Power system Planning (21EE721)

Demand-Side Planning
Demand Response (DR) can significantly reduce the peak price and, in general, free up one MW of
electricity for each MW of reduced consumption. Therefore, demand response which targets power
reduction(measured in MW) is distinct from energy efficiency which targets energy conservation (measured
in MWh).

➢ Reduces consumer energy bills .

➢ Reduces the need for power plant, transmission, and distribution expansion
➢ Can reduce maintenance and equipment placement costs
➢ Reduces emissions that contribute to national and international environmental problems
The National Power Policy dictates that energy conservation and Demand-Side Management (DSM) are to
be accorded high priority. The role of Energy Services Companies (ESCOs) needs to been larged. Effective
coordination of and demand response and energy efficiency by policymakers, power utilities, and third-
party energy-service companies' program providers will be necessary to increase the effectiveness and
utilisation of energy-management resources

5.1 Demand Response

DR should be considered one of the resources during the planning stage. Demand Response Planning
(DRP) can be defined as a program established to motivate changes in electric use by end-use consumers
in response to changes in the price of electricity over time or to give incentive payments designed to induce
lower electricity use at times of high market prices or when grid reliability is jeopardized, Regulatory
framework also needs to be in place for implementation of demand-response strategies. Consumer
awareness and maintaining transparency with them must be a priority to win their confidence and ensure
acceptance of the demand-response programs. The electrical distribution network must be strengthened to
ensure reliability in operations. Common examples of demand response include ability of the industry to
change their production patterns, without suffering a loss of revenue and jeopardising economy of overall
operations, such that the electricity consumption can be reduced during hours of need of the grid. DR can
be used to relieve congestion or overload condition on the distribution network. DR can be applied to
support consumers fed from a particular distribution node by relieving overload on a feeder of the
distribution system without incurring the cost of dispatching a DR event across a whole transmission area.
DR is a vital improvement against load-shedding practice adopted currently to reduce the excessive power
demand in India.

Fig 5.1. Demand-response planning

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5.1.1 Demand-Response Categories

1. Voluntary Demand Response

Participant consumers are notified of the need for demand clll1ailment and can select whether or not to
curtail without commitment in advance. They must offer in specified curtailment proposals. Once offers
are accepted, participants arc obligated to curtail demand as proposed.
2. Contractual Demand Response
Once participant consumers have qualified for the DR programmed, they are obligated to curtail their
demand on execution of the trigger signal. Participant consumers receive an availability payment for
committed MWs and hours for the DR programmed; they must be consuming in order to receive
payments.

5.1.2 Types of Demand Response

The following are three main types of DR and each one addresses critical system needs

1. Emergency demand response is used to mitigate the potential for black-outs or brown-outs during
times when demand threatens to exceed supply resources. This typically occurs on days of extreme
hot temperatures when agriculture load for irrigation and air conditioning are causing greater demand
on the grid.
2. Economic demand response is employed by utilities to avoid the significantly higher costs of
producing energy during peak demand times of the day that is associated with ramping up "peaking"
power plants to meet higher than expected demand.
3. Ancillary service demand response is used to support the transmission of electricity to loads in a
manner consistent with reliability requirements imposed on utility companies by Central or State
Electricity Regulatory Commissions.

Resource types include distributed generation, dispatchable load, storage, -and other resources that are
capable of supporting a net change in grid-supplied power. For example, demand-response schemes are
implemented with large and small industrial, commercial, as well as residential consumers, often through
the use of dedicated control systems to shed loads in response to a request by the independent power-system
operator. In India, demand response is an essential summer resource as there is peak shortage in this season.
Also, a year-round resource, demand response-will be available 10 reduce pressure on _the grid today and
in the future, while empowering consumers to make choices about their energy consumption. Demand
response. can reduce costs and enhance system cfficic11cy. Processes or specific equipment (lights,
manufacturing or copy machines, air conditioning, etc.) are reduced according to a consumer’s pre-planned
load-prioritisation scheme when specifically instructed to curtail the load. An alternative 10 reducing load
at a facility is using onsite generation of electricity to supplement the power from the grid.

5.2 Demand – Response Programmes

1. Advanced Meter Infrastructure (AMI)/Smart Metering Systems
This provides significant platforms for engaging consumer response to extraordinary demand-response
events. A building/home energy-management system can potentially enable DR applications for residential
consumers. Disconnection of load is based on advance agreement between the utility and consumer.

2. Peak-hour Restrictions
Consumers receive a discounted rate for agreeing to reduce load on request during peak hours.
Interruptible/Curtailable (I/C) Loads Curtailment options integrated into retail tariffs provide a rate discount

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or bill credit for agreeing 10 loading system contingencies. Penalties may be assessed for failure to curtail
This programme is to large industrial or commercial customers.

3. Off-day Restrictions
Consumer receive incentive payments for one day off in a staggered manner 10 industrial-consumer load
reductions when needed to ensure reliability.

4. Buyback Programmes
Consulters offer bid to curtail load when wholesale market prices are high. This is mainly offered to 1
customers (1 MW and over)

5. Power Market Ancillary Services

To support of the electric power ancillary services, large consumers receive payments from a system
operator, POSOCO for committing to curtail load when needed (as per the agreement).

6. Time Of Use (TOU) Pridng

These arc rates with fixed price blocks that differ by time off day.

7. Critical Peak Pridng (CPP)

Rates include pre-specified, extra-high rate that is triggered by the utility and is in effect fora limited number
of hours.

8. Real-Time Pridng (RTP)

Rates that vary continually (typically hourly) in response to wholesale market prices. Consumers are
typically nullified of RTP paces in a day-ahead or hour-ahead basis.

9. Development of Renewable/Distributed Generation/Co-Generation

Packaged co-generation plants have potential applications in large buildings such as hospitals hotels was
well as mudstones, etc. '
Distributed Energy Resources (DER) like Distributed Generation (DG}, storage, and Renewable
Ener Resources (RES) are demand-response resources. Distributed Energy Resources (DERr) refer to
an energy source located along the distribution system that can produce electricity in coordination
fashion supply or areneids. Examples of DER include local battery storage, back-up generators and plug-
in electric vehicles.

5.3 Demand– Response Technologies

Demand-response technologies facilitate-communications with consumers ·and/or control air-
conditioning.

1. End-User Interfaces.

End-user interfaces refer to the parts of software systems or applications with which users directly interact.
These interfaces are designed to be intuitive, user-friendly, and efficient, enabling users to complete tasks
and achieve their goals effectively.

2. load-Control Devices

Load-control devices are systems or components used to manage and regulate electrical loads to optimize
energy consumption, enhance system efficiency, and ensure the stability of power systems. These devices
are essential in various applications, including residential, commercial, and industrial settings.

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3. AMI
AMI is increasingly being used with demand response, because it enable 60th utilities and end-users to
have more robust data about loads, energy usage; and electricity pricing

5.4 Energy Efficiency

Energy-efficiency programmes should be co11sidered as one of the resources during the planning stage.
Energy efficiency is the least expensive course of action, as the power industry can take given the current
economic and environment situation. Energy-efficiency savings (kWh) made are equal to a capacity of 1.3
times kWh of the generation plant.

Fig 5.2. Energy-efficiency programs

The ISO 5000I International Standard for energy management enables power utilities to establish the
consumption. Implementation of this standard is intended to lead to reduction in greenhouse-gas emissions,
energy cost, and other related environmental impacts, through systematic management of energy. This
international standard is based on the Plan-Do-Check-Act continual improvement framework and
incorporates energy management into everyday organisational practices. Thus, energy-efficiency
programmes offer huge potential for both lowering system-wide electricity costs and reducing consumers'
electricity bills. Tuer is large scope to reduce transmission and distribution losses to optimum value. As per
the Energy Conservation Act 2001, the Bureau of Energy Efficiency [2) has been set up to estimate the
energy-conservation DSM potential estimates along with cost estimates for planning purposes of the
National Electricity Plan. Conservation and efficiency improvements will contribute to demand reduction
and parenthetically reduce the need for new generation and system capacity additions. The National Power
Policy dictates that energy conservation and demand-side management (DSM) are to be accorded high
priority. The Central Government has already created the National Mission for Enhanced Energy Efficiency
(NMEEE).

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5.4.1 Low-hanging fruit-Energy Efficiency

Energy efficiency is the low-hanging fruit. energy efficiency means using less energy to accomplish the
same task

1. Theft of Energy

Theft of energy exists in almost all power utilities in the world. In the USA, it is estimated as 2% of electric
energy generated. In Australia, it is 1%. In India, the theft s around 15%. Theft occurs every moment. As
per the Energy Conservation Act 200I, Section 18, the state government can mandatorily prescribe LED,
solar geysers, and green-building provisions. Implementation requires marketing, such as advertising on
bills and inserts, and focused-group meetings as in case of the industrial sector, to make information about
energy efficiency available to consumers. The key programme elements are typically brochures or booklets
and seminars.

Fig 5.3. Typical daily load hours of theft of power

Primary and secondary school education curriculum in the school education should be provided with
energy- efficiently topics. Awareness regarding energy conservation should be created in public through
media (press, TV, _radio, theatre, exhibitions, consumer feedback, etc.). Consumer engagement through
mobile phone, metals and AMR/smart meter hold enormous energy saving potential. AMR (automated
meter reading) gives energy data.

2. Monitoring and Evaluation

A detailed benefit cost analysis includes identifying the avoided supply cost for the utility vis-a-vis the
total programme cost for the utilities and benefits to the consumers including the reduced bills or
incentives to the end-users. For example, for a home air cooler, a conventional centrifugal pump
consumes about 80-85 W and for the same cooler, a submersible pump consumes about 10-12 W only.
In addition to its economic benefits, energy efficiency offers a variety of benefits to utilities, their
consumers, and society in general. Optimum energy efficiency is the efficiency at which no further
improvement in energy efficiency is beneficial. Money spent on energy efficiency is many times less than
laying the new power system of generation, transmission, and distribution.

a) Energy efficiency can help reduce the risks associated with fossil fuels and their inherently
unstable price and supply characteristics.
b) Energy efficiency can improve the overall reliability of the electricity system. First, efficiency
programmes can have substantial impact on peak demand during those times when reliability is
most at risk. Second, by slowing the rate of growth of electricity peak and energy demands,

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energy efficiency can provide utilities and generation companies more time and flexibility to
respond to changing market conditions.
c) efficiency results in less electricity generation, and thus less pollution. If Energy, conservation
Building Codes (ECBC) are followed for energy conservation in buildings, there is saving from
25 to 50% with a payback period of I to 4 years. Examples include lightbulbs that provide more
illumination while using less power than traditional incandescent bulbs or refrigerators that store
and cool more food while using less electricity.
d) The adoption of flat rate pricing or free power for agricultural power is a cause for inefficiency in
the agriculture sector. Under this system, a fringes free power or pays a fixed low price per
horsepower per month for electricity. Therefore, the marginal cost of pumping water is zero. This
le ds to energy wastage, o er-pumping, and inefficient selection of irrigation pump sets/crops.
Flat-rate pumping also masks the true cost of power to farmers. It has been observed that a pump
with present average actual efficiency of 30-35% in the field can be improved to have an
achievable efficiency of 70%. A motor with present average actual efficiency of 65, 75% in the
field can be improved to have an achievable efficiency of 88%. A pump set with piping with
present average actual efficiency of 27% in the field can be improved to have an achievable
efficiency of 60%.
e) Efficiency measures cost significantly less than generating, transmitting, and distributing
electricity. Most of the efficiency measures listed above can be installed for a cost of Rs 0.5/kWh
to Rs 2/kWh, while electricity generation, transmission, and distribution can cost in the range of
Rs 3/kWh lo Rs 7/kWh, and even more depending upon the location and time of day.
f) General information programmes should inform consumers about generic energy-efficiency
options.
5.4.2 Optimum Efficiency
1. The following are basic principles for achieving optimum efficiency.

