Green Market: A viable & commercial alternative to achieve India’s sustainability goals

The Indian power sector is undergoing a change in terms of generation, transmission and consumption at a fast pace. The market dynamics have never changed this fast at any time in the past.   The country has witnessed 20% CAGR growth in renewable generation since FY’16 while total electricity generation saw 4.3% growth in the same period, indicating that the increase in generation from renewable energy sources has been much higher than the increase from other conventional sources.  We are now the 4th largest country in terms of installed RE capacity (>150 GW capacity) and have set a target of achieving 500 GW of green energy capacity by 2030. This capacity addition is the result of favourable policy measures, friendly regulations and undertaken by policy and regulatory bodies. These include well-defined RPO trajectories at the state and central level, incentives, exemption of intra as well as inter-state transmission and wheeling charges, waivers of cross-subsidy and additional surcharges in the captive/ group captive regime, favourable banking periods etc.  Banking facilities offered to renewable projects by the RE rich states have helped the integration of the intermittent renewable capacities into the grid, primarily for industrial and commercial consumers who are looking for meeting their green goals (voluntary and otherwise). The requirement of Banking emerges because of the temporal difference between customers’ demand curves and seasonally (Daily) variable renewable energy generation. The distribution companies of these RE rich states act as a huge source and sink depending on the requirement and the banked energy and its drawl are accounted for by adjustments on a monthly or annual basis for a small charge to be paid to these Discoms. Banking has helped the RE integration, as, without this facility, the seasonal and daily variations in RE generation would have made it impossible for any commercial agreement to work between RE generators and C&I customers. This would have also posed challenges in transmission planning as well as scheduling.

Market offers viable alternative to States to substitute banking arrangements

With the increasing share of renewable energy and the related system complexities along with commercial and technical issues, in the recent past, many states have proposed to reduce the banking periods or discontinue the facility altogether. For example, the state of Karnataka in Aug’20 issued a proposal to discontinue banking to Solar, Mini- hydel and Wind Projects. When seen from the point of view of financial repercussions, banking adversely impacts the ability of the distribution utilities to utilize the energy markets thus resulting in opportunity loss for Discoms and leading to high power purchase cost which is ultimately and necessarily passed on to the consumers. For instance, the Tamil Nadu Discom (TANGEDCO) has presented loss of ~Rs 1,905 crores per annum due to banking. The majority of Discoms in the country are already under severe financial stress and provisions such as banking are only adding to their burden.

Despite the ability of the Discoms to act as a resource centre to balance the grid, there is an obvious reluctance to offer banking services mainly due to commercial reasons.  Since renewable energy is intermittent and has been granted a “must-run status “, it complicates the function of the system operator to operate the grid within stipulated parameters. There have been instances where Discoms have been forced to back down their cheaper generation sources to accommodate the RE injection and purchase costlier power from the market to return the banked power. Therefore, it becomes evident that the time has now come to substitute banking arrangements with innovative alternate market-based solutions.

India’s power market has proven that the market-based solutions are of immense value to the buyers and sellers, facilitating competitive, transparent, and flexible power procurement with a certainty of scheduled and time-bound payments. This is evident from the data. The Real-Time Market (RTM) commenced operations in June 2020, Green Term Ahead Market (GTAM) in August 2020 and Green Day Ahead Market (GDAM) in October’21. The new market segments have together achieved 29 billion units (BU) volume since June’20 representing around 20% of the total volume of 145 BU traded during the same period on the Exchange. The RTM alone has achieved a trade of over 24 BU of volume since inception.

Green Market

In 2020, the trading of delivery based solar and non-solar energy started on the Exchange under contracts such as Intra-Day, Day-Ahead Contingency, Daily and Weekly which paved the way for Green Term Ahead Market (GTAM) in the country. A total volume of around 4.3BU has been traded in the market since inception on the Exchange with competitive price discovery. For FY22, the average price for solar and non-solar power in the market stands at Rs 3.69 per unit and Rs 4.41 per unit respectively. In a bid to further provide competitiveness in renewable price discovery and facilitate green market penetration, the Green Day Ahead Market (G-DAM) was introduced in October 2021. The conventional power and GDAM now operate in an integrated manner. The Exchange seeks bid for both conventional and renewable energy at the same time through distinct windows and separate price formation takes place. Within three months of operations, GDAM has so far traded 350 million units of electricity. The GTAM & GDAM segments have received excellent responses from the participants as more and more utilities and C&I consumers are now participating in the green market to meet their energy needs thus meeting their RPO requirements in an integrated, flexible, and cost-effective manner.  Since the commencement of the green market – GTAM and GDAM, a cumulative volume of around 4.8 billion units has already been traded.

Way Forward

The electricity and green market now provide a diverse spectrum of market-based products and contracts. Discoms have access to real-time Exchange discovered prices to take optimal buy-sell decisions. The green captive producers can avail open access and sell power through markets when their generation is more than their own consumption instead of banking power with the utility. Similarly, they can buy from the market in periods of need to meet their demand. State utilities have a significant role to play here and must encourage the captive producers and consumers to participate in the pan-India market for meeting their energy requirements. Further, the introduction of new green market segments such as the long-duration green contracts and Contracts for Difference (CfD) will play a key role in ensuring that all the renewable energy generated within the country is dispatched in the most efficient manner. Market-based models such as the CfD mechanism can be used for trading and scheduling of power at the Exchange at market prices with guaranteed revenue to the generator. Further, the growing share of renewable energy in the energy mix underlines the relevance and importance of the power markets more than ever before.

V Subramanian,
Former Secretary, Ministry of New and Renewable Energy,
Government of India