The Case for Coupling Power

Context: The Central Electricity Regulatory Commission (CERC) has recently proposed the coupling of power exchange for determining a single market-clearing price, in its draft Power Market Regulation (PMR), 2020.

A brief on the electricity supply chain:

• Distribution Companies (DISCOMS): provide electricity to the consumers.
• Power generating Companies: provide electricity to the DISCOMS under long-term power purchase agreements.

• Market Clearing Price: The price at which the last unit of supply or demand is cleared is considered the market-clearing price.

• Power Exchanges: we're set up for removing the inadequacies of information asymmetry between DISCOMS and the generating companies. There are two electricity exchanges:

• The Indian Energy Exchange (IEX)   -  working on imported software

• Power Exchange Indian Limited (PXIL) – working on indigenous software.

Significance of a single market-clearing price :

• It will maximise the sum of producer and consumer welfare as it is more efficient and also will lead to better utilisation of the transmission infrastructure.

• Market coupling is done only in collective transaction segment: closed-type batch auctions are conducted, where participants place their orders blindly without being aware of other bids.

• It will not affect the competition: since the market will continue to compete on the basis of the number and diversity of contracts listed on the exchanges and on the basis of ease of transaction.

• Moreover, in the absence of market coupling, the fear of different prices has led market participants to flock to only one platform, creating a monopoly.

Conclusion: Market coupling will ensure a truly competitive Pareto efficient multiple Power Exchange model and will lead to innovation and better services.