Spotlight on the spot market: A review of the indian wholesale electricity market

Abstract

The Indian Power Exchanges that started in 2008 have remained highly illiquid with less than 10 % liquidity in the day ahead market and short-term contracts after 14 years of operation. The dominance of long-term (25 year) Power Purchase Agreements (PPA) with coal power plants have stifled the wholesale spot market development and may jeopardize the successful integration of 450 GW renewables being targeted for 2030. The coal PPAs are inflexible with a significant take-or-pay provisions and are also more expensive than renewable generation in many cases. Although there has been a recent effort to bring in renewables in the spot market, it took the form of a separate “green” day ahead market rendering the market fragmented. The focus needs to be brought back to a layered integrated spot market which needs to be the fulcrum of all trade be it renewables, cross border trade and eventually frequency control ancillary services products. While contracts are an essential part of any market, their volume, tenure and prices, however, must be informed by spot prices. If India needs to achieve its 450 GW RE target (by 2030), there must be a reform of the thermal PPA regime to bring this generation into the day ahead and real-time spot markets to form a liquid and efficient marketplace.