Future of Open Access market in power sector with Power Exchanges IEX & PXI and PPAs way of transaction for charges e.g. wheeling, CSS, PoC, LDC, etc
Ujjwal Kumar G.
I 22 Yrs Exp I NGM I Ultratech Cement I Mott MacDonald | Odisha Power | TATA Group | NMDC | XLRI | IIT (ISM) |
A. Introduction
The power sector in India has undergone a plethora of reforms in the last decade. Introduction of competition has been one of the main aims of reform in the electricity sector in India. One of the most important steps taken towards achieving this was the introduction of open access in the Electricity Act, 2003, where large consumers have access to the transmission and distribution (T&D) network to obtain electricity from suppliers other than the local electricity distribution company (Discom).
B. Objective open access
The objective of open access was to provide opportunity to energy intensive industry and commercial establishments to source electricity directly from the market and manage costs to remain competitive. Open Access was to also improve the economic health of the Distribution Licensees by reducing power procurement at higher marginal cost so that the non-open access retail consumers of the Distribution Licensees would not get unduly burdened.
C. Open Access, a journey start with Electricity Act 2003
Electricity Act 2003 (sub-section 2 of section 42) lay down provisions for a power market and competition wherein electricity consumers now have the right to procure power from the supplier of their choice other than their distribution company.
For example, under open-access a consumer in Telangana has right to select the source of supply form any generator. This generator may be generating power in Telangana or any other state in India.
Open Access, as per Electricity Act 2003, verbatim is:
“Non-discriminatory provision for the use of transmission lines or distribution system or associated facilities with such lines or system by any licensee or consumer or a person engaged in generation in accordance with the regulations specified by the Appropriate Commission”.
Open Access allows large and heavy users of powers i.e. those with 1 megawatt (MW) and above connected load to buy cheaper power from the open market. The idea is that the customers now able to choose from a number of competing power companies like GENCOs, CPSU, IPPs, Private. Licensees, Excess Captive from captive power plants instead of being forced to buy electricity from their existing electric utility monopoly.
D. Pros and cons of Open Access
1. Competitive pricing
Open Access was introduced in the Electricity Act to bring in competition into the sector, thereby benefitting the end consumer. Over the years, it has acted as a catalyst in bringing reforms into the sector by benefitting the players across the spectrum of value-chain from generators to suppliers to electricity traders to the end consumers.
Open Access will ease the power shortage since a number of power producers like Solar energy companies can now transmit power from their solar parks to different load centers. Once the consumers are given the choice to purchase power from the open market, it will automatically lead to competitive pricing of electricity making electricity cost go down.
2. Regular electricity supply
It helps the industrial & commercial consumers by ensuring regular electricity supply at competitive rates. It helps large consumers particularly the sick textile, cement and steel industrial units by ensuring regular supply of electricity at competitive rates and boost business of power bourses.
3. Help consumers to meet RPOs
It also enhances the business of power markets as the open access helps consumers meet their Renewable Purchase Obligations (RPOs) as well.
4. Exposure to grid risks
In open access, eligible consumer can avail the benefits of cheaper green solar power by either purchasing through the rooftop solar installation in its premises or buying from an offsite solar farm. While open access does away with limitations of rooftop solar such as scalability and high capital expenditure, it is often exposed to unpredictable grid risks.
5. Appropriate utilization of existing infrastructure (transmission and distribution line) and easing of power shortage.
Existing transmission and distribution infrastructure can be used to avail the open access.
In open access, this will enable number of players utilizing these infrastructure and transmit power from generation to the load center. This will mean utilization of existing infrastructure and easing of power shortage.
Trading, now a licensed activity and regulated will also help in innovative pricing which will lead to competition resulting in lowering of tariffs.
E. Open access classification
Open Access, rights governed in India by Electricity Act 2003, can be classified as under on the basis of location of the purchasing and selling entities:
1. Inter State Open Access:
When the Purchasing and selling entities belong to different states then it is called as an Inter-state transaction. In this case, apart from the open access charges applicable in intra-state transactions, Point-of-Connection (POC) charges and losses of the regional grids where the buyer and seller are located are also applicable.
