Market coupling will make multiple power exchanges competitive, says PXIL CEO

Prabhajit Kumar Sarkar: A committee of experts was set up in 2015 to examine the distribution of transmission between power exchanges. This is where the first thinking related to market coupling for the collective market segment was born.

In the collective market segment, which includes the daily market and the real-time market, transactions are conducted through double-sided blind auctions. Here for DAM, during the auction period from 10am to 12pm every day, any individual buyer or seller places their order on the exchanges but cannot see the orders of any other buyer or seller.

Each buyer or seller is guided only by the history of transactions and customs clearance and historical prices. After placing the order, participants have to wait for the auction window to close and thereafter price discovery takes place based on the accumulated orders on each exchange separately.

Once price discovery takes place on each exchange separately, participants are permitted to deliver at that price only and do not have the ability to modify their orders or switch to another exchange.

Now, this double-sided blind auction process must be performed by all exchanges within the same period. This means that price discovery occurs separately on power exchanges with separate order books, resulting in different price discovery.

Additionally, this is not just one price, there are 96 uncovered prices for next day delivery on each exchange – one price for every 15 minute time slot for the next 24 hours. Imagine the complexity for market players with three power exchanges discovering 288 prices!

In addition to dividing the liquidity on the power exchanges and creating different prices, this process also leads to transmission allocation being done separately for each exchange, leading to significant sub-optimal results.

Unlike a planned monopoly like the Nord Pool market, in the Indian context, this separation of the collective segment on different power exchanges leads to substantial inefficiencies in the allocation of transmission capacity. As transmission capacity is a national asset, it is important to make changes in the structure of the electricity market to ensure that transmission capacity is used in the most efficient way possible.

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