Volume 16, Number 1 Article by T N Thakur , V Ranganathan and D Narasimha Rao March, 2004
Electricity Trading and Wholesale Trading :
Moving to bulk supply markets, the forum for most of the regulatory action in the past months, three speakers addressed different aspects of trading and open access. T N Thakur of the Power Trading Corporation outlines, from a trader's perspective, the market requirements to support a liquid wholesale energy market. Transmission system reinforcements are vital in order to support trade. With growing bilateral trade, regulators need to enforce adherence to contractual commitments and schedules. The new open access rules for inter-regional trade are progressive in this regard, and conform to the objectives of the Electricity Act. However, what remains to truly enable an open trading environment are open access and pricing rules for state transmission systems, so that intra-state trade can flourish as well.
Prof Ranganathan of IIM Bangalore outlines the stages of power sector reform, placing the development of markets in context. He warns that in a situation of supply scarcity, competitive markets - namely spot markets - can lead to price increases and volatility, which will be slow to change on account of short-term supply inelasticity. More important is the need for bilateral trade under open access to better exploit cheap, remote hydro and coal fuel resources in northern India. He envisions an environment of managed competition in a bilateral market with regulated (capped) contract prices.
Prof Narasimha Rao of IIM Bangalore analyses the current market rules to put in perspective the benefits of competition. The current market is only a residual, unregulated bilateral market overlaid on a contractually bound, bulk regulated market. As such, the liquidity will remain low unless existing contracts are migrated to the market. Production efficiencies, through regional trade, are limited severely by the inflexible fuel markets. Open access will facilitate capacity expansion, mostly for sale to private distribution companies and industries, but the current rules do not contain sufficient measures to discipline costs thereof. An important benefit of trading, though, is to generate negawatts - avoided supply needs - through better utilisation of existing capacity.
Reprint No 04105f
