presentation on power markets

8/6/2019 Presentation on Power Markets

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by

Ravindra Choubey,

SBI Capital Markets Ltd.


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Agenday Indian power market

y A brief history/background

y Basic terms- grid, frequency, HVDC, Open access, UI

y ABT

y PLF Era

y Grid failures and black starts

y Supercritical Technology

y Power Tradingy Clearing & Settlement Mechanism

y Congestion Management

y Investors perspective


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Backgroundy Concurrent subject Center & States can make laws

y Multiple States & Jurisdictionsy Single buyer (SEB) model is still in practicey Discoms continue to be controlled by State government

y History:y Political interference in operations, lack of access to funds and paucity of any

incentive to better performance ensured dismal performance of SEBsy Low PLF since 1950s led to central PSUs NTPC, NHPC in 1975y While WB aided CPSUs did ICB for machinery, state generators had to be

contended with local manufacturersy Capacity addition programs have dismal record

y SEBs Continue to be loss making

y High cross-subsidization within States free power to farmersy Control on defualters/Low-paying customers still not doney High inefficiencies in T&D, operations especially collections

y Move from incentive based generation to ABT.

y EA 2003 enacted , NEP 2005 come into effecty Open Access to transmission lines controlled by State Transmission Utilities


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India Power Scenario-Generationy Basic terms- grid, frequency, HVDC, Open access, UI, SLDC, RLDC, NLDC, Over

& Under drawl, merit order dispatch

y ABT: Availability based tariffy

Declared capacityy Scheduled generation (daily)y Demand side management (brown out)y UI rates:

y Frequency basisy Penalties & profitsy

Regulated markety Improvised grid health and stability Frequency single most

important indicator of Grid health.y Freq. rises as generation exceeds demand & drops when demand outstrips supplyy Extreme cases: Under-frequency relays operate to trip lines/Turbines throwout

from pedestal


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Frequency UI Curve

Lower freq. steeper profits Higher Frequency smaller penalties.

The maximum UI values and slopes(incremental UI/freq. change) on eithersides keep changing as per feedback from Consumers & Generators.

Eg. In case of Guj.CS: UI of 701 MW at Rs.3.01/unit works out to Rs.5 Cr/day loss


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Operational Efficiency ofIPPy Scheduling

y Regional level real time inputs from generators & Transmission line datay National level grid power flows controlled by SLDC and NLDC in coordination

with RLDC

y Role of RLDCy responsible for optimum scheduling and despatch of electricity within the

region in accordance with the contracts entered into with the licensees orgenerators in the region.

y monitor real time grid operationsy keep accounts of quantity of electricity transmitted through the regional grid.y exercise supervision and control over the inter-State transmission system.

y Optimised Generation under ABT regime for UI and trading benefitsy Capacity declarationy generation to best avail low frequency benefitsy Fuel stock management (link - tolling arrangements)y Quick load ramp up and ramp down


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Steam Parameters Turbine Heat

Rate Trends in Indian UnitsSL.NO

YEAR STEAM PARAMETER UNIT SIZE (MW) HEAT RATE

(KCAL/KWHR)

1. 1947-50 28 ata , 400 deg C 10 - 15 -

2. 1951-60 60 ata, 482 deg C 30 - 57.5 2470

70 ata 496 deg C to 90ata, 535 deg C

60 - 100} 2370

3. 1961-76

130 ata, 537/537 deg C 110 - 120 2170-2060

4. 1977-82 130 ata, 537/537 deg C 200 / 210(USSR) 2060

5. 1983 150 ata, 537/537 deg C 210 (Siemens) 1985

6. 1984-93 170 ata, 537/537 deg C 500 1980

7 1994 + 170 ata, 537/537 deg C 500 1945

8. 2001 246 ata. 537/566 deg C 660 1900


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SC/USC Technology


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Cost Benefit Analysisy In SC/USC Plants Higher efficiency (about 1% Cycle Efficiency / 3%

reduction of SHR) resulting iny Fuel Savingsy Lower Aux. Power

y Reduced CO2, Lower SOx/NOxy Smaller Boiler /Feed Pump

y Higher capital cost due toy Enhanced metallurgy of boiler & Turbiney Better control systems required to handle higher pressure & temperaturey Technology cost

y Trade off lies aty Better efficiency (important for an expensive fuel mix)y Reduced ash handling costs & space requirement of BTGy Lower variable cost i.e. lower MC (important for trading)y Reliability of supplier over life of asset


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Cost Benefit Analysisy In SC/USC Plants Higher efficiency (about 1% Cycle Efficiency / 3%

reduction of SHR) resulting iny Fuel Savingsy Lower Aux. Power

y Reduced CO2, Lower SOx/NOxy Smaller Boiler /Feed Pump

y Higher capital cost due toy Enhanced metallurgy of boiler & Turbiney Better control systems required to handle higher pressure & temperaturey Technology cost

y Trade off lies aty Better efficiency (important for an expensive fuel mix)y Reduced ash handling costs & space requirement of BTGy Lower variable cost i.e. lower MC (important for trading)y Reliability of supplier over life of asset


