by Ravindra Choubey, SBI Capital Markets Ltd.

Agenda
y Indian power market
y A brief history/background y Basic terms- grid, frequency, HVDC, Open access, UI y ABT y PLF Era y Grid failures and black starts

y Supercritical Technology y Power Trading

y Clearing & Settlement Mechanism y Congestion Management

y Investors perspective

Background
y Concurrent subject Center & States can make laws y Multiple States & Jurisdictions y Single buyer (SEB) model is still in practice y Discoms continue to be controlled by State government y History: y Political interference in operations, lack of access to funds and paucity of any incentive to better performance ensured dismal performance of SEBs y Low PLF since 1950s led to central PSUs NTPC, NHPC in 1975 y While WB aided CPSUs did ICB for machinery, state generators had to be contended with local manufacturers y Capacity addition programs have dismal record y SEBs Continue to be loss making y High cross-subsidization within States free power to farmers y Control on defualters/Low-paying customers still not done y High inefficiencies in T&D, operations especially collections y Move from incentive based generation to ABT. y EA 2003 enacted , NEP 2005 come into effect y Open Access to transmission lines controlled by State Transmission Utilities

India Power Scenario-Generation

y Basic terms- grid, frequency, HVDC, Open access, UI, SLDC, RLDC, NLDC, Over
& Under drawl, merit order dispatch

y ABT: Availability based tariff y Declared capacity y Scheduled generation (daily) y Demand side management (brown out) y UI rates:
y y y

Frequency basis Penalties & profits Regulated market

y Improvised grid health and stability

important indicator of Grid health.
from pedestal

Frequency single most

y Freq. rises as generation exceeds demand & drops when demand outstrips supply y Extreme cases: Under-frequency relays operate to trip lines/Turbines throwout

Frequency UI Curve

Lower freq. steeper profits Higher Frequency smaller penalties. The maximum UI values and slopes(incremental UI/freq. change) on either sides keep changing as per feedback from Consumers & Generators. Eg. In case of Guj.CS: UI of 701 MW at Rs.3.01/unit works out to Rs.5 Cr/day loss

Operational Efficiency of IPP

y Scheduling y Regional level real time inputs from generators & Transmission line data y National level grid power flows controlled by SLDC and NLDC in coordination with RLDC y Role of RLDC y responsible for optimum scheduling and despatch of electricity within the region in accordance with the contracts entered into with the licensees or generators in the region. y monitor real time grid operations y keep accounts of quantity of electricity transmitted through the regional grid. y exercise supervision and control over the inter-State transmission system. y Optimised Generation under ABT regime for UI and trading benefits y Capacity declaration y generation to best avail low frequency benefits y Fuel stock management (link - tolling arrangements) y Quick load ramp up and ramp down

Steam Parameters Turbine Heat Rate Trends in Indian Units

SL. NO 1. 2. YEAR STEAM PARAMETER UNIT SIZE (MW) HEAT RATE (KCAL/KWHR) 1947-50 1951-60 28 ata , 400 deg C 60 ata, 482 deg C 10 - 15 30 - 57.5 2470

3.

1961-76

70 ata 496 deg C to 90 60 - 100 ata, 535 deg C 130 ata, 537/537 deg C 110 - 120 200 / 210(USSR) 210 (Siemens) 500 500 660

} 2370
2170-2060 2060 1985 1980 1945 1900

4. 5. 6. 7 8.

1977-82 1983 1984-93 1994 + 2001

130 ata, 537/537 deg C 150 ata, 537/537 deg C 170 ata, 537/537 deg C 170 ata, 537/537 deg C 246 ata. 537/566 deg C

SC/USC Technology

Cost Benefit Analysis

y
y y y y

In SC/USC Plants Higher efficiency (about 1% Cycle Efficiency / 3% reduction of SHR) resulting in
Fuel Savings Lower Aux. Power Reduced CO2, Lower SOx/NOx Smaller Boiler /Feed Pump

y Higher capital cost due to y Enhanced metallurgy of boiler & Turbine y Better control systems required to handle higher pressure & temperature y Technology cost y Trade off lies at y Better efficiency (important for an expensive fuel mix) y Reduced ash handling costs & space requirement of BTG y Lower variable cost i.e. lower MC (important for trading) y Reliability of supplier over life of asset

Cost Benefit Analysis

y
y y y y

In SC/USC Plants Higher efficiency (about 1% Cycle Efficiency / 3% reduction of SHR) resulting in
Fuel Savings Lower Aux. Power Reduced CO2, Lower SOx/NOx Smaller Boiler /Feed Pump

y Higher capital cost due to y Enhanced metallurgy of boiler & Turbine y Better control systems required to handle higher pressure & temperature y Technology cost y Trade off lies at y Better efficiency (important for an expensive fuel mix) y Reduced ash handling costs & space requirement of BTG y Lower variable cost i.e. lower MC (important for trading) y Reliability of supplier over life of asset

