Power Market Design: Choice of model for Indian Power Market International Conference on Power Marke

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Power Market DesignChoice of model for Indian
Power Market International Conference on Power
Market Development in IndiaKanpur April 19-21
2005

• Dr. Per Christer Lund
• Senior Vice President
• Nord Pool Consulting
• Norway

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Agenda

• Introduction
• Overview of Power Exchanges world-wide
• Power market concepts
• Design for an Indian Power Market
• Role of the spot market
• Self-dispatch balance responsibility
• Tariffs
• Congestion management

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Introduction Nord Pool Consulting

• - A specialist consulting firm providing
  strategic and management consulting services
  within the deregulated electricity business
  worldwide

Services
Customers
Infrastructure Market Design
Feasibility Analysis
Market Simulation
IT Implementation
Training Workshops
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Centralized vs. decentralized dispatch

• Centralized dispatch (PJM model)
• the system operator controls the entire market
• schedules based on generator offers demand bids
• Generator bids are unit based (cost-based)
• Bundling of energy price and transmission cost
• Decentralized dispatch (Nordic model)
• The market participants control their own
  schedules
• Portfolio based bids and offers
• Market participants are balance responsible
• Congestion managed by market splitting

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Market Concepts

• Two-market Concept
• A Day-Ahead Spot Market where the price
  represents the electricity energy price.
• A Real Time Market where the price represents the
  systems capability to balance generation and
  consumption in real time. The Real Time Market is
  normally operated by the Transmission System
  Operators.
• Single-market Concept
• One price only that represents the margin of real
  time centralised dispatched contracts.

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Market concept characteristics

• Single-market concept
• Central dispatch of traded contracts
• Often complex price determination
• Trade close to time of operation
• Price determination claimed to be not
  understandable
• Low demand side participation
• Not appropriate for participants to respond on
  prices
• Two-market concept
• Decentralised dispatch of spot contracts
• Centralised dispatch in Real Time Market
• Simple and understandable price determination
  both in spot market and Real Time Market
• Trade close to time of operation
• Appropriate concept for participants to respond
  on prices

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Single-market concept
Bid form
Day of operation
Price /volume bids for each hour Price Bid
price of last unit dispatched in real time Price
Energy price transmission capacity fee
costs of energy losses in transmission Financial
settlement based on metered volumes and prices
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Two-price markets
Day of operation
After day of operation
Prior to day of operation
Calculation of imbalances Sum of national
imbalances is equal to imbalances on
interconnections. Financial settlements imply
normally an net incom for TSO depending on
pricing methodology.
Real time operations Balancing the system based
on bids into the real time balancing
market. Financial settlements imply normally a
net incom for TSO depending on pricing
methodology.
Bids into the spot market A bid is a plan for
how the participant will dispose to the spot
market for the next day at different prices. It
is normally the last market the participant can
trade to balance his scedules and thus
reduce imbalance costs. When the trade is
terminated the system is in a state of predicted
balance between generation and consumption.
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Self-dispatch

• Market participants schedule their own units
• Balance responsibility using DAM to trade into
  balance
• No unit commitment or transmission capability
  verification in DAM
• DAM schedules are not modified by system operator
• Bids are portfolio based

10
Indian electricitysystem

• At Regional Level
• Five Regional Load Dispatch Centers, operated by
  PowerGrid
• A number of Interstate Generators (ISGS)
• Transmission between regions
• At State Level
• 28 states, responsible for generation,
  transmission distribution.
• Effectively Control Areas
• State Load Despatch Centre
• States purchases power from ISGS
• Trade between states facilitated by trading firms
  (PTC, NVVN, others)

NERLDC
NRLDC
ERLDC
WRLDC
SIL
SRLDC
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Indian electricitysystem
NLDC
Interregional Transmission
WRLDC
ERLDC
NERLDC
SRLDC
NRLDC
Market participants
Regional Transmission Grid
ISGS
States
Merchant generator
State Transmission Grid
GenCo1
Load1
IPP
Eligible customer
Captive Generators
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Indian wholesale market

• Wholesale market regional/national level
• States will handle their own market by
  centralized dispatch or other means, and are
  effectively control areas
• Current trading
• Between ISGS and states STU/SEBs
• Between states
• International import/export (Bhutan, Nepal..)
• Later state-imbedded generators/IPPs/loads/others
  
• The states has shares in all the ISGS
• Right to a certain capacity/energy at a
  predetermined tariff
• The RLDCs organizes day-ahead scheduling of the
  ISGS
• The ISGS informs about their available capacity
  for the next day the supply
• The States nominates withdrawal schedules
  according to their shares of available capacities
  the demand
• RLDCs matches supply and demand subject to
  transmission capacities
• Not used capacity can be traded
• Real-time balancing mechanism by the states
  ISGS through the ABT/UI