In Inter State Open Access Central Electricity Regulatory Commission (CERC) regulations are followed wherein purchase rights can be:
- Short Term Open Access (STOA) i.e. open access allowed for the period of less than one month. For example, If purchaser require open access for two months, then it should re-apply for STOA before the expiry of first month.
- Medium Term Open Access (MTOA): i.e. open access allowed for a period of 3 months to 3 years.
- Long Term Open Access (LTOA) i.e. open access allowed for a period of 12 years to 25 years.
2. Intra-State Open Access:
When the Purchasing and selling entities belong to same state then it is called as an Intra-state transaction. In this case, the open access charges comprising transmission losses and charges wheeling losses and charges (if applicable) and cross-subsidy of that particular state are applicable.
In Intra-State Open Access State Electricity Regulatory Commission (SERC) regulations are followed wherein purchase rights can be categorized as Short Term Open Access (STOA), Medium Term Open Access (MTOA), and Long Term Open Access (LTOA) and the duration of which depends on the respective state open access regulations.
F. Intra-State Open Access versus inter State Open Access for purchasing entity. Which one is better?:
Renewable Energy based transactions under intra-state open-access is more convenient than inter-state open-access. in order to promote Renewable Energy, many state provide various concessional provisions like concessional wheeling and transmission charges, banking facility benefits, electricity tax / duty exemptions, waiver or discount in cross-subsidy-charges etc. These concessional provisions reduce the cost of transaction significantly and allow RE generators to offer better commercial terms to consumers.
G. What are open access charges?
Electricity consumers can make use of the existing transmission and distribution infrastructure after paying appropriate charges determined by their respective State Electricity Regulatory Commissions (SERCs). A supportive regulatory regime from the state electricity authorities combined with better grid stability can make long-term open access projects viable. These changes will facilitate more projects from the renewable energy companies who are taking huge upfront risks at present and will definitely upgrade the state of power trading in the country.
These charges against the usage of transmission and distribution infrastructure can vary from state to state and are lesser in states with stable grid and favorable regulatory regime. In case of solar power, the state-wise open access charges can vary from as low as Rs. 0.2/KWh to Rs.1.5/KWh.
There are several charges to be paid by open access consumers to distribution licensee, transmission licensees and other related entities, other than the power purchase cost paid to the generator or supplying entity. Apart from below charges the open access consumers has also to fulfill the renewable purchase obligation (RPO), in which they have to purchase a part of their total consumption through electricity generated from renewable energy.
These charges include as under and same shall be elaborated in the upcoming articles:
- Connectivity Charges
- PoC Charges
- Transmission Charges
- Transmission Losses
- Wheeling Charges
- Wheeling Losses
- Cross Subsidy Surcharge
- SLDC Charges
- RLDC Charges
H. Types of Transactions involved in open access. Pros & cons of Power Exchanges (PXs) and Power Purchase Agreement (PPA) type of transactions:
The buyer and seller of electricity can opt for either collective or bilateral transactions. Besides minor changes in the meter installed, open access transactions are essentially managed through energy accounting at the state level. Thus, a consumer buying power from open access will see the transaction accounted for in its monthly bill.
1. Collective transaction –
In case of collective transactions the electricity is traded through exchanges by exchange members for a very small margin fixed by commission. Power Exchange transactions are transactions carried out over an electronic platform. Currently India has two operating Power Exchanges (PXs) i.e. Indian Energy Exchange (IEX) and Power Exchange India (PXI). At power exchanges consumers can buy/sell electricity on day-ahead/week-ahead basis or for particular time period in a day. Buyer/Seller will be bidding for electricity cost for particular time period and for each time period price at which electricity is determined by market.
2. Bilateral transaction –
Power Purchase Agreement (PPA) is a contract between the seller and the consumer for buying power at mutually agreed tariff for a predetermined number of years. The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination clauses. A significant quantum of power is still traded through bilateral transactions. Many of the leading solar players under the OPEX model in India are resorting to bilateral agreements for tariff determination with commercial and industrial clients.
3. Bilateral transaction versus Collective transaction –
Adopting a combination of Bilateral transaction and Collective transaction may result in cost savings of sourced energy and long term energy security because bilateral mode of transaction brings volumetric and price certainty for a relatively longer duration while sourcing power from PXs provides advantages such as better price discovery, risk mitigation from counter-party default.