Indian Electricity Markets - Introduction to

Environmental Products

New Delhi, March 7, 2011


Updates from Indian Power Sector

Mainstreaming Environmental Products


Indian Power Sector- Policy Evolution


Evolution of Competitive Power Market

Major policies & regulations introduced

The Electricity Act, 2003De-licensing of generation

Development of a multi-buyer multi-seller framework in power

Introduced Trading & Competitive Bidding for procurement of electricity

National Electricity Policy, 2005Measures to promote competition aimed at consumer benefits.

Promote competition for optimal pricing of power

Open Access Regulations, 2008Separation of “transmission ownership” and “system operation”

Universal Open Access to transmission networks

National Action Plan on Climate Change, 2008Promotion of Renewable energy market through power exchanges

Promotion of energy efficiency market through power exchanges

Power Market Regulations, 2010 Providing a regulatory framework for Competitive markets

Guidelines and prudential norms for setting up and operating power exchanges

Guidelines on listing contracts on power exchanges



Institutional capacity augmented

Independence of system operators

Separate transmission ownership from load management functions

To make load dispatch centers financially self-reliant and autonomous

Independence of Regulators at state and national level

Regulate electricity tariff and related matters

Advise Government on formulation of NEP

Promote competition and efficiency in electricity sector

Appellate Tribunal For Electricity

Protection of consumer interest

Formation of Power Exchanges

Provide national level transparent marketplace for electricity transactions

Ministry of Power focused on policy making roles

Creating environment conducive for development of competitive power market

Central Electricity Authority entrusted with planning role for the electricity system


2003 June –enactment of

EA 2003

2006 July – CERC issues staff

paper on PX

2007 February –guidelines on setting

up PX

2008 January –guidelines

for collective

transactions

2008 June -guidelines for scheduling of transactions

on PX

2008 October –

instructions for multi exchange scenario

2010 January –Power Market

Regulations

In transition towards a competitive market structure


Development of Power Exchanges


Indian Power Sector- Commercial Structure


Indian Power SectorCurrent Status

One of the largest interconnected power network in the world

4th largest in Asia and 6th largest in the World in terms of installed capacity

Generation Capacity of 170228 MW, as on 31st

January 2011

Capacity addition of 21441 MW during FY 2010-11

Operating on competitive regime

Energy deficit of about 7.6% and peak demand deficit of 11.1%*

Pre-dominance on fossil fuels, especially coal

Impetus to include Renewable Energy in mainstream

Focus shifting towards efficiency in operations

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01

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8

65%

3%

22%

10%

Sources of Generation

Thermal

Nuclear

Hydro

Renewable


Transaction StructureLargely tied-up through PPAs

Short term bilateral market dominated by 5 players accounting for over 85% volume

Low liquidity in short term market due to

Insufficient power left for short term trade

Non-standardization of electricity trading products

PXs need to compete with OTC as well as the real time balancing mechanism

Ownership structureBoth Central and State Govts have control

Single-buyer model in most States

Supply deficit has led to 19,509 MW of Captives

Poor credit quality of Utilities due to

Heavy “Cross Subsidy” burden

Huge Technical and Commercial Losses

Restrictive policies of State governments in giving “Open Access”

Indian Power Sector – Commercial Structure

50%

32%

18%

Generation Capacity

States Central Sector Private Sector

90.69%

4.43%3.56% 1.32%

Types of Transactions

Long Term PPAs Bilateral Short TermBalancing PXsS

ourc

e: C

EA

Sourc

e: C

ER

C


Growth of Short Term Market

2

2.5

3

3.5

4

4.5

0

5

10

15

20

25

30

35

2007 2008 2009

Qu

an

tum

in B

illio

n U

nit

s

Year

Short term Trade

Quantum in Billion Units

Short term trade as %age of total

The Total Market has grown from 20 TWh in 2007 to more than 30 TWh in 2009

Till third quarter of 2010, it has grown to about 50 TWh

Pro active grid management by system operator

Market acceptance of weekly product

The annual compounded monthly growth in the electricity transacted through exchanges

has been 6.05%, highest amongst all the segments of short term market manifesting the confidence of participants in exchanges


