CERC to initiate appointment of market coupler

  • June 23, 2023
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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CERC to initiate appointment of market coupler

Subject : Economy

Section: Infrastructure

Context: Government has recently asked the Central Electricity Regulatory Commission (CERC) to initiate the process for appointment of a market coupler.

Key Points:

  • Market coupler is a centralised body set up to discover a single price that will be applicable to all the different exchanges. The coupler uses the buy and sell bids data received from each of the exchanges and arrive at a common price using an algorithm.
  • At present there are three power exchanges operating in India with each having their own market clearing prices (MCP) for each product, such as day-ahead market (DAM) or the real-time market (RTM)
  • With the appointment of a coupler, one single market clearing price (MCP),will be applicable for each product.
  • The objective of having a coupler is to set up a wholesale power market in India by the name of market based economic dispatch (MBED).
  • At present the least cost dispatch assignment is done by the Grid Controller of India using a security constrained economic dispatch (SCED).
Market based economic dispatch (MBED)

  • Under MBED, all buyers and sellers of power make a bid and a MCP is determined. All generators (power producers) having quoted bid below the MCP would be allowed to dispatch power.
  • MBED would override the power purchase agreements (PPAs) held by the respective distribution companies

Benefits:

  • The relatively inefficient generators would be left out since the price they would have quoted would be above the MCP. Thus Demand would be met in the least-cost fashion.
  • Would allow surplus power to be used in areas with a deficit.
  • Power plants will invest to bring down per unit cost.

Security Constrained Economic Dispatch (SCED)

  • SCED is a power system dispatch optimization technique used to allocate electricity generation to meet load demand while ensuring the stability and security of the system.
  • The least-cost combination is arrived at using a mathematical model to generate the most economic generation dispatch taking into account key system operation constraints
  • This is done by the intervention of the load dispatcher, the Grid Controller of India.

Problems with the idea:

  • Problem of legacy PPAs:
    • PPA’s are owned by the Discoms, so how will the existing PPA’s be over-ridden
    • States with costlier PPA’s will get left out as those with cheaper PPA get preference in supply
    • how will the state generating companies be forced to participate in MBED, as power comes under the Concurrent List of the Schedule-VII of the constitution.
  • Only Fixed cost prices:
    • The bidding system only covers the operational cost, so there won’t be any payment for fixed costs.
    • Power plants will not have enough revenue to set up new capacity.
    • The bidding system allows for volatility in pricing, this can be problematic during some times of the year when the demand for power is relatively low compared to supply.
  • Limited Exchange coverage:
    • Currently only about 8% of the power generated in the country is traded in the exchanges (compared to > 20% in western countries).
    • It would be better to first increase the depth of our electricity exchanges before exposing the system to operational risks involved in moving over to a completely new regime.
  • Role of Electricity exchanges:
    • With a market coupler the existing electricity exchanges will not have any purpose.
    • This will discourage any innovation that they may take in terms of newer products.
    • Hinder efforts of market development which is one of the roles of the exchanges, as each region may have specific needs and a single price may not be appropriate.
CERC to initiate appointment of market coupler economy