Power Trading
y Demand Management y Need & evolution y Mechanism y Regulatory Framework y Why Power Exchanges

Load Curve and Demand Management

BASE LOAD

BASE LOAD

Base Load Managed through Long Term PPAs Nuclear & Large Thermal Seasonal Variations Managed through Short Term trades, by 1) Traders, 2) Bilateral Contracts or 3) Banking Arrangements Daily Variations Managed through 1)Day ahead Power Exchange or 2) UI Balancing

Transaction Structure
y Largely tied-up through PPAs y More than 40 licensed traders in existence now; Largest 5 have

about 85% of transaction volumes y Low liquidity in short term market

y Insufficient power left for short

term trade y Non-standardization of electricity trading products y PXs need to compete with OTC as well as the peculiar real time balancing mechanism

Need & Evolution

y Natural monopoly of transmission system - trading is an artificial market y Started in response to apparent under utilisation of generation capacities

across regions in 2001 y Allowed in the absence of any specific transmission Open Access framework y Provided for adequate flexibility in terms of transaction including freedom in nomination of buyers and sellers for a transaction Included in the EA 2003 as a licensed activity y Done under the frame work of Short Term Open Access rules y Restricts each transaction to an identified pair of buyer-seller through specific notional path y Currently Trading margin capped at 4paise/unit. Power to Fix trading margin was enshrined in EA 2003
y Traders expand profit by putting clause at 2% rebate on timely payment.

y Trading accounts for about 5% of total energy consumption in India now

Evolution post reforms

yBilateral contracts: ymutual contracts where buyers and sellers search and negotiate long term and short term yLarge search costs & information asymmetry as compared to trading yEA 2003, NEP and various regulatory measures intended towards yCreating a competitive power market yIncreasing the number of participants in the sector yIncreasing the quantity of electricity under trade yHowever, issues persist ySystem congestion : Transfer capability Reliability margin; computation of congestion charges yComplicated operational requirements for scheduling and despatch yComplicated Open Access requirements yNon-standardized individual contracts for all types of transactions yPrice and volume information asymmetry yPower Exchanges as market infrastructure to resolve above issues

Example
y y y y y y y y y

Type of Market Trading System Trading Methodology Auction Timings No. of contracts per day Minimum Bid Volume Minimum Volume Quotation Step Minimum Value Quotation Step Delivery Point connected exchange entity, is located Transmission charges

Day Ahead PXI Closed bid double sided Auction through linear interpolation 10.00 am to 12.00 noon (Day D) 24 hourly contracts for next day delivery (Day D+1) 1 MW 1 MW Rs. 10 per MWh Periphery of Regional Transmission System in which the grid-

y 1.RegionalTransmissionSystem:AsPer CERC (Open Access inter-

StateTransmission)Regulations,2008. y 2.StateTransmissionSystem:Aspertheconcerned SERC s Regulations/CERC(Open access)Regulations,2008.

y y

Transmission Losses Settlement Price(s)

Payable in kind from delivery point to its grid connection point. The Market Clearing prices of the respective Bid Zones

TRADE-CLEARING PRICE & VOLUME

Sellers S1 S2 S3 S4 S5 Qty 50 150 200 150 300 Price 2.5 3 4.5 5 6 Agg. Supply 50 200 400 550 850 Buyers B1 B2 B3 B4 B5 Qty 200 50 100 200 400 Price 5 4.5 4 3 2.5 Agg. Demand 200 250 350 550 950

Market Clearing mechanism

Other Power Markets

y Nord Pool, Nordic Power Exchange, world's 1st y national transmission system operators (TSOs) are responsible for reliability and balance settlements y Trades with neighboring countries; Norway, Sweden, Denmark, Finland y dominated by hydropower (need to sell surplus) y transmission system linking all 4 provides the basis for physical electricity exchanges

Investors Perspective
y Ability to trade y Prime mover :
y y y

Coal based: CFBC, PC, Supercritical boilers Gas based: Open cycle, Combined cycle Hydro based: Run of the river, Pumped storage, SEB irrigation/political issues

Fuel dependence y Long term coal linkage Domestic: pit-head, non pit-head y Domestic Vs Imported fuel

Location of plant y Proximity to load centers, grid separation y Proximity to HVDC links: transmission bottlenecks

 Market perspective y Large percentage long term tie up: fixed cost recovery, Marginal cost pricing y Past reneges on PPA by IPPs drive down consumer faith y Equity participation by power trader enhances marketability  Regulatory issues  Use of Section 62 1(a) of EA 2003 by State ERCs to cap prices for reasons of reasonable prices

Thank you