Five key features of model market regulations issued by CERC
In India, the power sector is witnessing a rapid transformation with the introduction of new technologies, policies and regulations. The Central Electricity Regulatory Commission (CERC) is the main regulatory body in India that regulates the power sector. CERC has recently released a draft Power Market Regulations on 18 July, 2020, which aims to improve the functioning of power exchanges and introduces the concept of Market Coupling. In this article, we will discuss the five key features of the CERC model market regulation.
- Market Coupling
The draft regulations introduce the concept of Market Coupling, which involves the collection of bids from all power exchanges to discover a uniform market clearing price. The task of market coupling will be assigned to a Market Coupling Operator (MCO), which the regulator will notify later. The main objective of introducing market coupling is to improve price discovery and reduce transmission congestion. The concept of Market Coupling is prevalent in Europe, where different countries are unified through a single market. However, in India, with only two power exchanges and no cross-border electricity trade, introducing another regulatory body can lead to system inefficiencies.
- Reduction in Transmission Congestion
One of the key objectives of the draft regulations is to reduce transmission congestion. According to the report published by CERC, during 2018-19, the actual transacted volume was about 0.92% less than the unconstrained volume due to transmission congestion. The introduction of Market Coupling is expected to reduce transmission congestion and improve the efficiency of the power market.
- Role of Power Exchanges
The role of power exchanges is likely to be reduced to mere bid collection centers with the introduction of Market Coupling. As the Indian Energy Exchange (IEX) holds more than 90% of the total volume of electricity traded, the price discovery is also likely to be similar even with the new regulatory body, which is also the primary objective of introducing MCO.
- Increased Net Worth Requirement
The draft regulations have increased the net worth requirement of an applicant for establishing a power exchange to Rs. 50 crores, which will further debar players from entering the market. The increase in net worth requirement will ensure that only serious players with adequate financial resources enter the market, which will improve the overall functioning of the power market.
- Need for Transparency
The draft regulations lack clarity and ambiguity in certain provisions. The objectives of the regulation are not clearly defined, and more transparency is needed to build a robust market design. The commission has invited comments on the draft by August 7 and has scheduled a virtual public hearing on that day. It is important for stakeholders to provide feedback and suggestions to improve the draft regulations and ensure that the final regulations are effective in achieving their objectives.
The power sector is a crucial sector for the development of any country, and the introduction of new technologies and policies can transform the sector. The draft regulations released by CERC aim to improve the functioning of power exchanges and introduce the concept of Market Coupling. The key features of the draft regulations include market coupling, reduction in transmission congestion, the role of power exchanges, increased net worth requirement, and the need for transparency. The final regulations should ensure that the Indian power market is efficient, transparent, and meets the needs of all stakeholders.