• For dispatching India’s total annual energy demand of 1,400 billion units, the MBED suggests a centralised scheduling scheme.
• This is consistent with the ‘One Nation, One Grid, One Frequency, One Price’ formula proposed by the Centre.
• Given that power is a concurrent topic, with the right to legislation shared by both the Centre and the states, they remain irreconcilable.
• For many years, power distribution has been based on a decentralised model, which has been reinforced by the Electricity Act of 2003 and subsequent changes.
• The planned MBED successfully undermines state legislative authorities.
• The proposed market design is expected to have the following impact on the power sector:
  • Lower electricity purchase expenses: With a centralised pool of generating and demand options, gencos will be driven to become more cost-effective or close down, cutting India’s overall variable cost of electricity.
  • Increased use of renewable energy: Renewable energy is likely to be curtailed at a lower rate when electricity is planned and dispatched over a greater balancing zone.

• Violated existing acts:

  

  • The mechanism’s centralised character violates the restrictions of the Electricity Act of 2003 and the Indian Contract Act of 1872.
• Validity of the scheme:
  • More clarity is also required on the validity of the scheme’s planned Bilateral Contract Settlement (BCS) mechanism for refunding the difference between the Market Clearing Price and the contract price in order to maintain the PPA rates.
• Impact on the relative autonomy of states:
  • The MBED model is believed to have an adverse impact on the relative autonomy of states in managing their energy sector, including their own producing stations, and to make the discoms completely reliant on the centralised mandated market pool requirements.
  • There are concerns that this may lose states of their ability to determine their own power needs while regulating seasonal and local demand fluctuations.
• Contradicts growing market trends:
  • The technique is projected to reduce market competition, inhibiting efficiency and innovation.
  • This also contradicts growing market trends, such as the rising penetration of renewable energy and electric cars, which will necessitate decentralised markets and voluntary pools for successful operation.
• Pan-India visibility:
  • The electricity market in India is diverse, including long-term power purchase agreements (PPAs), cross-border PPAs, short and medium-term bilaterals, day-ahead power exchange, and a real-time online market.
  • Approximately 87% of installed electricity is locked up in long-term PPAs, with the remainder traded in power markets.
  • At the moment, each control area or state uses merit-order dispatch (the cheapest electricity is dispatched first) from a basket of intra-state and inter-state resources and buys or sells on the day-ahead power market.
  • Schedules in long-term PPAs can be changed.
  • However, the MBED model would not provide pan-India visibility of available marketable power on a daily basis on the power exchange.
• Impact on the power supply in key cities:
  • Some power stations, such as Trombay TPS in Mumbai or the Dadri TPS in the NCR region, are crucial for the security of supply to key cities like Mumbai and Delhi, as well as for islanding operations in the case of a grid breakdown.
  • Given the mandated pooling clause, the vital status of these power plants may be called into doubt.

Way Ahead

• Instead of pursuing total centralization, initiatives to strengthen the existing voluntary pool-based marketplaces should be examined.
• A suitable regulatory framework for discoms and gencos to schedule transactions through the market might be developed.
• States can be encouraged to provide their electricity in the open market on a ‘voluntary’ basis, providing more capacity and liquidity to the markets. This will assist India in transitioning away from long-term PPAs, deepening electricity markets, and improving efficiency/flexibility.