Market Based Economic Despatch

September 19, 2022
Posted by: OptimizeIAS Team
Category: DPN Topics

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Market Based Economic Despatch

Subject : Economy

Context:

Centre-States tussle over a centralised market for electricity

Concept:

Centralised power model/Market-Based Economic Dispatch (MBED)

Market-Based Economic Dispatch (MBED) aims centralised scheduling for dispatching the entire annual electricity consumption of around 1,400 billion units.
- Thus the power demand by all states is proposed to be met through a central pool allocating power at the optimal price.
As part of this, an algorithm developed by the National Load Dispatch Centre called the Security Constrained Economic Dispatch (SCED), which is aimed at assisting regulators in making informed calls on scheduling decisions on a nationwide basis.
MBED aims to establish a uniform pricing framework that prioritizes the least cost and most efficient generators.
The MBED model is seen as a reduction in relative autonomy of states in managing their electricity sector
- Discoms (distribution companies that are mostly state-owned) entirely dependent on the centralised mandatory market pool requirements.

Electricity sector:

Power is in the Concurrent List of the Constitution.
The electricity grid is divided into state-wise autonomous control areas managed by the State Load Dispatch Centres (SLDCs), which in turn are supervised by Regional Load Dispatch Centres (RLDCs) and the National Load Dispatch Centre (NLDC).
Each control area is responsible in real time for balancing its demand with generation resources.
- Currently, Power distribution companies source power from available sources within the states, invariably ending with a higher energy cost.
- The MBED model proposes to change this by putting in place a central market operator to dispatch the inter-state as well as intra-state generation plants and narrow the multiple options currently available under the voluntary market design needing to buy or sell power in the real-time market.
India has a diversified electricity market ranging from long-term power purchase agreements (PPAs), cross border PPAs, short and medium term bilaterals, day-ahead power exchange, and a real-time online market.
- A major percentage of the installed power capacity –over 87 percent – is tied up under long term PPAs of around 25 years and remaining through power exchanges and the remaining through short-term and medium-term bilateral deals.
- At present, each control area or state follows merit-order dispatch (cheapest power dispatched first) from the basket of intra-state and inter-state resources and buys or sells on the day-ahead power exchange.
- The schedules under long-term PPAs can be revised, but not for the power traded at the day-ahead power exchange.
- The un-tied generators in the private sector scout for buyers in the bilateral market as well as on the power exchanges on a voluntary basis currently.