2. Go on increasing system energy efficiency until the cost of saved energy reaches the cost of supplying
and delivering electricity.

3. An optimal level of network losses is reached when the cost of further reduction would exceed the cost
of supplying the losses.

Least-cost planning puts investments in energy supply and energy efficiency on an equal footing. It refers
toa method of energy planning that incorporates an end-use analysis to ascertain the least expensive means
of meeting energy needs, considering all options, on both the demand and supply sides. Thus, where it is
cheaper to save electricity than to produce it, or where it is cheaper to invest in indigenous renewable than
buy imported oil/coal, those options are chosen. The goal of this planning methods provide he desired
services at the lowest possible cost. This may sometimes include an attempt to include environmental and
social costs, that are difficult to quantify but should not be ignored, in the total costs of an energy option

5.4.3 Energy-Service Companies (ESCOs)

Fig 5.4 ESCO contractual arrangement

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An energy-service company is a company that specialises in undertaking energy- efficiency measures under
a contractual arrangement as shown in Fig5.4 ESCOs share the value of energy savings with their
consumers. Delivery of energy-efficiency services through ESCOs has been identified as one of the thrust
areas under the Energy Conservation Act 2001. The Bureau of Energy Efficiency BEE) under the Ministry
of Power, Government of India, has been entrusted with the task of building capacity for the growth and
registration of ESCOs. The payment agreement generally is such that the ESCO is paid only if savings are
realised. Some of the ESCOs in India are-DSCL Energy Services Ltd., New Delhi; Tata Honeywell Ltd.,
Pune; ABB Ltd., New Delhi; Kirloskar Brothers Ltd., Mumbai; Saket [Link]. ,Ahmedabad; SEE Tech
Solution Pvt. Ltd.

5.4.4 Life Time Cost

Energy-efficient equipment tends to have a higher first cost but are. Cost-effective over their lifetime.
Consumers should be made aware and encouraged to think in terms of costs of operating the energy-
efficient equipment over the course of its lifetime. For example, a typical Chinese refrigerator consumes
365 kWh per year, whereas a similarly sized South Korean model consumes 240 kWh and a Danish one
needs less than I00 kWh. The economy may be determined by the lifecycle costs.

5.5 Energy - Economical Products

All materials arc froze energy. Energy consumed in a plant is incidental to whether we make or buy material.
An overview of energy needs of a product from raw material to end product is useful to evaluate in social
terms. The total waste-control approach is more relevant. By preventing wastage in material and energy, all
of us are getting to be more aware of the need to avoid energy wastage and improve the
effectiveness/efficiency of energy utilisation in the industrial processes. In a society, minimum clean norms
be cultured such as the following:
1. Do not make the river dirty' instead of 'Cleaning the Rivers' mission. 'Cleaning the Rivers' mission
will become an industry as, for example, the case of The Ganga cleaning project. Keep cleanness
instead of cleanliness.
2. Minimise superfluous rubbish instead of creating 'Swachh Bharat Abhiyan'.
3. Minimise use of electricity to reduce power-system losses, save the environment, and power-
system capacity.
Matter and energy [Link], not only in modem physics but also in the industry. For example,
each piece of aluminium or steel is a frozen form of energy. Material used in industry has already an energy
input built into it. One should look at the energy content of products and less energy-intensive materials
should be promoted to make more energy-effective products. As an example, the energy content of some
materials. Energy audits should include the total energy content of material input into the product, i.e.,
energy industry provides an insight into this approach. A total review of weight/strength needs was
undertaken through the Finite Element Analysis (FEA) technique. The US aircraft industry routinely uses
FEA since the '60s and now it is a routine procedure with all auto-makers to replace heavy metals with
plastics and lightweight aluminium for auto parts. They also developed the carbo-then is process-a low-
energy process for aluminium production. The results were better HP/weight ratio in automobile and
improved fuel efficiency for the consumer, resulting in lower fuel needs both in the product and process of
manufacture as well as in the lifecycle energy costs of the automobile to society. Significantly lower total
energy cost to society is a more relevant objective than segmented energy-saving approaches.

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5.6 Efficient – Energy Users

5.6.1 lighting.

Today, in India, lighting consumes about 18%of the overall electrical consumption. For energy
conservation, switching off lights is not the only solution, as this could result in loss of production,
reduction inefficiency, increase in accidents and crime rate, lowering environmental standards, etc.

1. Good Lighting System

Selection of a light source in itself is the primary means to reduce energy consumption for lighting. the
average luminous efficiency and average working life of various light sources.

2. Intelligent Lighting

Lighting efficiency and lighting quality is important. Lighting design improves a value-added resource.
Reducing the owner's operation costs may be a crucial part of the design decisions, and these measures
often benefit users aesthetically and practically. Lifecycle cost analysis compares the return on initial
investment of different techniques or technologies. There are many ways to reduce costs:

a) Improving the reflectance of surfaces (e.g., choosing lighter colours for walls and carpets or
replacing dingy ceiling tiles) can help reduce lighting equipment and operation costs.
b) Selective spotlighting is often the key to retail sales.
c) Integrating daylight with electric lighting saves energy and provides a satisfying connection to the

5.6.2 Agriculture Pumpsets

1. Pump-efficiency Improvement
Apt resent (2015), there are about 19.7 million electric tubewells consuming about 30% of the total
energy 'consumptions in the country. This consumption could be reduced to almost 15% if strictly the
pump system for act be well is modernised. Further saving could be afforded if they are placed al the
farther command area of the farm

2. Electricity Saving in Tubules Tubewell Siting.

(a) Spacing of Tubewells Taking the typical case of Punjab, there were about 1.25 million electricity run
tubewells (2015) irrigating about 0.55 million hectares of agriculture land. Further electrification of
tubewells was likely10 reach saturation point and resulting in decrease in the distance between adjacent
tube well son account of fragmentations of land holdings, mainly due to family partitions, e,tc. The
proximity of tubewells reduced, affecting the water output when tubewells were run simultaneously while
electricity consumption remained almost the same. Punjab is already facing reduced water output of
tubewells when run simultaneously by most consumers during the paddy season, and the problem is
likely to become acute in future. To maintain optimum tubewell efficiency, there is a need to prescribe
minimum distance between adjacent tubewells, which depends upon the nature of water-bearing strata of
soil, and the discharge and the depth of each tubewell. New electric tubewell connections should not be
sanctioned by power utility if a tubewell already exists within the prescribed limits of minimum distance
from the new proposed tubewell site. The Punjab Agricultural University, Ludhiana, had made some
studies in case of various types of strata and for shallow and deep tubewells in Punjab, and they have
given the following recommendations

(b) Location of the Tubewell As far as possible, it is beneficial to late the tubewell near the Centre of
the tubewell-command area. The farmers generally use-The kutcha channel for carrying water from the
tubewell tatous field points. There are water losses in the channel due to seepage. According to studies

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in Punjab average seepage losses all present are of the order of 27% per tubewell, based on the average
length of Kipchak channel The total the channel are directly proportional to the length of the channel
through which water has to travel i.e., longer the channel, higher the seepage water losses. Besides
channel Length, other facts which contribute towards seepage losses are the type of soil, shape and size
of the· channel, and the lime for which the water remains in contact with the soil surface. By reducing
the length of the channel! through which the water has to travel, one can greatly reduce the seepage
losses. This is possible when one installs the tube well at the appropriate central location. To illustrate
this point, a comparison of two cases when the tubewells located m the centre and when it is located in
the comer for a 4-acre farm has been illustrated here.

Fig 5.5 Effect of location of tubewell in the farm.

5.6.3 Efficient Energy Use in Motors

1. Efficiency
Motors area fairly efficient device at rated load. In general, three-phase motors are more efficient than
single- phase motors and larger motors are more efficient than smaller ones. There is only minor
improvement in efficiency above 20 hp and the knee of the efficiency versus size curve occurs at about 10-
15 hp. The peak efficiency of a motor occurs at full load with about 100% (of nameplate) balanced voltage
at its terminals. However, as load is reduced from the nameplate, the optimum efficiency occurs at a lower
voltage. Motor voltage unbalance will increase motor losses due to a negative sequence voltage that causes
a rotating magnetic field in the opposite direction of motor rotation. A 2% voltage unbalance will increase
losses by 8%, a 3% unbalance will increase losses by 25%, and a 5% unbalance will increase losses by 50%
2. Oversized Motors
Oversized motors have higher standing current, lo er running factors and higher capital cost. Large numbers
of motors have been observed to be running at loads els below the full-load capacity. If a motor operates at
a reduced load then its efficiency starts to fall, first slowly and then sharply at-lower loads
3. Soft Starters for Induction Motors
These regulate the voltage at the motor terminals, so the magnetising forces just meet the load demand.
This boosts the efficiency of the motors operating below their rated outputs. Energy savings are significant
for motors operating at less than 50%load for about 50% of the time.
4. Efficient Motor Designs
Efficient motors have efficient designs. These motors consume 5-8% less electricity than standard motors
when driving the same load. Their construction is similar to standard motors, but more material is used to
reduce copper and iron losses. These motors achieve a higher efficiency by using higher grade steel, special
low-friction bearings, added copper windings, closer tolerances, and small air gaps. These motors have the
added benefit of longer life because they run cooler than low-efficiency models.

