To address peak power demand, the Indian government has allowed trading of surplus electricity generated from “linkage coal” in the country’s power markets.
What is Coal Linkage?
- Coal linkages are agreements that guarantee a continuous supply of coal from mines to consumers such as power plants, steel, and cement industries.
- Types of coal linkages:
- Long-term linkages: These agreements last several years, offering stability and predictability.
- Short-term linkages: These are shorter-duration agreements that can be adjusted based on immediate needs and market conditions.
Power Markets
- Power markets are systems through which electricity is bought and sold.
- They facilitate the trade of electric power and help in balancing supply and demand.
How Do Power Markets Work?
- In India, power generation units traditionally operate under long-term Power Purchase Agreements (PPAs) that last around 25 years. However, PPAs are becoming less popular due to their inflexibility and capacity lock-in.
- Power markets enable generators to sell surplus power at market prices, addressing short-term fluctuations in supply and demand.
- This is particularly beneficial for renewable energy generators, who can trade excess power instead of curtailing it.
Power Exchanges (PEs) in India
- Power exchanges facilitate the trading of electricity, enabling buyers and sellers to transact efficiently.
- India has three major power exchanges regulated by the Central Electricity Regulatory Commission (CERC):
- Indian Energy Exchange Ltd (IEX), which dominates with over 90% market share.
- Power Exchange India Limited (PXIL)
- Hindustan Power Exchange Ltd (HPX)
Evolution of Power Exchanges
- Power exchanges were first introduced in Europe in 1990-91 and now operate in about 50 countries worldwide.
- The spot market was introduced in India in 2020.
- The Electricity Act of 2003 established the framework for exchange operations in India, with exchanges commencing in 2008.
Key Terms Related to Power Exchanges
- Market Coupling:
- This process matches bids from all power exchanges to discover a uniform market clearing price.
- Introduced in CERC’s Power Market Regulations, 2021.
- Advantages include more efficient price discovery, reduced price disparities across regions, and increased market stability.
- Capacity Markets:
- These are designed to provide long-term stability and security in the power system by preventing a deficit of generation capacities.
- Capacity markets almost completely eliminate electricity price volatility.
- Only a few countries, including the UK, parts of Australia, and South Korea, have developed capacity markets.