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Day-ahead scheduling
State control area
Supply
Demand
Interstate generator
100
50 share
100
Bilateral contracts
200 MW
550 MW
50 share
Self generation
RLDC
PTC, NVVN Other trader
State control area
Interstate generator
Demand
Supply
Bilateral sale contracts
50 share
200 MW
50 share
850 MW
Self generation
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UI The balancing mechanism
Target range of operation
Beneficiaries goes for 1. Load shedding 2.
Increase state generation CGS increases Generation
Beneficiaries 1. Increases load 2. Cut state
generation CGS reduces generation
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Punjab SEB
Load 1400MW
Rs/MWh
Draw schedule 400MW
2500
3 states 1/3 shares each
1000
NRLDC/Powergrid
800
400
Singrauli Power station 1,500MW Tariff 1,000
Rs/MWh Final schedule 1,400 MW
Internal supply cost
MW
1500
1000
700
Day-ahead schedules by 5PM
Availability 1,500MW
Delhi Transco Ltd
Total draw Schedule 1,400MW _at_ 1,000 Rs/MWh
Punjab SEB 400 MW
Load 1000MW
Rs/MWh
Draw schedule 300200MW
Delhi Transco 500 MW
Total Despatch Schedule 1,400 MW
1500
Haryana 500 MW
1000
200
300
Bilateral trade by 10PM
Internal supply cost
MW
700
1000
1200
Bilateral Schedule 200MW _at_ 1,100 Rs/MWh
Haryana VPNL
Draw schedule 500MW
Rs/MWh
Load 2,300MW
Internal supply cost
Operating day Haraya overusing 100MW Frequancy
drops to 49HZ Singraguli supplies 100MW UI Price
5,750Rs/MWh
1,550
200
1000
100
800
500
MW
2000
2200
1500
2300
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Settlement
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The role of the spot market

• Promote trade and competition in the wholesale
  electricity market
• Market place for secure, effective and
  non-discriminatory trade of electricity
• Part of the electricity infrastructure
• Helps to obtain balanced schedules day-ahead,
  less burden on UI.
• Transmission congestion management
• Interstate/region trade
• Provide reliable price index
• Price discovery
• Reflect the instantaneous value of the traded
  commodity
• Reference for bilateral contracts
• Instrument for the regulator to monitor the
  market

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Need for a Power Exchange?

• Better utilization of transmission and generation
  resources
• Improve trading of power between surplus and
  deficit states
• Provide price recognition
• Investment signal
• Reference for bilateral contracts
• Tariff revisions
• Instrument to obtain day-ahead balanced schedules
• Encourage IPPs, captive generators to trade on
  wholesale (interstate) level
• Instrument for demand-side response

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Best market model for India?

• Centralized dispatch model (PJM model)?
• Establishment of RLDCs or NLDC with complete
  dispatch control of all generators including
  state generators
• SLDC to give up their dispatch control to NLDC
• Very extensive change of current structures will
  be extremely costly and complex
• De-centralized self-dispatch model?
• Complies with current, hierarchical market
  structure
• Minimal impact on current scheduling and trading
  practices
• Easy to understand, reasonable to implement
• Easy to enhance when adding new participant
  groups
• The Indian electricity industry structure
  suggests that an self-dispatch market model is
  better suited!

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Self-dispatch model main concepts

• Market participants responsible for generation,
  load and trade/contract scheduling
• States continue to be responsible for scheduling
  and balancing their states electricity system
  (including import/export)
• Interstate generators to self-schedule based on
  price signals!
• All market participants are balance responsible
• Sum of own generationimport load export

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Balance Responsibility
Years ahead
Day ahead
Real time
Balanced Schedules
National Indian wholesale market
System Operation - RLDCs
Bilateral Contracts
PX day-ahead market
UI Methodology
System operation
NHPC
NTPC
SEB
Auto Prod
NTPC
Industry
Traders
STU
Industry
PTC
IPPs
IPP
NHPC
Auto Prod
Large Cons.
Retail Cons.
Large Cons.
Retail Cons.
Large Cons.
Industry
Retail Cons.
Retail Cons.
Industry
Industry
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Self-dispatch model main concepts

• Installation of a day-ahead Power Exchange
• Used by the market participants a final
  instrument to trade themselves into balance
• PX co-exists with bilateral contracts
• The RLDCs are not involved in the day-ahead
  market!
• Schedules obtained by bilateral contracts and the
  day-ahead market shall not be modified by the
  RLDCs!
• Inter-regional and intra-regional congestions is
  handled by the PX
• Using Market splitting to relieve congestion

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PX structure

• Two-sided auction model
• Matches bids and offers for each time-block for
  the next day
• Portfolio bids/offers
• Net positions
• Not generator unit based bids
• The PX is not involved in unit commitment
• Transmission congestion on inter-regional and
  intra-regional level is handled by market
  splitting
• PX schedules are binding contracts!