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5·Delta to Star Connection

The winding of any underloaded three-phase motor can be reconnected in star rather than in delta
connection. This reduces the voltage across each winding to give 58% of its rated value, so only motors
constantly running at less than 58% of full load will benefit. This is a cheaper option than buying a
smaller motor and according to studies, the difference in performance between star-connected standard
and star-connected energy-efficient motors is minimal.
6. Variable-Speed Drives
Variable-speed drives adjust the speed of the motor by replacing constant-speed motors. Electronics-
controlled variable-speed drives and electromechanical variable-speed systems are available. These
variable- speed motors are energy efficient at reduced load with. Reduced speeds to meet the different
load requirements. Economic aspects, which support the use of variable-speed drives, have essentially
the following characteristics:
(a) Energy saving for part-load operation, especially for fans and pumps
(b) Less capital tie-up with flexible production
(c) Low investment costs
(d) User can benefit from a number of technical advantages
(e) Optimum solution of process-related tasks
(f) Reproducible product quality
(g) High operation reliability
(h) Low-maintenance and low-wear operation
(i) Fast and accurate diagnostics
(j) Fast communication with high-level automation systems using powerful interfaces and buses
(k) Simple, user-friendly operator control and display
(l) Environmentally safe operation
7. Motor Rewinding
It has been observed that each year in India about one million motors get burnt and are rewound. Motor
rewinding leads to losses in motor efficiency from 2% to 10%, even if when rewinding the motor, a wire
of adequate size is used. On an average, a new burnt-out motor on rewinding loses about 5% efficiency
due to heat damage to steel laminations. Also, heating before and after rewinding in workshop should be
controlled to avoid further damage to steel laminations.
8. Energy-Use Awareness
It becomes essential to educate consumers about energy and its rightful usage, and the necessary steps
that consumers should take to reduce their demand for electricity as well as their energy bills.

a. Water Heaters Use solar water heaters a good replacement for electric water heaters.
b. Electronic Devices Do not switch on the power when TVs and audio systems are not in use, i.e.,
idle operation leads to an energy loss of 10 watts/device.
c. Computers
• Tum off your home/office equipment. When not in use. A computer that runs 24 hours a day, for
instance. uses more power than an energy-efficient refrigerator.
• If your computer must be left on, tum off the monitor; this device alone uses more than half the
system's energy.
• Setting computers, monitors, and copiers to use sleep-mode,(hence not in use helps cut energy costs
by approximately 40%.
Battery chargers, such as those for laptops, cell phones, arid digital cameras, draw power whenever
they are plugged in and are very inefficient.

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• Screensavers save computer screens, not energy. Start-ups and shutdown do not use any extra energy,
nor are they hard on your computer components. In fact, such computers down when you are finished
using them actually reduces system wear and saves energy.
d. Refrigerators
• Leave enough space between your refrigerator and the walls so that air can easily circulate around
the refrigerator.
• Don't keep your refrigerator or freezer too cold.
• Make sure your refrigerator door seals are airtight. .
• Cover liquids and wrap foods stored in the refrigerator uncovered foods release moisture and make
the Compressor work harder.
• Do not open the doors of the refrigerator frequently.
• Use smaller cabinets for storing frequently used items.
e. Washing Machines
• Always wash only with full loads.
• Use optimal quantity of water.
• Use the correct amount of detergent.
• Use hot water only for very dirty clothes.
• Always use cold water in the rinse cycle.
• Prefer natural drying over electric dryers.
f. Air Conditioners
• Prefer air conditioners having automatic temperature cut off. Keep regulators at "low cool" position.
Operate the ceiling fan in conjunction with your window air conditioner to spread the cooled air more
effectively throughout the room and operate the air conditioner al higher temperature.
• Seal the doors and windows properly.
• Leave enough space between your air conditioner and the walls to allow better air circulation.
• A roof garden can reduce the load on the air conditioner.
• Use windows with sun films/curtains.
• Set your then no stat as high as comfortably possible in summer. The less difference between the
indoor and outdoor temperatures, the lower will be the energy consumption.
• Don't set your thermostat at a colder setting than normal when you tum on your air conditioner.

5.7 Supply –Side Efficiency

5.7.1 Power Plant
It is necessary to ensure that existing plants are utilised to the optimum level, higher Plant Load Factor
(PLF), plant availability, etc. Planners have felt that thermal/nuclear power stations should constitute
capacity utilisation of 6000 kWh/kW/year. Effective measures for better availability such as planned
maintenance, better utilisation of charge-'capacity units for base load, and long continuous run with a
kWh/kW by at least 5% every year would be useful. This would cut down on thew installation requirements
considerably.

5.7.2 Network Losses

The efficiency of a transmission-and-distribution network is improved by reducing transnuss1on and
distribution losses which is related to maintaining proper voltage in the system, keeping the reactive-power
balance. The installation of shunt capacitors in the distribution system and SVC in the transmission system
is important for reducing transmission and distribution losses.
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World Bank Report no. 6 has pegged it at a maximum 15% for the Indian power system

The losses can be measured by measuring total energy input to the power network with good accuracy
meters at the generating stations. Generating-station power usage (auxiliary consumption) is also metered
and deducted to give the net input to the transmission-and-distribution networks. Transmission-system
losses are determined by measuring the outputs from the transmission system, requiring that all meters in
the generating and transmission stations and in the major industrial consumers directly fed from
transmission be read simultaneously on a fixed day in the beginning of the year. Aggregating and
reconciling the inputs and outputs gives a good estimate of the transmission-system losses. The total input
to the distribution system is determined from these results while total output is derived from the consumer
billing data and line/feeder losses recorded by meters, and the resultant has to be made up for non-technical
losses, mainly theft and metering/accounting errors. Theft may be estimated between 15% to 10%of
generation, as per sample studies made. Typically, in the USA, it is about 2%. Based on the studies, the
consumer metering error is estimated, arising mainly from non-simultaneous reading of meters and reading
estimation. Typically, some western countries' utilities take this metering error of the order of +0.4 to 1% of
generation.

Fig 5.6 Typical maximum losses in the Indian power system

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5.7.3 System Utilisation.

If the consumers have to be supplied electricity for a specific number of hours in a year, the installed
capacity would be much higher, depending upon the planned outages which could be due to any
number of factors. Even if the power stations are in position to run continuously, there would be few
consumers to take power during the lean period. This is the reason why generating stations reduce
generation at night. This is how fickle the electricity sector is as storage is not cost-effective. The
electric power systems are set up to meet instantaneous demand for electricity and never with a view
to store electricity which could be used later.

As per CEA norms, the normal planned outage is around 11%. Another 15% is forced outage of the
generating machine, taken due to faults o the machine or due to lack of coal/water availability or due
to lack of demand during lean period or unavailable adequate transmission capacity. Auxiliaries'
consumption is at 7%, and transmission and distribution losses are 23%.

The power utility supplies electricity to a mix of consumers-residential, commercial, industrial, and
agricultural. A consumer installs the electrical equipment, and thS!9-talof the 'nameplate' capacity is
termed the 'connected load'. Line utilization of equipment depends upon the recent for use and
switching the load at random. Knowing the installed generation and actual annual generation and total
connected load, we can find the system's average utilisation.

5.8 Energy Audit.

An energy audit identifies where the potential for improvement lies. Energy audits are now mandatory
as per the Energy Conservation ACT 2001for the designated consumer as identified by the Bureau of
Energy Efficiency. India's energy intensity per unit of GDP is higher compared to Japan, USA and
Asia as a whole by 3.7, 1.6, and 1.5 times respectively. The industrial sector in India is a major energy
user, accounting for about 40% of the total consumption. There are wide variations in energy
consumption among different units within the same industry using comparable technology. The
energy-saving potential in this sector may be as high as 25% making this sector have maximum
potential in the economy. Despite the large potential, only a small fraction of energy-efficiency
investments, having financially attractive returns, arc being tapped.

According to surveys conducted by the Associated Chamber of Commerce and Industry, the
consumption of electrical energy in the industry sector could be reduced by 25% through energy-
conservation measures without affecting the level of production in any way. It has also been seen that
in smaller units with assets less than Rs. 50 million, the percentage cost of energy was an of average
5.6%, whereas for ‘bigger units having assets more than Rs. 500 million, the average energy cost was
found to be 12.28%. Also, it has been observed that in India. energy consumption is increasing at an
average rate of for every 1% increase in GDP for the last about 20 years whereas in Japan, it is 1.4%
for each unit of increase of GDP.

A major reason for high consumption of energy in industry in India is the inadequate modernization
of plants and continued use of obsolete technology. Inter-country and inter-firm comparisons of energy
consumed per unit of specific industrial products in India and other developed countries clearly
indicate that

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5.8.1 Energy Audit-Case Studies

Electrical energy audit at the plant level must undertake the following activities:
• Electrical energy month-wise vis-a-vis finished product-wise (kWh/finished product)
• Power bill study for each month regarding kWh, kVA, pf, and production in numbers
• Load analysis of load curves for curtailing or shifting of some loads to off peak
• Monitoring of energy consumptions of various equipment separately with power-quality meters to
check efficiency, harmonics, starting currents, pf, etc., of the equipment and taking the remedial
measures for higher efficiency

1. Power Audits
Power audits done in a few industries and utilities on behalf of the Energy and Fuel Users-Association of
India, Chennai (4), revealed several possibilities of saving power consumption, diesel oil used in captive
power generation, payments for energy used, and also investments. The process modifications leading to
power conservation are specialized studies which take more time and need more investments too. Their
payback periods are much longer. However, housekeeping measures needing lesser capital achieved
payback in less than three years. The case studies of some HT consumers in Tamil Nadu are given here.
Common observations are the following:

(a) In HT supplies, reducing consumer monthly demand to power utility, saves power-system investments
and energy losses for the power utility.
(b) Attaining overall power factor nearer unity by installation of appropriate and shunt capacitors at
optimal locations saves much energy and power.
(c) The type of energy meter provided by the power utility for metering the HT supply, whether electronic
or mechanical, like L& G, also helps in conservation. These meters correctly punish consumers for
lagging pf by measuring the pf correctly.
(d) Stagger the working hours of non-process auxiliary and service loads to keep the demand low. Also,
there should be provision of peak demand controllers to give alarm at the appropriate time, either for
manual switching off of non-essential loads or for their automatic switching off.
(e) Reduction of power consumption and marginal reduction of power demand by improved and more
energy-efficient lighting systems was substantial. Filament lamps, especially burning for longer hours,
can be replaced by energy-efficient tube lights with electronic ballasts of reliable make, correct types
of reflectors, new LED lamps, LP sodium, etc. Large-capacity filament lights can be replaced by LED,
metal halide, mercury vapour, HP sodium vapour lamps, etc. Burning hours, capital investment need,
colour rendering that can be tolerated are the most important considerations. Electronic dimmers and
electronic regulators also save power.
Induction motors, taking fluctuating loads or considerably underloaded, would considerably save their
power consumption if fitted with electronic motor controllers with soft starters. They are supplied
automatically with lesser voltages at lower loads, thus improving both power factor and efficiency of
operation. A marginal reduction of demand is also possible. Adding different designs or control features in
motor circuits can save energy
2. Arc Furnace Steel Mill.
The manufacture of billet steel from scrap iron in an electric arc furnace and subsequent production of steel
bars and wire rods are identified as energy_-intensive processes. Improvements in the efficiency of energy
use can lead to substantial saving in energy and operation costs for the steel mill. The major energy-
consuming areas are the melt shop and the rolling section. At the melt shop, the energy-intensive processes
are smelting and refining in the arc furnace, ladle and preheating, and casting. At the rolling section, these
are the billet reheating and rolling processes. A general pattern of energy consumption at the steel mill at
Singapore (3) is established by using the average of the plant-performance data over a S-year period.
Analysis of the data showed that the annual energy use is 2_x 106 GJ or S64 x 106 kWh and that the
composition of energy use is as follows: electricity= 51.7%, fuel 011 = 42.6%, kerosene= 3%, and diesel oil
= 2.7%

