The main point regarding Market coupling in the Circular
- The Commission received an overwhelming response on the Staff Paper, with
a total of 127 stakeholders submitting their comments and suggestions. The list of
stakeholders is available on the Commission’s website.- The Commission has examined the comments and suggestions received on
the staff paper. The Commission notes that stakeholders have provided a mixed
view on most of the issues raised in the staff paper. Those in favour of market
coupling have advocated its benefits mainly in terms of improved competition,
increased volumes, lower transaction costs, ease of operation, better services, check
on monopoly, better transmission corridor allocation, integration of cross-border
power markets, and that it will pave the way for reforms, like MBED, SCUC, and the
introduction of financial derivatives. On the other hand, the stakeholders arguing
against market coupling pointed out the disruption that may be caused by market
coupling, the role of power exchanges getting diminished as a bid collecting agency,
the dampening effect on innovation & technology investments, the adverse effect on
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competition, no improvement in transmission infrastructure utilization, the addition of
another layer in the form of Market Coupling Operator (MCO) and the resultant
increase in transaction costs, adverse impact on smaller traders’ businesses,
violation of power exchange licence conditions, etc. Besides, some of the
stakeholders, like PXIL and the World Bank, shared the results of the simulations
done to support the need for market coupling under the prevailing market conditions.- After carefully examining the suggestions received from the stakeholders, the
Commission felt the need for more evidence-based results to decide on the potential
benefits that coupling may accrue to the market participants and the power system
as a whole. Accordingly, the staff of the Commission carried out several simulations
using bid data from power exchanges to study the impact of market coupling on
volume, prices, and economic surplus, as stipulated in PMR 2021. For the purpose
of the analysis, bid data from IEX and PXIL for the Real-Time Market (RTM) for 40
days in 2022-23 was considered where bids, including cleared and uncleared bids,
were available on both trading platforms. The analysis for the Day-Ahead Market
(DAM) pertains to the months of January, February, and March 2023. A brief
summary of the results is as under:
i. The coupling of power exchanges enables the clearing of some uncleared buy
and sell offers. For example, in RTM, there were times when supply and/or
demand bids were received on one exchange but could not be cleared. When
the bids of the two exchanges were coupled, the cheaper sell offers on the
said exchange were cleared and replaced the high-price sell offers of the
other exchange. Additionally, some high value buy offers were also cleared
after coupling. This led to an increase in the economic surplus.
ii. In the instances where coupled MCP was below the uncoupled MCP on the
dominant power exchange, the overall consumer surplus increased. The
maximum increase in volume in RTM was approximately 250 MW. In most
instances, the economic surplus increased by less than 1% in RTM.
iii. In DAM, the coupling of power exchanges led to an increase in economic
surplus by less than 0.013%. However, in certain time blocks, an increase of
up to 3% was also observed. The maximum increase in volume was
approximately 230 MW (3% of that time block), and the maximum decrease in
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volume was 100 MW (2% of that time block). The total increase in volume for
the months of January, February, and March 2023 was ~9 MUs (0.08%
increase). The average MCP also increased by 0.3 paisa/kWh (0.06%), and
volatility was reduced by 0.050 paisa/kWh (0.02%). The number of times the
MCP touched the price cap was observed to remain the same over the
analysis horizon.- Based on the results of simulations for coupling in DAM and RTM, it emerges
that there is a possibility of uncleared bids (buy and sell) getting cleared in a coupled
scenario. However, the overall gains in terms of increase in volume and economic
surplus may not be significant. The peak time blocks witnessed an increase in
economic surplus in a coupled scenario, but over a longer time horizon, the gains
remained insignificant. Further, the impact on MCP and volatility varies across
different time durations depending on the elasticity of demand and supply curves.
The Commission finds these results broadly in conformity with the largely accepted
view that under the prevailing market structure, where one dominant power
exchange holds about 99% market share in DAM and RTM, merely coupling bids of
all the power exchanges will not yield substantial improvement in market outcome.- Notwithstanding the results of the simulations, the exercise undertaken, and
the comments of the stakeholders revealed some insights that the Commission felt
were worth taking forward. The insights were in the form of - the need to increase the
depth of the market, the scope for further optimization of system cost, and the need
to enhance power system reliability and flexibility through appropriate market design.
The Commission feels it imperative to bring in more participation in the market,
which would not only improve supply availability and encourage competition amongst
suppliers but also facilitate a platform for optimizing the resources. While the
coupling of bids in the present market structure marginally contributes towards this,
other alternatives need to be explored in pursuit of increasing market depth, system
and cost optimization and grid reliability.- The current power market is visibly a demand-driven market, as we have
witnessed in the recent past. Thus, to increase the depth, commensurate supply has
to be necessarily brought in to fully utilize the efficiency gains of the market platform.
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Resource adequacy framework is being evolved to ensure the adequacy of supply to
meet demand in all time horizons reliably and at the least cost. But this will take time,
and as such, the Commission feels it is expedient to explore all options to optimally
utilize the existing capacity. Currently, most of the generation is tied up in long-term
purchase agreements. While the efforts to bring these contracts to the market are
underway through various policy and regulatory measures – for instance, by
requiring the generators to bid their un-requisitioned surplus (URS) into the market,
defining transmission allocation principles accordingly - there still remains last mile
scope for optimization after all trading options for a specific time block/duration have
been exhausted
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