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Bid structure alternative
Punjab SEB
Load 1400MW
Rs/MWh
2500
1000
800
Internal supply cost
MW
1500
1000
700
Delhi Transco Ltd
Load 1000MW
Rs/MWh
1500
Singrauli Power station 1,500MW Marginal cost
1,000 Rs/MWh Normal schedule 1,400 MW Up to
1,500 at price 4,500
1000
Internal supply cost
MW
700
1000
1100
Haryana VPNL
Rs/MWh
Load 2,300MW
Internal supply cost
1,550
1000
800
MW
1500
2300
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Punjab SEB
Load 1400MW
Rs/MWh
Singrauli Power station 1,500MW Marginal cost
1,000 Rs/MWh
Power Exchange
2500
1000
800
400
Internal supply cost
MW
1500
1000
700
Generation schedule 1,500 MW
Delhi Transco Ltd
Load 1000MW
Rs/MWh
1500
1000
300
Internal supply cost
MW
700
1000
1200
Haryana VPNL
Rs/MWh
Load 2,300MW
Market clears at 1,500MW _at_ 1,500 Rs/MWh
Internal supply cost
1,550
800
1000
800
MW
2000
2200
1500
2300
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What about energy tariffs and PPA?

• All energy on the wholesale level transacted
  through the PX!
• This means all ISGS capacity sold at PX clearing
  prices
• States must pay the PX clearing price for their
  ISGS capacity stakes
• There will be a financial settlement (Contract
  for Difference) between the ISGS and states to
  secure the tariff.

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What is a Contract for Difference

• Financial contract for payment/credits based on
  difference between two prices.
• In this case between the PX clearing price and
  the ABT variable tariff.
• Example
• Punjab purchases 400MW from PX at 1,500 600,000
• Punjab has an CfD with Siliguri
• Punjab receives 400(1,500 1,000) 200,000
• Net cost for Punjab 400,000 (which equals their
  current fixed price agreement)

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Financial settlement
Existing ABT arrangement
Difference due to the UI payment/charge
PX and CfD scheme
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Transmission tariffs

• Transmission tariff structure
• The current transmission tariff structure does
  not promote trade across regions
• Point of connection tariffs is an alternative
  tariff structure that promotes trade
• The traders should be indifferent to the location
  of the counterpart

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Current tariff structure
Generator A. Energy price 110/u

• Based on path of contract
• Complex calculations for cross-border
  transmission
• Discriminates trades with large geographical
  distance between parties
• In the example, Generator B has disadvantage,
  even is his price is less than Generator A due to
  high transmission costs.

Buyer.
Ps.1.92/u Ps.7.68/u
Ps.4.03/u Ps.16.12/u
Ps.0.97/u Ps.3.38/u
Ps.1.13/u Ps.4.52/u
Ps.6.09/u Ps.24.36/u
SIL
Ps.3.67/u Ps.14.68/u
Generator B. Energy price 100/u
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Alternative tariff structure
Generator A. Energy price 110/u Connection tariff
4/u

• Based on point of connection
• Each layer of transmission calculates its
  actual cost for system operation, losses,
  balancing etc.
• RLDC calculates the actual cost for the regional
  grid and interconnections Tr.
• SLDC calculates their own cost for operating the
  state level grid Ts
• All end users pay Tr Ts.
• In this example, Gen A has no advantage and must
  compete with Gen B on energy cost only!
• This tariff structure promotes trade.

Buyer. Connection tariff 4/u
Punjab Ts 2/u
North Tr 2/u
SIL
South Tr 5/u
Tamil Nadhu Ts 5/u
Generator B. Energy price 100/u Connection tariff
10/u
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Congestion management

• Transmission congestion management
• Handled day-ahead by market splitting
• Transmission capacities can be allocated by
  implicit or explicit auction
• Auction of transmission rights
• Used for interconnections between national
  markets in Europe and US.
• Physical schedules use-it-or-loose-it
• Secondary auction for not used capacity
• Market splitting
• Resolving congestion in the day-ahead market
• Counter trade
• Resolving congestion in real-time

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Market splitting

• Calculate unconstrained MCP for whole market
• Identify transmission bottlenecks
• Increase price in deficit area
• Increase supply decrease demand
• Decrease price in surplus area
• Decrease supply increase demand
• The TSO will have an income (capacity fee)
• Income Max capacity (Ph Pl)
• Participants have incentive to eliminate this fee
  by investing in transmission capacity

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Price zone North
Price zone NE
National PX
NRLDC
NLDC
NERLDC
Price zone West
Price zone East
WRLDC
ERLDC
SRLDC
Price zone South
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Conclusions

• Establishment of an PX is attractive
• Optimize utilization of transmission capacities
• Optimize utilization of ISGS
• Optimize utilization of state generators
• Provides foundation for demand side response
• Tool for day-ahead system balancing
• Provides price index for bilateral contracts
• Promotes trade and investment
• Establishment of an national PX is feasible
• Based on self-dispatch, centralized dispatch
  unrealistic
• Portfolio based binding contracts
• Compliant with existing market structure and
  practices
• Minimal impact (and cost) on the structures