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Fig 5.7 Steel production process

In order to determine the efficiency of each sub-process and to identify areas for conservation, the energy
flow of each process is needed. An energy audit of each sub-process was performed. The methodology for
determining the energy-flow data was generally based on production records and performance data of the
plant, measurements carried out at the sub-process level and theoretical estimates of the parameters made
where measurements were not possible. The electric-arc-furnace electricity input, kerosene, cooling water,
and surface-energy loss were based on production records and plant instrumentation. The exothermic energy
input to the arc furnace was computed by using average normal scrap composition and the heat of reaction
of elements normally present in commercial scrap. The enthalpy of the furnace-exhaust gas was computed
using exhaust-gas-temperature measurements and theoretical estimates of the mass-flow rate of the exhaust
gas as a result of oxidation and combustion during the melt-down. At the ladle preheating stage, fuel input
was obtained from the monthly plant records, while the ladle energy content, as well as the surface and
exhaust-gas energy contents, were estimated. At the reheat furnace, the fuel-oil input-cooling-water loss and
furnace wall heat loss were based on plant records. The enthalpies of the charge billet and hot billet steel
were evaluated using design temperature values. Based upon measured temperature values and simplified
combustion computations for the mass-flow rate, the enthalpies of the combustion air and waste gases were
computed.

5.8.2 Energy Audit-Measuring Instruments

It is necessary to study the quality of power lines at the premises where sophisticated electronic
instruments are to be deployed. Microprocessor-based instruments with user-friendly interfaces can
measure voltage limits and frequency limits of any disturbance. Portable power meters are available
in the market, up to eight analogue channels, to measure the following values in the power circuit.
• Voltage
• Current
• Active and reactive power plus power factor
• Unbalance of three-phase system
• Voltage dips, over voltages and short interruptions of more than IO ms
• Levels of harmonics and total harmonic distortion
• Detection of ripple control signals

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Typically, the meter has three operating modes:

(a) Investigation Mode Measurements are read directly from the apparatus and the data are used
to make a diagnosis.
(b) Cyclical Mode The selected indicators are measured cyclically, and their values are stored in
memory.
(c) Monitoring Mode The indicators are compared with pre-programmed threshold values and
stored if the values are exceeded. Each event or measurement is dated and can be transferred
to a microcomputer through an optical port or via the RS232 interface or from a distance
through a modern when this option is available.
Accuracy is 0.5% of the value for voltage and current, Io/o of the value for power, and one degree for phase-
angle difference. Voltage-dip events are detected when they last more than 10 ms and are five programmable
threshold values between O and 150% of rated voltage. Each time a threshold is overshot, the event is dated
and the mean voltage and current values are stored. Voltage current and power values just before and just
after voltage dips are also stored. Measurements are undertaken over a specific programmable time scale.
The rate and negative sequence voltages are measured. Five threshold values are available in the monitoring
mode. When a threshold 1s overshot, the ac11ve power value can be stored at the same time.

5.8.3 Mobile Unit Instruments for Energy Audit

A mobile energy audit bus for electrical energy audit services should be equipped with appropriate
instruments for measuring voltage (V), current (A), power factor, active power (kW), apparent power
(demand) (kVA), reactive power (kVAr), energy consumption (kWh), frequency (Hz), harmonics,
temperature and heat flow, radiation, air and gas flow, liquid flow, RPM, air velocity, noise and vibration,
dust concentration, TDS, pH, moisture content, relative humidity, flue-gas analysis of CO₂, O₂, CO, SOx,
NOx, combustion efficiency, and more.

1. Illumination Levels: Illumination levels are measured with a lux meter. It consists of a photocell
that senses light output and converts it into electrical impulses, which are calibrated as lux.

2. Ultrasonic Instruments: Ultrasonic instruments are available to detect leaks of compressed air
and other gases, which are typically undetectable by human senses.

3. Contact Thermometer: These are thermocouples that measure flue-gas, hot-air, and hot-water
temperatures through the insertion of a probe into the stream. For surface temperature
measurement, a leaf-type probe is used with the same instrument.

4. Infrared Thermometer: This is a non-contact measurement device that, when directed at a heat
source, directly provides a temperature readout. This instrument is useful for measuring hot spots
in furnaces, surface temperatures, and more.

5. Combustion Analyzer: This instrument has built-in chemical cells that measure various gases,
such as O₂, CO, NOx, and SOx.

6. Fuel-Efficiency Monitor: This device measures the oxygen content and temperature of flue gas.
The calorific values of common fuels are fed into the microprocessor, which then calculates
combustion efficiency.

5.8.4 Energy-efficiency Process

(a) Identify sectors, end-uses and efficiency measures to target.

(b) Develop programme designs with ESCOs.
(c) Conduct financial analysis.
(d) Prepare an implementation plan including engaging an ESCO and/or a franchisee.

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(e) Implement the programmed.

(f) Evaluate the programme

Electricity Market
5.9 Market Principles

1. Market's Mission: The mission of the electricity market is growth.

2. Nature of Electricity: Electricity is, by its nature, difficult to store and must be available on
demand. Both demand and supply vary continuously.
3. Seasonality and Volatility: Electricity is a commodity with highly seasonal and inelastic
demand. This, combined with weather-dependent generation and demand, is prone to short-
term price volatility.
4. Incentives and Price Signals: In theory, electricity markets provide generators with
incentives to reduce costs and increase productivity, thereby fostering expectations of lower
electricity prices for consumers. However, electricity markets also send strong price signals
during periods of scarcity, leading to price peaks, while periods of abundant supply result in
very low prices.
5. Essential Nature of Electricity: Electricity does not behave like a typical commodity. Unlike
substituting one product for another, such as switching from red apples to green apples, there
is no substitute for electricity. It is essential to daily life, both at work and at home.
6. Speed of Electricity Flow: Electricity flows from the power plant to the consumer at
approximately 200,000 km/second. Some power plants must constantly adjust their output to
meet demand.
7. Balancing Supply and Demand: The most fundamental difference in the electricity market
is that electrical energy is inextricably linked with a physical power system that operates much
faster than any market. This requires generation (supply) and load (demand) balancing on a
second-by-second basis.
8. Market Commitments: The power market operates on the basis of long-term, short-term,
day-ahead, or intra-day commitments.
9. Price Formation in Spot Markets: The main feature of price formation in wholesale spot
markets is the instantaneous nature of electricity. The physical laws that govern power
delivery across a grid require synchronized energy balance between the injection of power at
generating points and offtake at demand points, with some allowance for transmission losses.
10. Pooling of Energy: A significant difference between electrical energy and other commodities
is that energy produced by one generator in the power system cannot be directed to supply a
specific consumer; rather, the energy is pooled.
11. Impact of Physics on Flow: The laws of physics determine how electricity flows through a
network. The extent of electricity lost in transmission and the level of congestion on any
particular branch of the network will influence the economic dispatch of generation units.
12. Efficiency through Markets: Markets bring efficiency in the usage of transmission capacity
through economic dispatch and congestion management.
13. Investment Signals: Markets provide investment signals to investors in generation and
transmission.
14. Cyclical Variations: There are daily and weekly cyclical variations in the cost and price of
electrical energy.
15. Marginal Cost Variations: Marginal costs vary over the course of the day.
16. Dynamic Pricing: Electricity is the only network where prices can change every 15 or 30
minutes.
17. Market Shortage in India: There is often a shortage of markets in India. The fixing of
trading margins by regulators is generally defined.
18. Viability of Peaking Power: Peaking power must be made viable by applying time-of-day
tariffs.

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19. Independent Transmission System Operator: As per the Electricity Act 2003 (Sections 26-
34), there is a physical requirement for an independent transmission system operator to
coordinate the dispatch of generating units to meet the expected demand across the
transmission grid.

5.10 Power Pool

The Indian power market operates on a power-pool model. This model envisions different generators
selling to a pool, while distributors, power exchanges, traders, and large consumers buy from it. The
pool functions as a marketplace for trading electricity. These pools are designed to maximize
competition in generation, promote competition based on price rather than cost, and remain open to
all market participants. Pools handle spot and real-time trading, as well as transactions involving
bilateral contracts. The existence of multiple power exchanges in the country implies the presence of
multiple power pools.

Fig 5.8 Pool Electricity Marketing

An electricity pool is not a physical location; rather, it is a set of rules and procedures managed by
the load-dispatch centre according to the grid code. The power pool operates the power exchange
wholesale market under a mandatory trading arrangement, including bidding and settlement
procedures. It is not possible to distinguish which generator produces the electricity consumed by a
particular consumer, hence the concept of a central pool of generation to supply total consumer
demand.

Typically, pool rules require generating and supply companies to submit day-ahead bid packages and
demand reservations for each half-hour period during the next day or for the next 7 days. The power
exchange administration uses this information to prepare a seven-day generating unit commitment
plan, ranking bids in merit order to determine the system marginal price at which offers match
demand. The pool price paid to generating companies generally comprises the following:

1. The system marginal cost

2. Start-up and no-load adjustments

3. Ancillary services payments, such as black-start capability and spinning reserve

4. The pool price needs to be hedged or capped. The pool price paid by a supplier generally
comprises:

(a) The price paid to generating companies

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(b) An adjustment for transmission losses

(c) Pool or power-exchange administration charges

(d) Uplift charges (e.g., for constrained-on units)

5.11 Independent System Operator

In the pool structure, the Independent System Operator (ISO) is responsible for both market
settlement, including scheduling and dispatch, and transmission system management, including
transmission pricing and security aspects. The Central Transmission Utility (CTU) and State
Transmission Utility (STU) provide non-discriminatory open access to their transmission systems by
any licensee, generating company, or consumer, as per Sections 38 and 39 of the Electricity Act 2003.
According to Section 9 of the Act, captive power plants must have mandatory open access, subject
to the availability of network capacity. Under Section 86 of the Act, where open access has been
permitted, the Regulatory Commission, under Section 42, determines wheeling charges and
surcharges.

POSOCO (Power System Operation Corporation) is an independent system/transmission system

operator (ISO). It controls the National Load Dispatch Centre and five regional load dispatch centers,
serving as the central entity. POSOCO has emerged in all deregulated markets with the responsibility
of ensuring system security and reliability and providing other system services.