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Power Trading

y Demand Management

y Need & evolution

yMechanism

y Regulatory Framework

y Why Power Exchanges


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BASE LOAD

BASE LOAD

Load Curve and Demand Management

Base Load Managed through Long Term PPAs Nuclear & Large Thermal

Seasonal Variations Managed through Short Term trades, by

1) Traders, 2) Bilateral Contracts or 3) Banking Arrangements

Daily Variations Managed through

1)Day ahead Power Exchange or 2) UI Balancing


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Transaction Structure

y Largely tied-up through PPAs

y More than 40 licensed traders in existence now; Largest 5 haveabout 85% of transaction volumes

y Low liquidity in short term markety

Insufficient power left for shortterm trade

y Non-standardization of electricity

trading products

y PXs need to compete with OTC as

well as the peculiar real time

balancing mechanism


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Need & Evolutiony Natural monopoly of transmission system - trading is an artificial market

y Started in response to apparent under utilisation of generation capacitiesacross regions in 2001

y

Allowed in the absence of any specific transmission Open Access frameworky Provided for adequate flexibility in terms of transaction including freedom in

nomination of buyers and sellers for a transaction

Included in the EA 2003 as a licensed activityy Done under the frame work of Short Term Open Access rules

y

Restricts each transaction to an identified pair of buyer-seller through specificnotional path

y Currently Trading margin capped at 4paise/unit. Power to Fix trading marginwas enshrined in EA 2003

y Traders expand profit by putting clause at 2% rebate on timely payment.

y Trading accounts for about 5% of total energy consumption in India now


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Evolution post reforms


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yBilateral contracts:ymutual contracts where buyers and sellers search and negotiate long term andshort termyLarge search costs & information asymmetry as compared to trading

yEA 2003, NEP and various regulatory measures intended towardsyCreating a competitive power marketyIncreasing the number of participants in the sector

yIncreasing the quantity of electricity under tradeyHowever, issues persist

ySystem congestion : Transfer capability Reliability margin; computation ofcongestion chargesy

Complicated operational requirements for scheduling and despatchyComplicated Open Access requirementsyNon-standardized individual contracts for all types of transactions

yPrice and volume information asymmetry

yPower Exchanges as market infrastructure to resolve above issues


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Exampley Type of Market Day Aheady Trading System PXIy Trading Methodology Closed bid double sided Auction through linear interpolation

y Auction Timings 10.00 am to 12.00 noon (Day D)y No. of contracts per day 24 hourly contracts for next day delivery (Day D+1)y Minimum Bid Volume 1 MWy Minimum Volume Quotation Step 1 MWy Minimum Value Quotation Step Rs. 10 per MWh

y Delivery Point Periphery of Regional Transmission System in which the grid-connected exchange entity, is located

y Transmission charges

y 1.RegionalTransmissionSystem:AsPer CERC (Open Access inter-StateTransmission)Regulations,2008.

y 2.StateTransmissionSystem:Aspertheconcerned SERCsRegulations/CERC(Open access)Regulations,2008.

y Transmission Losses Payable in kind from delivery point to its grid connection point.

y Settlement Price(s) The Market Clearing prices of the respective Bid Zones


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TRADE-CLEARING PRICE & VOLUMESellers Qty Price Agg.

SupplyBuyers Qty Price Agg.

Demand

S1 50 2.5 50 B1 200 5 200

S2 150 3 200 B2 50 4.5 250

S3 200 4.5 400 B3 100 4 350S4 150 5 550 B4 200 3 550

S5 300 6 850 B5 400 2.5 950


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Market Clearing mechanism


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Other Power Markets

y Nord Pool, Nordic Power Exchange, world's 1st

y national transmission system operators (TSOs) areresponsible for reliability and balance settlements

y Trades with neighboring countries; Norway, Sweden,Denmark, Finland

y dominated by hydropower (need to sell surplus)

y transmission system linking all 4 provides the basis for

physical electricity exchanges


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Investors Perspectivey Ability to trade

y Prime mover :

y Coal based: CFBC, PC, Supercritical boilers

y Gas based: Open cycle, Combined cycle

y Hydro based: Run of the river, Pumped storage, SEB irrigation/political

issues

y Fuel dependence

y Long term coal linkage Domestic: pit-head, non pit-head

y Domestic Vs Imported fuely Location of plant

y Proximity to load centers, grid separation

y Proximity to HVDC links: transmission bottlenecks


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Market perspective

y Large percentage long term tie up: fixed cost recovery,

Marginal cost pricing

y Past reneges on PPA by IPPs drive down consumer faith

y Equity participation by power trader enhances marketability

Regulatory issues

Use of Section 62 1(a) of EA 2003 by State ERCs to cap prices

for reasons of reasonable prices


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Thank you

presentation on power markets

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