Success of Power Exchanges - Participation

More than 600 participants

Participant profiles

Utilities

Generating Companies

Captive Participants

Industrial Participants

Open access customers

Key Drivers

Simplified Membership process

Competitive Transaction Cost

Enabling provisions of open access in States like TN/Punjab/Rajasthan

Robust Risk Management

Prudent payment mechanism

0

100

200

300

400

500

600

700

Members + Clients

OA Consumers

Increasing Participants at Exchanges

No

. of

Pa

rtic

ipa

nts


Challenges Faced - Transmission Allocation

Infrastructure

5 Electrical Regions, More than 25 Control areas

Transmission constraints across regions

Allocation of Available Transmission Capacity in the following order

Long Term – More than 25 years

Transmission access given for specific seller and buyer

Transmission pricing as a regional socialization

Short Term – Upto 3 months

Transmission pricing through Contract Path Method

Day-Ahead Spot Market – For the next day only

Transmission access for trades through Power Exchanges - Collective transactions

Point of connection tariff – equal price for connection from anywhere in India


Challenges Faced – Transmission Congestion

Congestion management is handled through classical market splitting

In case of congestion, market is split into deficit and surplus markets with flow on

the intervening corridor restricted to that allowed by System Operator

Results in price differential across markets

The congestion revenue (differential price multiplied by volume) is collected by

exchanges and sent to SO on daily basis.

Seasonal Congestion

Congestion on account of transmission constraints

Seasonal localization of demand due to high demand and low availability of power

Congestion in Northern Region during January to March

Congestion in Southern Region during August to December


Main streaming Environmental Products


Mainstreaming Environmental Products Key Driver– National Action Plan on Climate Change

NAPCC – India’s commitment to mitigate carbon emissions

Solar Mission

Energy Efficiency

Sustainable Habitat

Water Mission

Himalayan Ecosystem

Green India

Agriculture

Strategic Climate Change


Mainstreaming Environmental ProductsForms

Renewable Energy Certificates

Energy Efficiency Certificates


Renewable Energy Certificates


Renewable Energy Certificates Enablers

Provision in EA 2003 to promote generation of electricity from

RE sources

National Action Plan on Climate Change

Renewable Purchase Obligations from SERCs

CERC notification dated January 14, 2010


Renewable Energy CertificatesSalient Features

Market based instrument

Provides evidence that a generator has produced a certain quantum of power from a RE

resource which has been consumed

Reflects the environmental attributes of the source of generation

Can therefore be traded in the market to allow entities to meet their Renewable Purchase

Obligations

Distribution of RE resources is not uniform across the country

Location of plants may not be possible in various States

States with higher RE potential may have difficulty in absorbing larges amounts from RE

sources / issues of costlier electricity

Increased flexibility for participants to carry out RE transactions

Reduce transaction costs for RE transactions

Create competition among different RE technologies

REC transaction to happen through power exchanges

First session expected by October 2010


Obligated Entities

Obligated Entities (Transactions through

Power Exchange)

Renewable Energy CertificatesConceptual Framework

RE Generation

Sale at preferential tariff

Sale in REC Framework

(separation of electricity and environmental attribute)

Electricity Component

Distribution Utility at a price not more than average pool price

Third Party sale on mutually agreed

prices

Sale through Power Exchange

Renewable Component (REC)


Renewable Energy CertificatesRegulations – Salient Features

Two type of Entities defined in Regulations:

Eligible Entities (EE) – Generators who can only sell REC’s

Obligated Entities (OE) – Entities having RPO from SERC who can only buy

NLDC would be the Central Agency which would be responsible for

Registration, Issuance, Redemption, Settlement, Repository, etc.

Central Agency would be supported by State Level Agency

Eligible Entity to undergo Accreditation process with State Agency and a

Registration process with Central Agency

Renewable Energy Source would be as declared by MNRE from time to time

1 MWh of Electricity injected would be eligible for 1 RE Certificate

REC would be traded only once - through Power Exchange


Renewable Energy Certificates Eligibility Criteria

RE Generators are eligible for issuance of RECs, ifIt has obtained accreditation

It does not have a PPA for sale at preferential tariff; and

It sells the electricity generated to

Distribution licensee of the area at a price not exceeding the pooled cost of power, or

To any other licensee / OA consumer at a mutually agreed price, or

Through a power exchange at market determined price

Obligated entities are Distribution Utilities

Captive Consumers

Open Access Customers


Energy Efficiency Certificates


Energy Efficiency Certificates Enablers

Provision in Energy Efficiency Act 2001 to promote EnergyEfficiency

National Action Plan on Climate Change through NationalMission on Enhanced Energy Efficiency