The other structure is that of open access, dominated by bilateral contracts. In this system, most
energy transactions are directly organized between the generator and the consumer. The role of the
ISO is minimal and limited to maintaining system security and reliability functions. In any market
structure, the ISO has the following basic functions:

1. The laws of physics determine how electricity flows through an electricity network. Hence,
the extent of electricity lost in transmission and the level of congestion on any particular
branch of the network will influence the economic dispatch of the generation units. POSOCO
must ensure that the power system continues to operate in a stable, economical manner.
2. Security standards that reflect the nature of the market and the manner of dispatch must be
adhered to.
3. Islanding plans for metropolitan cities must be rigorously developed.
4. Metering standards ensure that energy injections and withdrawals can be accurately measured
every half-hour.
5. A software solution for power market settlement must be developed. Some commercial
packages are available internationally and need to be modified for particular use.
6. Power Delivery: The operator should provide the power transportation services requested by
buyers and sellers.
7. Transmission Pricing: The system operator must post prices for transmission usage, offer to
reserve or sell usage, track, bill and settle with users, and pass on revenues to transmission
owners.
8. Service Quality Assurance: The system operator must ensure the quality of service it
provides.
9. Promotion of Economic Efficiency and Equity: The overall operations of the system
operator should promote economic efficiency, fairness, and equity, without benefiting only
some players in the system.

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5.12 Distribution System Operator

With the large expansion target in the country for distributed/renewable generation, the Distribution
System Operator (DSO) has a pivotal role in managing the Renewable Energy Management Centres
(REMCs). The Government of India has set a target of installing 100 GW of solar power projects by
2022. The DSO’s function is to implement the code for embedded generation and meet system
requirements. It should have:
1. More tolerant facilities towards system variations (J.V)
2. Self-stabilizing capabilities
3. Stronger requirements for reactive power
4. Compliance monitoring
5. Distribution system modelling

The DSO’s role is to maintain control of the distribution system:

1. Manage voltage and reactive power.
2. Adhere to connection rules and protection schemes.
3. Actively manage the distribution system (SCADA) for distributed generation.
4. Contribute to system stability.
5. Prevent harmonic voltage distortion.
6. Allocation of Line Losses in Case of Retailing: All technical distribution losses can be
allocated to the incumbent distribution network operator, as these losses are due to technical
parameters. On the other hand, commercial losses that arise from various issues such as faulty
meters, non-metering, meter bypassing, etc., can be attributed to the retailers.
7. Coordinate with the respective load dispatch centre.

The REMC (Renewable Energy Management Centre) may have the following functions:

1. Forecasting of Renewable Energy (RE) Generation: Forecasting of RE generation in the

jurisdiction area on a day-ahead, hour-ahead, week-ahead, and month-ahead basis.
2. Real-Time Tracking: Real-time tracking of generation from RE sources.
3. Geo-Spatial Visualization: Geo-spatial visualization of RE generation.
4. Coordination with Load Dispatch Centers (LDCs): Close coordination with respective
LDCs for RE generation and control to ensure smooth grid operation.
5. Cluster-Wise and State-Wise Forecasting: Cluster-wise and state-wise forecasting of
power flows on the intra-state network.

5.13 Power Markets

5.13.1 Power-exchange market

The power-exchange market is a platform where buyers, sellers, electricity traders, open-access
consumers, and members of the power exchange transact on standardized contracts. In this market,
the power exchange or clearing corporation acts as a counterparty to such contracts. Scheduling is
carried out by regional load dispatch centres or the National Load Dispatch Centre. The norms apply
to all contracts, including intraday contracts, contingency contracts, day-ahead contracts, and term-
ahead contracts, whether transacted on power exchanges, other exchanges, or bilaterally in the Over-
The-Counter (OTC) market. The norms require a Clearing Corporation (CC) to establish a power
exchange. Currently, there are three power exchanges approved by the Central Electricity Regulatory
Commission (CERC):

1. The Indian Energy Exchange (IEX)

2. Power Exchange India Limited (PXIL)

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3. National Power Exchange Limited (NPEL)

The exchange operates similarly to the National Stock Exchange. It is a company that has entered
into a Memorandum of Understanding (MoU) with several power producers who commit surplus
power and with power-deficit entities seeking to purchase power. The Act provides that the
appropriate commission may fix the trading margin if deemed necessary. The role of the regulator
should largely be confined to monitoring to prevent collusion and unfair practices.

The price in the Day-Ahead Market (DAM) is, in principle, determined by matching offers from
generators to bids from consumers, power utilities, or exchange members at each node to develop a
classic supply and demand equilibrium price. This price is usually calculated on an hourly interval
for 24 hours and is determined separately for sub-regions where the grid/system operator's load-flow
model indicates transmission constraints. Exchange members participate in trade the day before,
using standard hourly contracts. Hourly contracts provide considerable flexibility, allowing operators
to fine-tune their positions throughout the delivery day (purchase additional power or sell excess).
Power exchanges have the following characteristics:

1. Standardized contract structure

2. Robust clearing and settlement system
3. Risk management
4. Transparent price-discovery mechanism

Block contracts cater to the needs of participants who want to buy or sell set volumes of electricity.

Fig 5.9 Typical energy products in the market through

over several consecutive hours, corresponding to identified periods in the day (peak or base),
typical energy products during 24 hours can be categorized as follows:

1. Base Load
2. Peaking Load
3. Super Peak Load

The spot market is operated by power exchanges. Prices in the spot market fluctuate extensively
depending on demand-supply dynamics. It is the market where the physical delivery of electricity
occurs either on the same day as the date of transaction (T) or on the next day (T + 1). The Day-
Ahead Market (DAM) is used for trading hourly contracts one day prior to the delivery of electricity.
Both buyers and sellers electronically submit their anonymous bids during the bid-call session. The
optimization algorithm for the day-ahead power market processes every buy and sell bid submitted.
The market clearing price is determined based on the intersection point of the demand and supply
curves. This uniform price (Market Clearing Price, MCP) is offered to both selected buyers and
sellers. Price discovery in the DAM market is a true function of demand and supply only. Area-wise
prices are set for sale.

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5.13.2 Wholesale Market-Forward Contracts

The wholesale market is open to anyone who, after securing the necessary contracts with the counter-
party willing to buy their output as per the contract, can generate power and connect to the grid.

1. Bilateral Trading (Term-Ahead Market) Depending on the time available and quantities
to be traded, buyers and sellers can engage in various forms of bilateral trading based on the
agreements reached. The bilateral market aims for a common price through a negotiated
approach, with transactions occurring under short-, medium-, or long-term contracts.

(a) Customized Long-Term Contracts: These typically involve large amounts of power
over extended periods, ranging from several years up to 25 years.
(b) Customized Short-Term Contracts: These usually involve power over shorter periods,
such as days, weeks, or months, and can be conducted through inter-state trading licensees
(for inter-state transactions only), directly by the distribution licensees (distribution
companies), through power exchanges, or through Unscheduled Interchange (UI)
mechanisms.

2. Term-Ahead Market (TAM) These contracts involve the physical delivery of electricity
occurring on a date more than one day (T + 2 or more) ahead from the date of transaction (T).
Contracts in this market can be transacted on a weekly, monthly, yearly, or longer-term basis.
3. Trading Over The Counter (OTC) OTC transactions typically involve smaller amounts of
power (hundreds of MW) over long periods, ranging from several months to several years.
Buyers and sellers transact directly or through an electricity trader. The price and terms of the
contract are determined through negotiations between the parties or through a competitive
bidding process.

5.13.3 Renewable Energy Certificates (REC) Market

Renewable systems are less prone to large-scale failure and are environmentally friendly. The Central
Electricity Regulatory Commission (CERC) introduced the Renewable Energy Certificate (REC)
mechanism through the Terms and Conditions for Recognition and Issuance of Renewable
Energy Certificate for Renewable Energy Generation Regulations, 2010. This mechanism is a
market-based instrument to promote renewable energy and facilitate Renewable Purchase
Obligations (RPO).

1. The REC Mechanism: The REC mechanism addresses the mismatch between the
availability of renewable energy (RE) resources in a state and the requirement of obligated
entities to meet their RPO. The REC system consists of a supply side (electricity producers)
and a demand side (entities with an obligatory quota for the year). The energy certificate
represents the renewable energy produced and can be sold by the certificate bearer. A
production facility is paid for both the physical electricity generated and the energy certificate.
Therefore, the total revenue from renewable energy includes revenue from power plus
revenue from energy certificates. RECs are issued to generators who produce electricity from
renewable sources such as solar, wind, biomass, small hydro, and municipal solid waste.
While these generators receive a price for power without a premium for green sources, they
receive a green premium through RECs. There are two types of RECs: solar and non-solar.
To ensure RECs truly reflect the green or environmental attributes of power, CERC has issued
regulations outlining the accreditation and registration process for generators.
2. Issuance of RECs: One REC is issued for every 1 MWh of electricity injected into the grid
from renewable energy sources. RECs are deposited with power exchanges for the sale of
RPO schemes.
3. Validity: Each REC remains valid for 365 days from the date of issuance.
4. Eligibility: Only RE generators are eligible for receiving RECs.
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5. Purchase by Obligated Entities: Obligated entities can purchase RECs to meet their RPO
under Section 86(1)(e) of the Act. Purchasing an REC is considered equivalent to purchasing
renewable energy for RPO compliance.
6. Eligibility of Technologies: Grid-connected RE technologies approved by the Ministry of
New and Renewable Energy (MNRE) are eligible under this scheme.
7. Ineligibility of Existing Agreements: RE generations with existing power purchase
agreements at preferential tariffs are not eligible for the REC mechanism.
8. Recognition by SERC: State Electricity Regulatory Commissions (SERCs) must recognize
RECs as valid instruments for RPO compliance.
9. Definition of Obligated Entities: SERCs will define open-access consumers and captive
consumers as obligated entities along with distribution companies.
10. State-Level Accreditation: SERCs are responsible for designating the state agency for
accreditation related to RPO compliance and the REC mechanism.
11. Central Agency: CERC has designated the National Load Dispatch Centre (NLDC) as the
central agency for registration, repository, and other functions related to the implementation
of the REC framework at the national level.
12. Accreditation Requirement: Only accredited projects can register for RECs with the central
agency.
13. Issuance of RECs: The central agency will issue RECs to RE generators based on specified
quantities of electricity injected into the grid.
14. Exchange of RECs: RECs can only be exchanged on CERC-approved power exchanges.
15. Record Management: The central agency will extinguish the RECs sold on power exchanges
in its records based on information provided by the exchanges, following a 'first-in-first-out'
order.
16. Price of Electricity Components: The price of the electricity component of RE generation
will be equivalent to the weighted average power purchase cost of the power utility, including
short-term power purchases but excluding renewable power purchases.
17. Forbearance and Floor Prices: RECs will be exchanged within the forbearance price and
floor price. These prices are determined by CERC in consultation with the central agency and
the Forum of Regulators (FOR) from time to time.
18. Default and Penalties: In case of default, the SERC may direct the obligated entity to deposit
funds into a separate account to purchase the shortfall of RECs at the forbearance price.
19. Carrying Forward Compliance: If an obligated entity faces genuine difficulties in
complying with the renewable purchase obligation due to a lack of available certificates, it
can approach the commission to carry forward the compliance requirement to the next year.

