If RPO’s Are Drivers of Renewable Energy, An Exclusive Exchange for Green Power Is Fuel

The Green Term Ahead Market (GTAM), launched on the Indian Energy Exchange (IEX) in August, has been touted as a huge step forward for renewable energy generators and buyers. SaurEnergy spoke to Rohit Bajaj, Head, Business Development at IEX on the new development.

 Q. What is the single biggest impact of GTAM you see on the market?

The introduction of the green market on IEX platform is a significant milestone and will act as a key enabler in efficient and effective integration of renewable energy, in line with India’s vision of becoming a sustainable energy economy. This will also accelerate India’s path to achieve its objective of achieving installed renewable capacity to 175 GW by 2022 and 450 GW by 2030.

Green markets will provide a pan-India wide market to buyers and sellers to trade renewable energy in the most competitive, flexible and efficient manner. It will be a more viable alternative than the rigid long and medium-term Power Purchase Agreements (PPA) and RE generators will no longer have to tie up their generation capacities in advance. The green market will encourage RE generators to even adopt part market and part PPA models. In fact, some generators may create merchant capacity solely for the purpose of trading through Exchange market, on the mid to long term basis.

Additionally, it will help obligated entities such as distribution companies, industries, captive power producers and open access consumers to fulfil their RPO compliance in a more flexible manner. Thus far, these entities could only fulfil their RPO commitments through Renewable Energy Certificates (RECs) but now they will have an option for meeting their short term energy and compliance in an integrated manner through the green market.

Q. What are the global counterparts to the GTAM market? How do they differ from the operating rules in India?

In developed countries like European nations, both conventional and non-conventional power are traded in the same market segment. These countries though have varied mechanisms such as Contract for differences (CFD) to treat renewable energy in a different manner but there are no distinct green markets. India is one of the first countries to have a dedicated market for green power. Earlier there was no differentiation of power as both the conventional and green power were clubbed together but now you have a separate market for selling and procurement of green power. So long as the RPO continues to drive the renewable energy growth, an exclusive green market on the Exchange platform would be of immense significance.

Q. Do you believe a thriving market at GTAM could actually encourage renewable installations without PPA’s?

As mentioned earlier, introduction of green markets will encourage the RE generators and distribution utilities to move towards Exchange platform for renewable energy trading instead of entering into the long term contracts. This would happen gradually though. While we expect existing generators to free up some percentage of their capacities to trade in the green markets, some generators will also increase or build new installed capacities specifically for the purpose of green markets. We believe the trend would be similar to what we witnessed in the conventional power segment. Today, we have about 20 GW of merchant power capacity trading power on the Exchange market, however, about a decade back all capacities were tied up in long term PPAs and there was no merchant capacity. The power exchanges trade 4% of total electricity produced and the green market will certainly help the market to expand and gain a bigger share over a period of time.

Q. We have seen electricity volumes and prices on market platforms fall to really low levels recently. Do you see that trend continuing? How has the long term trend been on the IEX’s own platform? 

Electricity trade volume on the exchange continues to grow in a sustained manner. For instance, in August’20, while the national peak demand saw a 6% YoY decline and energy consumption declined by 2% in the same period, the exchange witnessed 1% YoY increase in electricity volume. The recent launch of real-time electricity market has received great response from all the market participants which has further contributed to this growth. It has enabled utilities and industries to balance demand-supply variation in the most dynamic and cost-efficient way at just an hour’s notice.

The prices on the exchange have seen a significant reduction over the past few months. The two major reasons that have contributed to competitive prices have been ample availability of power on the sell side and improvement in coal supply since past few quarters enabling power generation companies to supply cheaper power. The average price in the day-ahead market from 24 March until August 31 was mere Rs 2.45 per unit and saw a 26% decline on YoY basis. This enabled distribution companies from Southern, Western and Northern states to buy aggressively on exchange, thereby, optimising their procurement cost and maintaining their financial liquidity during the difficult period of Covid-19 pandemic.

Q. How do independent developers become part of the GTAM market? What are the minimum conditions and criteria?

All the developers who want to sell renewable power on the exchange will be required to obtain NOC from their respective state or regional load despatch centres with the clear mention of energy source as solar or non-solar. Once the NOC is obtained, they can start trading at IEX. Also, like all other clients and members in the conventional power exchange market, registration with IEX is required to perform trade in the renewables segment too.

Q. What prevents some developers from getting on to trading their surplus generation in India? What sort of policy interventions could help? 

Until the launch of green markets, renewable energy in India was majorly being traded under long term PPAs and some volumes under OTC trading leveraging open access. While the generators were obligated to supply a fixed amount of electricity as per the contracts, there was an ambiguity in terms of selling of surplus generation to a third party. SECI has been working with the ecosystem partners in this direction and of late, some new PPA contracts have in built clauses that allow generators to sell off the surplus capacity in the open market. We see this being favourable to those RE generators who want to trade their surplus power on the Exchange.

There are a number of renewable energy generators who have been getting paid a fixed ‘feed-in tariff’ and whose contract period is coming to an end. These generators are now trying to re-negotiate their contracts with the distribution utilities. With the advent of green market, they now have the additional option of selling their power in the market.

Q. What are IEX’s expectations in the first year of GTAM on its platform ? In terms of total power traded ? Do you do anything to educate prospective users about the potential here? 

We believe that green markets have a strong potential for growth. Given the advantages like competitive prices, transparency, flexibility, and payment security that Exchange offers, a robust green market is pivotal for achieving green energy aspirations. The new market segment will support states to sell their surplus renewable power in the market. On the other hand, the buyers will be able to procure energy as well as meet the renewable purchase obligations (RPOs) through this platform. Some states such as Karnataka, Andhra Pradesh, Telangana, Tamil Nadu, Maharashtra, Rajasthan, Gujarat are RE rich states and often have surplus renewable power even after meeting their RPO commitments. The green market provides a market-based platform where RE surplus and RE deficit states can trade renewable energy and also fulfil RPO targets.

While these are early days to share numbers on opportunity size and market potential but we are expecting active participation from the distribution utilities with significant quantum.

The green markets and the real-time electricity market, together, provide a robust proposition towards facilitating seamless integration of renewable energy by addressing intermittency issues related with green power.

We have been organising workshops for the distribution utilities as well as RE generators to build awareness about the green markets. In the coming months, we will continue to organise webinars and workshops for utilities, generators and industrial customers to develop the market including sharing the price trends and contract specifications.