Perform, Achieve and Trade Mechanism


Energy Efficiency Certificates Introduction

The "Perform, Achieve and Trade" (PAT) mechanism is the most innovative

and challenging initiative under NMEEE

Scheme to incentivize higher plant efficiencies

Market based mechanism to promote energy efficiency

Currently in development phase, trading expected to commence by 2012

Energy efficiency improvement targets assigned to most energy-intensive

industrial units in the designated sectors

Power, Fertilizer, Chlor-Alkali, Iron & steel, Cement, Textile, Pulp & paper,

Aluminum and Railways

Energy Efficiency targets to be expressed in absolute terms


Energy Efficiency Certificates Main Stages

Goal setting: Specific Energy Consumption (SEC) targets

Plant-wise, depending on level of energy intensity

The target specifies the percentage by which the plant has to improve its energy

intensity from the base value in during compliance period (three years).

Reduction phase: Stipulated time period

The designated consumers (entities) are expected to implement energy efficient

processes and technologies to reduce their energy intensity according to their target.

If the consumers fail to meet their targets, the consumer will have to pay penalties.

Trading phase: Proposed to be on a continuous basis

Entities that reduce SEC beyond target will be credited tradable ESCerts.

ESCerts can be sold to obliged entities who failed to meet their targets.


Energy Efficiency Certificates Conceptual Framework

• Assessment of energy consumption & SEC

• Establishing baseline energy consumption normsBaseline Study

• Setting EE targets

• Defining compliance period Target Setting

• Scheme Participants, Roles and Responsibilities

• Market structure

• Liquidity, tradability and fungibility

• Trading Cycle

Market Design

• Scheme Participants, Roles and Responsibilities

• Implementation & Registration of EE projects

• MVR & Issuance of EE certificates

• Trading & Redemption of EE Certificates

Institutional Design

• Draft regulations governing the over-all PAT Mechanism

• Stakeholder consultation & inputs required before freezing draft regulationsRegulatory Framework

• Final Draft Regulation Regulations

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Energy Efficiency CertificatesProposed Operational Framework


Energy Efficiency CertificatesTransactions through Power Exchange

Energy Efficiency Certificate (ESCert) is a market based instrument

Accounting tool to demonstrate that certain amount of energy has been saved

Industrial units that achieve savings in excess of their target will be provided

the excess savings as ESCerts

Units that underperform can buy these ESCerts to meet their compliance

target requirements

Opens a window for development of energy efficiency market

Achieving Energy Efficiency at least cost

ESCerts to be traded through Power Exchanges, just like RECs

PXIL mandated to develop Market and Institutional Framework for implementation of PAT Mechanism


About UsPromoters and Equity Partners

EQUITY PARTNERS

Central Government Entities State Government Entities Private Sector Entities

PFC LimitedGUVNL JSW Energy Limited

MPPTCL Tata Power

WBSEDCL GMR Energy Limited

PROMOTERS

National Stock Exchange (NSE)

National Commodity and Derivatives Exchange(NCDEX)

PXIL leverages on:- experience of Promoters in running exchanges- experience of State government entities and- the most active private players in the country


About UsProducts and Services

Physical Market

Day Ahead Spot Collective uniform price auction for day ahead delivery

Day Ahead Contingency Bi-lateral discriminatory price auction for contingency

Weekly Bi-lateral discriminatory price forward auction for physical delivery

Environmental Products

Renewable Energy Certificates (REC)

Tradable certificate for environmental attribute of RE generation mandated to be transacted through power exchanges

ESCerts Tradable instrument reflecting energy efficiency efforts proposed to be transacted through power exchanges

Other Services

Training and Capacity Building

• Creation of PM- Center of Excellence• Association with prestigious national and international institutions

Strategic Advisory Issue based advisory focusing on development of self regulating markets in India


THANK YOU

Address POWER EXCHANGE INDIA LIMITED "B" Wing, 3rd Floor, Exchange PlazaBandra Kurla Complex, Bandra (E)Mumbai - 400051, India.

Email [email protected]

Website www.powerexindia.com

Telephone No:Fax No:

+91 22 2653 0500+91 22 2659 8397

Contact us:

mailto:[email protected]

http://www.powerexindia.com/

power exchange india limited - powerexindia.com · goal setting: specific energy consumption (sec)...

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