5.13.4 Retail Market.

A retail electricity market exists when end-use consumers can choose their supplier from competing
electricity retailers. A key consideration in electricity markets is whether consumers face real-time
pricing (prices based on the variable wholesale price) or a price set through other mechanisms, such
as average annual costs. In many markets, consumers do not pay based on real-time prices and
therefore lack incentives to reduce demand during high wholesale price periods or shift their demand
to off-peak times. Demand response may employ pricing mechanisms or technical solutions to reduce
peak demand.

Generally, electricity retail reform follows from wholesale reform. However, it is possible to have a
single electricity-generation company while still maintaining retail competition. If a wholesale price
can be established at a specific node on the transmission grid and the electricity quantities at that
node can be reconciled, competition for retail customers within the distribution system beyond the
node is feasible.

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Although market structures vary, there are some common functions that an electricity retailer must
be able to perform or contract for to compete effectively. Failure or incompetence in one or more of
the following areas has led to significant financial problems:

1. Billing
2. Credit control
3. Consumer management via an efficient call centre
4. Distribution use-of-system contracts
5. Reconciliation agreements
6. "Pool" or "spot market" purchase agreements
7. Hedge contracts for differences to manage "spot-price" risk

Competitive retail markets require open access to distribution and transmission networks. This
necessitates setting prices for both services to ensure appropriate returns to the network owners and
encourage the efficient location of power plants. Independent companies should provide distribution
and transmission services to address the issues of cherry-picking by distribution utilities selling retail
services and the ability to institute cross-subsidies, a concern with pure retail companies’ schemes
using dual transportation prices. There are two types of fees: the access fee and the regular fee. The
access fee covers the cost of having and accessing the network of wires, while the regular fee reflects
the marginal cost of transferring electricity through the existing network.

Electricity consumers have the freedom to choose from various electricity contracts, such as long-
term contracts with a fixed price or combinations of spot-indexed prices. Large consumers can also
hedge with financial contracts. In theory, competition in the retail market can drive down prices and
lead to the development of diverse products (e.g., different payment conditions, customer services,
billing, and product bundles) for all end-users. However, to date, this potential has not fully
materialized, and most end-users have remained with their historical suppliers

5.13.5 Real-Time Market

A real-time market is a highly advanced market where prices reflect the system's capability to balance
generation and consumption in real time. The development of a real-time market—where power can
be bought and sold approximately two hours ahead or instantly online—is crucial for bringing
electricity costs to affordable levels. In addition to supply-side measures, it is important to implement
strategies that limit generators' ability to raise prices beyond competitive rates. This involves
consumers adjusting their demand in response to fluctuating electricity prices.

Even developed economies are only beginning to explore techniques for demand-side response
management. For each upcoming half-hour dispatch period, the real-time market considers offers,
system data, reserve and regulation requirements, security conditions, and load projections to
determine market prices. Typically, a single load projection is made.

The real-time market operates in advance of the dispatch period and provides ex-ante prices so that
all participants can view market prices before the event. It is unlikely that the actual dispatch period
will match exactly what was predicted or scheduled. However, generators and loads will face the ex-
ante market prices regardless of the actual outcome, unless there were errors in the information used
to determine these prices. In such cases, a re-run may be conducted to provide revised prices.

5.13.6 Generation Capacity Market

Capacity markets are contracts designed to ensure that sufficient, reliable capacity is available to
maintain the reliability and security of the electricity supply during times of system stress, such as
during a hot summer period. These contracts incentivize providers of reliable capacity to be available
when needed. In India, the Central Government entities (e.g., NTPC, NHPC) operate regional power
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stations based on a common sharing model, with 85% of power allocated to the region. This capacity
includes both generation and non-generation forms, such as demand-side response and storage.

The power market in India is an "energy-only market," where generators are paid for the electricity
they sell through a marginal pricing system. In this system, all generators receive a price equal to the
bid from the most expensive generator that has been activated. While generators are motivated to bid
according to their short-term marginal costs, they all receive a price that is higher than their costs
(except for the marginal plant, which bids the highest price). The difference between their bid short-
term marginal cost and the price received helps cover fixed costs.

Capacity providers are paid on a kilowatt-per-year basis for the capacity a power plant can generate
or, in the case of demand response, the capacity that can be reduced. Consumers who provide load
reductions as substitutes for system capacity receive incentive payments. Demand response providers
collaborate with utilities and grid operators to offer a reliable reserve of dispatchable electricity
demand reduction, contributing to overall capacity calculations.

Ensuring adequate generating capacity is crucial to balance demand and supply continuously.
Otherwise, the stability of the power system could be compromised. Historically, utilities were
responsible for ensuring security of supply by providing adequate generating capacity. Today,
POSOCO ensures momentary balance, while the provision of sufficient generating capacity is
determined by market signals to investors.

In the electricity market, production and consumption must always be in balance. With limited
demand response to price signals, supply-side adequacy is essential to maintain momentary balance.
Given long approval processes, market uncertainties, and the deployment of supported renewable
capacity, there is a growing argument for providing payments to generators to maintain and invest in
new firm generation capacity. This can be done through capacity payments.

The increasing share of variable generation in the electricity system may lead to insufficient revenue
from energy-only markets for conventional generators due to changes in load factors and power plant
running patterns. Capacity payment systems are generally set by regulators and often based on
administrative estimates of the cost of building and maintaining peaking plants.

Capacity payment systems can be classified into price-based or quantity-based systems. Price-based
systems reward capacity availability through lump-sum payments or premiums on top of energy
payments, determined by the probability of an outage. These payments can be negotiated through
internal or bilateral agreements with generators or through capacity markets where generators sell a
recall right to the system operator for use during shortages. Merchant power can effectively meet the
needs of the capacity.

5.13.7 Transmission Capacity Market

With the advent of independent transmission projects, transmission capacity is increasingly being
developed on a contract basis. This development is aimed at ensuring open access, alleviating
transmission congestion, or facilitating the transfer of power between regions.

5.13.8 Reservation Market

The reservation market involves unused capacity that is kept on standby to supply energy during
emergencies. This capacity must be capable of being brought online within a timeframe ranging from
a few seconds to a few minutes, depending on the specific requirements. Often referred to as
"spinning reserve," this capacity indicates that turbines are already in operation and can quickly
produce energy when needed. Interruptible loads also constitute a form of reserve. The percentage of
reserve margin required depends on the economic value of reliability and the opportunity cost of
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energy, which, in turn, depends on the overall economic development of a country. Investments in
generation sectors, such as Combined Cycle Gas Turbines (CCGT) using natural gas, are expected
to boost the reservation market. The reservation market interacts with the spot market and the
regulating power market, ensuring sufficient resources are available. For example, during periods of
high spot prices, a reservation price may be necessary to maintain capacity for up-regulation in the
regulating power market, and vice versa during periods of low spot prices. The reservation price is
determined based on the requirements of POSOCO and bids from potential suppliers.

5.13.9 Demand Response Market

Demand Response (DR) refers to the ability of consumers to reduce their electricity consumption
when wholesale prices are high or when the reliability of the electric grid is at risk. DR is crucial as
it provides a competitive resource to balance supply and demand for grid operations and associated
wholesale markets. When demand is high, expensive, high-variable-cost generators are activated. By
reducing demand during these peak periods, the system can avoid using costly generation resources.

Currently, power supply remains relatively inelastic due to a general shortage of generation capacity.
Large investments in the power sector are needed to enhance market efficiency and increase demand
responsiveness. Historically, balancing electricity supply and demand involved adjusting the output
of power plants, which required significant investments in capital-intensive facilities.

Fig 5.10 Demand-response identification, aggregation, and power-market operation RECs:

Renewable Energy Certificates

Demand response was initially developed by electric utilities to increase flexibility on the demand
side, temporarily shifting or reducing peak energy demand to avoid costly energy procurements and
capacity investments for a few hours of high need. System operators manage demand response in
coordination with aggregators or service providers. With the transition to competitive electricity
markets, demand response has become an essential tool for many utilities and system operators to
improve grid reliability and market outcomes. DR management helps to shave peak loads and reduce
the need for new capacity investments.

DR programs can be categorized based on their objectives or the type of response they aim to
achieve, including:

1. Price Response: e.g., dynamic pricing.

2. Reliability Response: e.g., emergency DR programs.

Demand response management can stimulate demand during excess power conditions, thereby
improving generation profitability and enhancing security of supply.

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5.14 Market Rules

The Central Electricity Regulatory Commission (Power Market) Regulations 2010 establishes the
rules and procedures for price offerings by generators and the determination of pool prices to ensure
adequate energy production to meet demand.

Price Offering and Pool Price Determination:

1. Pool Price Variability: The pool price can change hourly, daily, or at other intervals (e.g.,
every 15 minutes) and is determined based on the highest price bid accepted for dispatch. This
price is known as the System Marginal Price (SMP).
2. Market Operation: The market operates through both forward and real-time mechanisms:
➢ Forward Market: Generators can bid their prices in advance, but conditions may
change before the real dispatch hour, necessitating updates and reports on grid and
generation system conditions.
➢ Real-Time Operation: Adjustments are made based on real-time conditions to reflect
the changing state of the grid.
3. Consumer Response: The pool price fluctuates according to supply and demand. Industrial
consumers, who can quickly adjust their power consumption, may respond to these
fluctuations, aiding in balancing supply and demand. For instance, if a power plant fails,
causing a drop in capacity and an increase in the pool price, responsive consumers can reduce
their consumption, helping restore balance more quickly.
4. Stability vs. Flexibility: While fluctuating pool prices can signal adjustments to balance
supply and demand, many consumers prefer stable prices. To manage this, generators and
power utilities often enter into fixed-price contracts to mitigate risks and volatility. These
contracts can be short-term or long-term.
5. Renewable Energy Certificates (RECs): The CERC's 2010 regulations also address the
Renewable Energy Certificate (REC) framework, which incentivizes the generation of
renewable energy by providing a market-based mechanism for trading these certificates.

5.15 Bidding
For a generation company (GenCo) to survive in a competitive environment, it must operate very
efficiently. However, efficient operation alone may not be sufficient because, in energy auctions, it
must sell its products at competitive prices to maximize profit. Several factors affect the profitability
of a generation company, such as its own bids, the bids placed by competitors, and total energy
demand, among others.

