12 Jul 2019

The Indian Energy Exchange (IEX) has repeatedly proposed to the Central Electricity Regulatory Commission (CERC) to allow spot trading of renewable energy through a separate window on its platform. While CERC had disapproved the proposal for Green Day Ahead Market  in 2017 citing lack of readiness of the renewable energy market, it has now directed IEX to seek stakeholder comments before it responds to the recent petition on introducing Green Term Ahead Market.

IEX has proposed four different types of contracts – intra-day, day-ahead contingency, daily and weekly. It has made further recommendations on design of such contracts:

  1. 15-minute contracts (instead of hourly contracts for conventional energy) to make up for variability in RE power generation;
  2. No revision in generation schedule;
  3. 15% less generation than scheduled without any penalty;

In the past, CERC has not been too keen on a separate window for RE trading. It has been concerned about market readiness, impact on REC mechanism and market liquidity. Most of the RE capacity is tied in long-term PPAs and there is no investment appetite in new merchant power capacity in the current scenario. Moreover, since revisions in schedule are not allowed in contracts, it is likely that market participation would be further restricted to only solar as wind power tends to have a relatively more uncertain output profile.  

On the brighter side, a trading window will offer a new sales avenue to IPPs and investors struggling with curtailment and PPA renegotiation risks. Open access project developers with shorter PPAs (typically 10 years) and potentially higher default risk would also be keen on this option. On the demand side, C&I consumers as well as states with relatively low renewable sources should be keen on purchasing RE power without the restriction of entering into long-term PPAs. Stricter RPO compliance will further strengthen the case for a market-based mechanism for renewable power.  

Low trading volumes and lack of market depth is a valid concern. However, we believe that growing RE capacity warrants opening up of the market. Lack of alternate offtake options could become a market deterrent in the long-term. Additional infrastructure and operational cost of allowing trading is likely to be minimal. There is potentially a lot to be gained and little to lose.

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