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POWER TRADING
Shilpi Mukherjee
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Introduction
In economic terms, electricity is a commoditycapable of being bought, sold and traded.As defined in Electricity Act 2003, Trading meanspurchase of electricity for resale thereof and theexpression "trade" shall be construedaccordingly.Trading is a licensed and regulated business asper Electricity Act 2003CERC notifies procedures, terms and conditionsfor power trading
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Evolution of Power Market
To meet short term demand the statesresorted to trading of power through bilateraltrading agreements.States resorted to energy banking where insurplus state would supply energy to a deficitstate and in deficit situation vice versa.But when both the states were deficit it gaverise to complications.
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Benefits provided by power
exchangesCommon platform for trade of electricityTransparent mechanism of price discoveryMeeting peak demandOverall Demand Optimization
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Benefits provided by power
exchangesNo need to search for buyers and sellers, thuseliminates search cost.
Sell / Buy all across the nation.No need to negotiate for the prices unlike inBilateral Contracts.
Power exchanges act as counterparty, thus aparticipant need not to assess the risk profileof the other participant
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Services provided by traders
Facilitation to reduce geographical, seasonaland daily gap between demand and supplythereby encouraging optimum use of existingassets.Assured physical delivery based on availabletransmission corridors.
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PROVISIONS IN THEELECTRICITY ACT 2003 FOR
POWER TRADING
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Sectio
n
PROVISION
2(26) "electricity trader" means a person who has been granted a license to
undertake trading in electricity under section 12;
2(71) "trading" means purchase of electricity for resale thereof and the
expression trade shall be construed accordingly;
12 No person shall -a) transmit electricity; or
b) distribute electricity; or
c) undertake trading in electricity,
unless he is authorized to do so by a license issued under section 14, or is
exempt under section 13:
14 Provided also that a distribution licensee shall not require a license to
undertake trading in electricity.
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Collective Transaction
Exchange is a platform on which buyers andsellers gather to trade in a commodity. Thebuyer does not come to know who the selleris and the seller does not come to know whothe buyer is.The buyers and sellers remain anonymous toeach other, so that the bigger players will notbe in a position to influence the smallerplayers. In this a there will a level playing fieldfor all the participants.
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Price and Volume Determination
in an exchange-
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ILLUSTRATION OF CLOSED AUCTION
BIDDING PARTICIPATING SELLERS
Sl No Seller Sale Bid
1 S1 50 MW at Rs 5,500
2 S2 10 MW at Rs 6,000
3 S3 40 MW at Rs 7,000
4 S4 50 MW at Rs 8000
5 S5 50 MW at Rs 9,000
6 S6 50 MW at Rs 10,000
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ILLUSTRATION OF CLOSED AUCTION
BIDDINGSl No Buyer Purchase Bid
1 B1 10 MW at Rs 10,000
2 B2 40 MW at Rs 9,0003 B3 50 MW at Rs 8,000
4 B4 25 MW at Rs 8,000
5 B5 25 MW at Rs 7000
6 B6 50 MW at Rs 60007 B7 50 MW at Rs 5,500
PARTICIPATING BUYERS
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The Sellers
S1S2
S3S4
S5 S6
B1B2
B3 B4
B6B5
B7
The BuyersTrade MatchedSelected Sellers : S1,S2,S3,S4 (partial)Selected Buyers : B1,B2,B3,B4MCP :Rs 8000/MWh Volume: 125 MW
125
50 MW @ Rs
5,500
40 MW @ Rs
7,000
50 MW @ Rs
8,000
50 MW @ Rs9,000
50 MW @ Rs10,000
10 MW @ Rs6,000
10 MW @ Rs10,000
40 MW @ Rs9,000 50 MW @ Rs
8,0a00
25MW@ Rs8,000
25MW@ Rs
7,000
50 MW @ Rs
6,00050 MW @ Rs5,500
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SELECTED SELLERS AND BUYERS
Sl No Seller Cleared quantum
1 S1 50 MW at Rs 8,000
2 S2 10 MW at Rs 8,000
3 S3 40 MW at Rs 8,000
4 S4 25 MW at Rs 8,000
Sl No Buyer Cleared quantum
1 B1 10 MW at Rs 8,0002 B2 40 MW at Rs 8,000
3 B3 50 MW at Rs 8,000
4 B4 25 MW at Rs 8,000
SUCCESSFUL SELLERS
SUCCESSFUL BUYERS
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Factors affecting
electricity pricesEffect of Demand on PriceEffect of ATC & Congestion on prices
Effect of external factors on pricesEffect of UI charges on pricesEffect of holidays on prices
Effect of Weather on Prices
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Sr. No Category of theTrading License Volume of Electricityproposed to be tradedin a year
Net Worth (Rs.in Cr)
1 Category I No limit 50.00
2 Category II Not more than 1500 Millionunits
15.00
3 Category III Not more than 500Million units 5.00
3 Category III Not more than 100Million units
1.00
Categories of Traders
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UI market
Bilateral+IEXtrading market
Long-term market (92%)
4 %5 %
State Sectorgeneration
45 %
Central Sectorgeneration
37 %PvtSectorGeneration
9%
Electricity Market Segments
Short-termmarket (8%)
Bilateral Market (56%)Through Traders
43%
Direct Trading
13 %
UI (39 %) IEX(5%)
Short-term Market
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Effect of Demand on Price
0
5000
10000
15000
20000
25000
30000
35000
40000
0.00
5.00
10.00
15.00
20.00
01-08 May 09-15 May 16-23 May 24-31 May 01-08 Jun 09-15 Jun 16-23 Jun 24-30 Jun
MWh
R s
/ u n
i t
Max MCP(Rs) Av MCP(Rs) Purchase Bid Sale Bid MCV(Mwh)
Sale Bids
Source: IEX
Max MCP(Rs/unit)
Purchase Bids
More is the demand, More is the price
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Growth In Short Term Market
Growth in Short Term Market
0
1500
3000
45006000
7500
9000
10500
FY 04-05 FY 05-06 FY 06-07 FY 07-08 Upto Oct'08
Year
N o o
f T r a n s a c
t i o n s
( U n i t
)
0
5000
10000
1500020000
25000
30000
35000
A p p r o v e
d E
n e r g y
( M U s )
No of Transactions (Unit) Approved Energy (MUs)
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Thank You
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