While a generation company cannot control the bids of its competitors or the overall energy demand,
it can develop a strategy to place bids that offer the highest profit with the lowest risk. In this context,
risk refers to the amount of regret involved. A bid is considered highly risky if it has the potential for
large profit but a low probability of being selected, leading to frequent regret. Conversely, a low-risk
bid might offer lower profit potential but a high probability of being selected, resulting in minimal
regret.

The optimal bidding problem can be addressed using various methods, including:

1. Game Theory
2. Dynamic Programming
3. Genetic Algorithm-Based Methods
4. Optimization-Based Bidding Strategies
5. Markov Decision Processes

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5.16 Trading

Electricity trading is essential for meeting peak demand and optimizing overall resources. Trading
licenses are granted by the CERC. Trading facilitates better utilization of existing power resources,
enhances efficiency for all players in the delivery chain, and ensures better quality of power supply
to the end-user.

Bidding can be used as a mechanism to decide who should win what, without relying solely on price
competition. Bids are placed for Renewable Energy Certificates (RECs) on power exchanges.
Suppliers submit an increasing supply schedule for each hour, reflecting the marginal cost of
operating the unit at various levels. Bidders cannot directly express their true preferences, which are
complicated by start-up and no-load costs. For example, a bidder with a generating unit that has
substantial start-up costs must guess how long the unit will be operational. For units near the margin,
an accurate guess may be challenging. To address this, multi-part bids are allowed, where generators
bid not only energy but also start-up and no-load costs, enabling them to express their true preferences
directly.

Fig 5.11 Price determination in the auction process at a node

According to Subsection 26 of Section 2 of the Electricity Act 2003, a licensee can participate in
trade by making standard hourly and block contracts the day before. These contracts commit them to
injecting into or drawing from the Inter-State Transmission System (ISTS) a specific volume of
electricity at a given hour at market price. Transactions can be delivered at any point into ISTS.
Hourly contracts provide flexibility by allowing operators to adjust over the delivery day (e.g.,
purchasing additional electricity or selling excess). Block contracts cater to participants who want to
buy or sell fixed volumes of electricity over several consecutive hours, corresponding to peak or base
periods, or separate hour periods for the following delivery day.

Bids and offers are matched for each time block for the next day. On the day-ahead market exchange
platform, market participants can place their buy or sell bids for the next day, which starts from 00:00
hours and continues until 24:00 hours. The exchange platform in India supports double-sided bidding,
with orders placed between 10 a.m. and 12 p.m. of the previous day, and a minimum volume of 10
MWh. The delivery point is the interconnection of the state grid with ISTS, managed by POSOCO.
The system price in the day-ahead market is determined by matching offers from generators with bids
from consumers at each node to develop a classic supply-and-demand equilibrium price, usually
calculated on a 15-minute, 30-minute, or hourly interval, and is calculated separately for subregions
where transmission constraints are expected.

After confirming transmission capacity for trades, transmission congestion is managed through
market splitting. The system calculates the Market Clearing Price (MCP) and Market Clearing
Volume (MCV) as shown in Fig. 11.6. MCP (average, peak, non-peak, maximum, minimum) is
determined for each bid area, typically as shown in Table 11.1. Grid bottlenecks are managed by
comparing the calculated contractual flow with the available transmission capacity. If the flow

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exceeds capacity, prices are adjusted on both sides of the bottleneck so that flow matches the capacity.
If the flow does not exceed capacity, a common price is established for the entire area.

If the flow exceeds the capacity at the common price for the whole market area, it is split into surplus
and deficit parts. Prices are reduced in the surplus area (sale > purchase) and increased in the deficit
area (purchase > sale). This adjustment reduces sales and increases purchases in the surplus area
while reducing purchases and increasing sales in the deficit area, matching the available transmission
capacity. This method of managing congestion is known as market splitting. Initially, electrical
regions in the country are defined as market areas, as inter-regional links are likely to be congested.
Trade schedules are sent to RLDC and participants by 17:00 hours on the day ahead.

Renewable Energy Certificate (REC)

A Renewable Energy Certificate (REC) represents 1 MWh of power produced from a renewable
energy resource and is tradable on power exchanges. The Central Electricity Regulatory Commission
(CERC) launched the Renewable Energy Purchase Obligation (RPO) scheme in 2010, which
stipulates that distribution companies will be penalized if they do not meet their green energy
obligations. The scheme mandates that distribution companies, open-access consumers, and captive
power producers meet part of their energy needs through green energy. State utilities are required to
purchase 5% of their electricity from renewable sources. Users prefer RECs, which are valid for 365
days, as they allow the purchase of renewable power from the market without inter-state scheduling,
protecting traders from the uncertainties associated with renewable power.

1. Interstate Transmission RECs issued for electricity generated from renewable sources do
not require scheduling over long distances. Such electricity can be consumed locally, with
only the RECs needing to be transferred to the obligated entities. Renewable obligation by
preferential tariff may make it uneconomical and technologically challenging to transmit
electricity from renewable sources located outside the states.
2. Promotion of Standalone Systems Since trading in RECs does not require the transmission
of electricity, the additional revenue from the sale of RECs can help improve the viability of
standalone systems. In many scenarios, transmitting electricity from such regions may not be
economical.
3. Competition in the Electricity Market Separating RECs from electrical energy allows cost-
effective renewable energy to participate competitively in the power exchange. Revenue from
RECs can help address the cost disadvantage of renewable energy technologies.
4. Overcoming the Barrier of Natural Diversity The renewable purchase obligation limits
participation to the obligated entities, such as distribution licensees in India. The additional
cost due to such obligations is allocated to all consumers within the area of a distribution
licensee. Environmentally conscious consumers may be willing to consume a higher
proportion of green electricity, and such consumers can purchase RECs. The tradability of
RECs allows wider participation by NGOs, development agencies, and the corporate sector,
which may purchase RECs as part of their corporate social responsibility under the New
Companies Act 2013, Section 135, Schedule VII (ensuring environmental sustainability).
5. Alternative to Meet Renewable Purchase Obligation National-level tradability of RECs
enables obligated entities or distribution licensees to fulfill their obligations despite natural
diversity. RECs can be purchased from generators located in other states. Limited resource
endowments in a particular state may permit only a lower renewable obligation.
6. Attract Investment The REC market provides opportunities for developing renewable-
energy-based electricity generation. By unbundling RECs from electrical energy, the latter
can participate effectively in a competitively traded market for electricity. This also allows
investors in renewable energy technologies to hedge electricity price risk through electricity

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futures. The combination of RECs and futures provides adequate risk hedging, encouraging
investment in renewable energy.

The CERC has notified the National Load Dispatch Centre (NLDC), also known as the Power System
Operation Corporation, as the Central Agency for implementing the REC mechanism in India. CERC
determines the floor price and forbearance price for dealing in certificates. The REC price within the
floor and forbearance prices is fixed by CERC for each year.

The estimated Renewable Energy (RE) potential by the year 2032 is around 222 GW. The Electricity
Act 2003 mandates State Electricity Regulatory Commissions (SERCs) with the function of
promoting RE within their states. SERCs set targets for distribution companies to purchase a certain
percentage of their total power requirements from renewable energy sources, termed Renewable
Purchase Obligation (RPO). Some states are RE-surplus, while others are RE-scarce. RE-surplus
states typically achieve high levels of RPO, while other states are generally reluctant to buy energy
from states that exceed their mandated RPO levels.

One major reason for this reluctance is that RPO regulations do not recognize the purchase of
renewable energy from outside the state for fulfilling the RPO target. Consequently, RE-abundant
states cannot sell their surplus RE-based power to states with insufficient RE-based power. As a
result, states with lower RE potential maintain lower RPO targets. Another major reason is that RE-
based generation has not proven to be cost-effective, leading to a lack of motivation to produce RE
beyond the RPO level.

The need was for a mechanism that could enable and recognize inter-state RE transactions, and the
REC mechanism fulfills this needs. Generating electricity from conventional sources, such as thermal
power, does not benefit the environment. However, adopting RE-based generation provides the
following components:

1. The generated electricity through RE sources.

2. The "Environmental Benefit" attributes.

The REC mechanism operates on a simple principle: the second component mentioned above is given
tangible form as an REC. Each RE generator receives one REC for every 1 MWh of renewable energy
produced, provided the RE is generated from an approved renewable-energy source. The REC is
tradable, so the RE generator can sell both the electricity generated and the environmental attributes
as an REC.

Consider two states, A and B. State A is RE-surplus, and State B is RE-deficit. State A has exceeded
its RPO capacity. An RE generator in State A receives an REC for every 1 MWh of renewable energy.
State B, which is RE-deficit, purchases this certificate, which is recognized as the production of 1
MWh by State B. State B can use these certificates to meet its RPO targets.

The RPO target is annual, so REC settlement can also be yearly. The RE generator can sell the
electricity component locally at the price of conventional electricity and trade the environmental
attribute separately as an REC. Currently, RE generators sell renewable energy at a preferential tariff
fixed by the concerned Electricity Regulatory Commission. They now have the option to sell the
electricity component and environmental attributes separately. The electricity component can be sold
to local distribution companies, traders, open consumers, or power exchanges at a mutually agreed
or market-determined price. Additionally, the environmental attributes can be exchanged in the form
of RECs. The REC will be traded only on power exchanges approved by CERC within a price band
determined by CERC. CERC has already notified this price band. Distribution companies, open-
access consumers, and Captive Power Plants (CPPs) can purchase RECs to meet their renewable
purchase obligations (RPO). Voluntary purchasers such as NGOs, the corporate sector, and
individuals may also participate.
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5.17 Settlement System

Power/energy measurements are logged every 15 minutes, and a weekly settlement cycle is carried
out. All transactions between participants must take place using a digital platform, which entails
standardized electronic messages being sent from one computer to another. The entire chain is
electronic and may be managed by the National Load Dispatch Centre. The transmission of messages
can be achieved using communication protocols typically within the X.400 family. The X.400
standard is increasingly used for electronic mail and involves messages being put in an electronic
envelope addressed to the recipient according to a standardized format. Transmission can be done
directly to the recipient's letterbox if all the address details are known, or via an electronic post office
that handles sorting and transmission. In the latter case, all traffic goes through an electronic letterbox
at the post office. Settlement software is required for this.

1. Procurement Phase During this phase, all the actors identify themselves to each other and
define the terms and conditions regarding commitments between the parties, such as when
supplying power, which can be read off on the meter (actual consumption), firm power, and
balance power.

2. Metered Data Reporting During this phase, the ISO/DSO collects and reports hourly data
and meter registration to electricity suppliers, balance providers, and the power grid.
3. Settlement Phase In the settlement phase, details of power trading are combined with details
of physical supplies (i.e., readings for production and consumption or estimated data for
profile supplies). Supply volumes are determined and priced. Final load profile shares are
drawn up by the network owners, who also make the meter reading of the user's electricity
meter.

4. Invoicing Phase During this phase, invoices are generated based on the settled data, and
payments are processed accordingly.

