CERC Directs Power Exchanges To Tweak Contract Terms, Timings

The Central Electricity Regulatory Commission, the key regulator under which all power trading at exchanges happens in the country, has issued a suo-motu order that it states will make the markets more efficient, stable and transparent.

Background

The country’s three power exchanges, namely, IEX, PXIL and HPX enable trading in a variety of contract instruments, including Day Ahead, Real-Time, Intraday, Contingency, and Term Ahead contracts. While only Day Ahead contracts were available when the sector started,  additional contracts were introduced over time to accommodate market needs and renewable energy integration.

Concerns 

According to the CERC, issues have been identified regarding price discovery in Day-Ahead Contingency contracts, manipulation risks, and liquidity challenges in certain market segments.

The Commission therefore analyzed transaction trends and price variations, leading to recommendations for modifying contract structures and trading mechanisms.

Key Decisions:

Standardizing time slots for Term Ahead Market contracts to improve liquidity.

Revising timelines for Any-Day Single-Sided contracts to ensure transparent participation.

Addressing concerns in contingency contracts through changes in price discovery mechanisms.

Continuing Intra-Day contracts with a uniform trade window across exchanges.

Shifting Day-Ahead Contingency contracts from continuous matching to a uniform price step auction for improved transparency.

 

According to the CERC order, the changes will help by:

Improved Liquidity: Standardizing time slots in the Term Ahead Market enhances liquidity, making it easier for buyers and sellers to match demand.

Transparent Pricing: Moving Day-Ahead Contingency contracts to a uniform price step auction helps prevent price manipulation and ensures fairer price discovery. It has also directed the Power Exchanges to display information regarding the number and volume of bids received (both buy and sell) on their website, in addition to the data on traded volume, for all Contingency and TAM contracts.

Better Market Access: Revising timelines for Any-Day Single-Sided contracts allows broader participation, helping smaller players enter the market.

Efficient Transactions: Streamlining Intraday trading with a uniform trade window improves transaction speed and efficiency across exchanges. In this, it has directed PXIL to discontinue the ‘DAC Dynamic’ contracts with immediate effect.

Market Stability: Addressing contingency contract concerns creates a more predictable and stable market, reducing risks for traders.

In essence, these changes encourage more participation, fairer pricing, and greater efficiency in electricity markets.

The Full order can be viewed here.