5. Settlement System for scheduling and settlement purposes, the entire day is divided into 96
time blocks of 15 minutes each. At the end of the day, all schedule revisions are incorporated
as 'Implemented Schedules,' which serve as the basis for the payment of capacity charges,
energy charges, and generation incentives to the generating stations governed by the ABT
(Availability-Based Tariff) regime. The actual energy interchanges for each 15-minute time
block are recorded using Special Energy Meters (SEMs) installed at all inter-utility exchange
points in the region. These readings are used to determine the actual injection of energy by
Inter-State Generating Stations (ISGS) and the offtakes of each state utility from the grid. The
actual values are then compared with the scheduled values to determine deviations from
schedules. Real-time deviations in a particular time block are analysed to ensure accurate
billing and settlement.

5.18 Merchant Power

Deregulated electricity markets rely on market-price signals to indicate the need for new investments.
An investment opportunity becomes attractive when the market price is high enough to ensure
profitability. Investors must consider both the uncertainty of the market environment and the
competition from other investors when making investment decisions. These two factors are relatively
new in power systems planning.

According to the National Electricity Policy, a 10-15% merchant capacity in generating plants may
be useful for providing liquidity in the electricity market. Merchant power plants differ from
traditional rate-based power plants in two main ways: (i) how they are financed, and (ii) where they
sell the electricity they generate.

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A merchant power plant is funded by investors and sells electricity in the competitive wholesale
power market. Since a merchant plant is not required to serve any specific retail consumers, those
consumers are not obligated to pay for the construction, operation, or maintenance of the plant. In
contrast, a traditional rate-based power plant is built and operated by a regulated electric utility
specifically to serve that utility's retail customers. In return, consumers are obligated to pay for the
plant's construction, operation, and maintenance.

Independent Power Producers (IPPs) who choose this route do so at their own risk. Setting up a
merchant plant typically means balance-sheet financing by the developer, as financial institutions and
lenders may not be comfortable with projects that lack long-term Power Purchase Agreements
(PPAs). A long-term sale of power (PPA) is a prudent choice for managing risk in a power-generation
facility investment; otherwise, undue risk is involved.

In its guidelines for the allocation of coal blocks and coal linkages for the power sector, the Ministry
of Power stated, "Merchant power plants serve different niches in the market; some provide steady
supplies to a power grid, while others operate only during peak demand periods." Merchant power
plants operating competitively help ensure that power is produced efficiently and supplied to
locations where it is needed most.

The government has set the plant size between 500 MW and 1,000 MW. This is not only because the
National Tariff Policy mandates that all new private-sector projects come through the competitive
bidding process, but also due to transmission constraints. The transmission system may not be able
to support the evacuation of power from large-sized merchant plants.

To ensure that large volumes of power can be evacuated, dedicated transmission systems would be
required. This would mean that consumers for power produced by these plants would need to be
secured. Such projects would require transmission systems planned and executed in tandem with the
generating plant, so that when the plant begins producing power, the transmission lines are in place
to evacuate the power from the plant to the consumer.

Merchant plants, by definition, do not have pre-identified consumers. This means that these plants
would have to rely on redundancies in the existing transmission system to evacuate power. The
Ministry of Power is working on a solution where a merchant plant with a capacity of 500 MW to
1,000 MW can be accommodated in the national grid, which would include redundancies.

The Ministry of Power believes that a limited number of merchant plants will facilitate the
development of an electricity market. "A few merchant plants with capacities of 500 MW to 1,000
MW could be easily managed through the transmission system, and it is an option for creating a
market as it would promote power trading on short-term, medium-term, and spot-market bases."

5.19 Differential Electricity

Consumers cannot detect the specific source of the electricity powering their homes because of how
electricity is pooled by the national grid. As a result, traders and suppliers have found it challenging
to differentiate their products.

Some consumers are willing to pay more for electricity from specific, sustainable sources, and
generators and suppliers can benefit from such demand. An electricity trading company or supplier
might offer consumers electricity generated exclusively from, for example, wind farms, based on a
bilateral contract with a wind farm generator. Consumers do not need to identify the source of
electricity at home; they simply need a system they can trust. This system would work as long as the
wind-power generator is paid only for the energy it generates, and the wind-power consumers are

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billed for the same amount. In this way, consumers can be confident that they are using electricity
from their chosen source.

5.20 Congestion Management

One of the most important tasks for the electricity market is managing the available transmission
capacity in the power system. Building transmission capacity is costly, and as a result, congestion is
an inevitable challenge. High Voltage Direct Current (HVDC) connections, in particular, are
expensive, leading to frequent congestion between different synchronous systems.

Due to the varying locations and quantities of power supply and demand, power flow can become
concentrated in specific transmission lines, causing congestion. Different markets address
transmission congestion in various ways. In India, transmission congestion and voltage profiles are
managed by the National Load Dispatch Centre, with operational funds provided by the Ministry of
Power.

There are three main methods used to tackle network congestion:

1. Price-Area Congestion Management: Used in India and the Nordic pool.

2. Available Transfer Capability (ATC) Based Congestion Management: Utilized in the
US.
3. Optimal Power Flow (OPF) Based Congestion Management: Employed in the UK.

1. Price-Area Congestion Management

Spot-market bidders must submit separate bids for each price area in which they have generation or
load. If no congestion occurs during market settlement, the market will clear at a single price, the
same as if no price areas existed. If congestion does occur, prices in different areas are set to satisfy
transmission constraints. Areas with excess generation will have lower prices, while areas with excess
load will have higher prices. When a power line fails due to congestion or other reasons, electricity
supply will be interrupted. The system operator (e.g., POSOCO) identifies transmission bottlenecks
and adjusts prices: increasing prices in deficit areas (to decrease demand and increase supply) and
decreasing prices in surplus areas (to increase demand and decrease supply). This creates an incentive
for participants to invest in transmission capacity. The unconstrained Market Clearing Price (MCP)
for the entire market is then calculated.

Fig 5.12 Market splitting for transmission congestion

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2. Available Transfer Capability (ATC) Based Congestion Management

This method is commonly used in the US. The US Federal Energy Regulatory Commission (FERC)
requires each Independent System Operator (ISO) to monitor its regional transmission system and
calculate the Available Transfer Capability (ATC) for potentially congested transmission paths
entering, leaving, and within its network. ATC measures how much additional electric power can be
transferred from the starting point to the endpoint of a path. The ATC values for the next hour and
for future hours are published on the Open-Access Same-Time Information System (OASIS),
operated by the ISO. Anyone wishing to conduct a transaction can access OASIS web pages and use
the available ATC information to determine if the system can accommodate the transaction.

3. Optimal Power Flow (OPF) Based Congestion Management

Optimization is performed to minimize generator operating costs while adhering to constraints that
model the transmission system. Generators provide a cost function, and those wishing to purchase
power provide a bid function to the ISO. The ISO, which has a complete transmission model,
performs an OPF calculation. The OPF solution yields prices per MW at each node of the system. In
some countries, a zonal pricing method is used, dividing the system into various geographical zones.
The zone prices determined by the OPF are applied as follows: (a) Generators are paid the zone price
for energy. (b) Loads must pay the zone price for energy.

If there is no congestion, a single zone price applies throughout the system, and generators and loads
pay and receive the same price. When congestion occurs, zone prices differ, with each generator and
load paying and receiving the price specific to their zone. The OPF, through zonal pricing, helps
control transmission flows and maintain transmission system security. When transmission capacity
is restricted, the spot market ensures optimal dispatch of power plants, resulting in lower prices in
exporting areas and higher prices in importing areas due to congestion.

5.21 Ancillary Services

Ancillary services are support services essential for enhancing the quality, reliability, and security of
the electrical power system. These services have become increasingly important due to power
shortages and the need to fully utilize available generation capacities. By harnessing every possible
generation capacity, ancillary services help reduce load-shedding and improve grid reliability and
security. Additionally, ancillary services play a crucial role in integrating renewable resources into
the grid, addressing challenges related to the variability of wind and solar power generation.

The Central Electricity Regulatory Commission (CERC) Regulation no. 8 of the Power Market
Regulations 2010 outlines provisions for the introduction of new products in the Indian electricity
market, including Ancillary Services Contracts. These services, which can be managed by an
independent system operator such as POSOCO, include:

1. Demand Response: Adjusting the demand for power in response to supply conditions.
2. Reactive Power and Voltage Control: Managing voltage levels and reactive power to
maintain grid stability.
3. Black Start: Restoring the power system to operation following a widespread blackout.

These ancillary services are vital for maintaining the stability and efficiency of the power grid,
particularly as the grid incorporates more renewable energy sources.

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5.22 Hedging

Hedging in electricity markets involves using financial instruments to manage risks associated with
volatile spot prices and to secure guaranteed electricity prices over a certain period. Due to the
inelasticity of electricity demand and its non-storability, spot prices for electricity can be highly
volatile compared to other commodity markets. This volatility is exacerbated by sudden changes in
demand, often driven by weather conditions or special events.

Volumetric Risk is a significant concern because electricity demand can fluctuate widely. For
instance, extreme weather conditions can lead to spikes in electricity use due to increased use of air
conditioners or heaters. To mitigate these risks, various financial derivatives have been developed
and are regulated by the Central Electricity Regulatory Commission (CERC). These derivatives
include:

• Futures Contracts: Obligate the buyer or seller to trade a specified quantity of electricity at
a predetermined price on a future date. These standardized contracts are traded on exchanges,
which provide a guarantee of contract fulfillment.
• Forward Contracts: Similar to futures but typically customized and traded over-the-counter
(OTC) rather than on an exchange.
• Options Contracts: Provide the right, but not the obligation, to buy or sell electricity at a
specific price before a certain date. This flexibility differentiates options from futures
contracts.
• An electricity forward contract, bundled with bilateral financial options or an optional
forward contract, provides the holder with the right but not the obligation to buy or sell
electricity at a specified price on a future date. This arrangement offers flexibility for both
sellers and buyers in managing generation and consumption. By using these financial
instruments, participants can benefit from potential market price movements while mitigating
the risks associated with price fluctuations.

Fig 5.13 Typical weighted average price (MCP)-duration curve forecast for the year ahead of a power
exchange

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5.23 Smart Power Market

Power Market efficiency requires the establishment of new tools and processes to fully enable
dynamic consumer participation. As the shift towards competitive electricity markets progresses,
integrating renewable power and demand response has become crucial for utilities and system
operators. These strategies enhance grid reliability and increase consumer value.

the evolution of the smart grid is crucial for advancing distributed generation, end-use efficiency, and
load management. Future developments may include more sophisticated interactions between
consumers and utilities, such as automatic control of appliances and dynamic demand response
agreements.

The goal of electricity market reforms is to address the long-term challenges of decarbonization while
ensuring secure and affordable electricity supplies. As the market evolves, integrating renewable
energy sources into the spot market will become increasingly important.

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