Electricity Trading in India

Study of Energy Derivatives
&
Electricity Trading in India
Name Nitin Virmani
Roll Number 21
Batch EPGDCFM 11 - 13

Index
CONTENT PAGE NUMBERS
Abbreviations 4
Energy Derivatives: Overview 5
Dodd-Frank Regulations Impact 15
Indian Energy Market 17
Energy Trading 27
Power Trading in Different Markets 39
India’s Energy Zone 44
Key Issues and Challenges 55
Conclusion 57
References 58
Created By: Nitin Virmani |Roll No. 21|CFM 11-13

A VOTE OF THANKS
I would like to convey my sincere thanks and gratitude to Ms. Niti Nandini Chatnani, Assistant
Professor, IIFT fo her valuable support and guidance as a project mentor. Her assistance was
always inspiring and her advice to the structure, format and content was a great help.
A special thanks to Dr. Basant Kumar Sahu, Assistant Professor, IIFT for his unconditional
guidance and Ms. Shilpa Ojha, Program Associate, IIFT for all her administrative second.
To prepare this report, I got a tremendous guidance from Mr. Nikhil Swaroop, Director
Trading & Risk Management, Sapient Global Markets Private Limited. His inputs and advice
on my study on Indian Energy Market were of immense utility while the overall report was
constructed.
Real big thanks to my wife Nidhi and my parents who backed me at home and took care of all
other issues while I prepared this report.

Executive Summary
Indian Energy Market sector is in its adolescence age. Both public and private companies work
together in order to fulfill the demand of power in the country. As like other commodities
energy derivatives also get traded on the different exchanges.
This report on “Energy Market in India” takes a comprehensive look at the Energy sector, how
energy market of different countries work and how Indian market is different than others.
I tried to show the role of power exchanges in the energy trading business and how SEBs trade
on exchange and also the problem they have been facing.

Abbrevations
CEA - Central Electricity Authority
CERC - Central Electricity Regulatory Commission
IPP - Independent Power Producer
KWH - Kilo Watt Hour
KCal - Kilo Calorie
Ckt Kms - Circuit Kilometers
PSU - Public Sector Undertakings
SERC - State Electricity Regulatory Commission
MT - Million Tonnes
MU - Million Units
MW - Mega Watts
PLF - Plant Load Factor
PPA - Power Purchase Agreement
SEB - State Electricity Board
SLDC - State Load Dispatch Centre
UT - Union Territory

Overview of Energy Derivatives in India
An energy derivative is a derivative contract based on (derived from) an underlying energy
asset, such as natural gas, crude oil, or electricity. Energy derivatives include exchange-
traded contracts such as futures and options, and over-the-counter (privately negotiated)
derivatives such as forwards, swaps and options. Major players in the energy derivative
markets include:
• Major trading houses
• Oil companies
• Utilities
• Financial institutions.
Energy derivatives have received criticism after the 2008 financial collapse; critics cite
evidence that the market artificially inflates the price of oil and other energy providers.
The basic building blocks for all derivative contracts are the Futures and swaps contracts. For
the energy markets these are traded in New York NYMEX, in Tokyo TOCOM and on-line
through Intercontinental Exchange.
A future is a contract to deliver or receive oil (in the case of an oil future) at a defined
point in the future. The price is agreed on the date the deal/agreement/bargain is struck
together with volume, duration, and contract index. The price for the futures contract at the
date of delivery (contract expiry date) may be different. At the expiry date, depending upon
the contract specification the 'futures' owner may either deliver/receive a physical amount of
oil (this is a rare occurrence), they may settle in cash against expiration price set by the
exchange, or they may close out the contract prior to expiry and pay or receive the difference
in the two prices. In futures markets you always trade with a formal exchange, every
participant has the same counterpart.

Derivative Instruments
A financial instrument or contract between two parties with opposite views on the market,
who are willing to exchange certain risks. Energy markets also have Forward, Future and
Option contracts.
A Future Contract
Future contracts include an obligation to buy or sell a specified quantity of an asset at a certain
future time for a certain price. The futures are standardized contracts which are traded on and
cleared by an exchange. However, that the only point of negotiation is the price.
The main justification of futures contract is that it permits specialization between two
elements of the economic process:
1. The function of holding commodities
2. The function of bearing the risk of price changes.
The seller of a futures contract on a commodity does not normally intend to deliver the
actual commodity nor does the buyer intend to accept delivery; each will, at some time prior
to delivery specified in the contract, cancel out obligation by an offsetting purchase or sell.
B: Forward Contract
Forward contract are in some aspects similar to future contracts. They include an obligation to
buy or sell a specified quantity of an asset at a certain future time for a certain price. Forward
contracts are traded bilaterally or over the counter between two financial institutions or
between a financial institution and one of its corporate clients and the contracted parties
usually customize the contract in order to make it fit their needs.
Usually, in future contracts, there is a range of possible delivery date. Whereas forward
contracts have a specific expiration at which the asset is delivered and payment is made. The
buyer of contract is called long whose purchase obligates him to accept delivery unless he
liquidates his contract with an offsetting sale. The seller of the contract is called short.
C. Option Contracts
An option contract includes a right (not obligation) to buy or sell a specified quantity of an
asset at a certain future time for a certain price. In case of futures/forwards, contract is either
held for delivery or liquidity, but option contracts may be held for liquidity, delivery or expires
worthlessly. To enter an option contract, the buyer pays a premium to the seller of options,
while in futures and forwards, the buyer does not have to pay any charges. A call option gives
the holder the right to purchase the underlying asset at some future date, and a put option
gives the holder the right to sell the underlying asset at some future date.

Since option contracts are tradable, the holders have the flexibility to sell the contract in
secondary market. However, option contracts are financial instruments and are not directly
related to physical delivery of electricity. The holder does not have to exercise this right. This
fact distinguishes options from future contracts. A new electricity forward contract bundled
with bilateral financial options or optional forward contract is introduced in, which gives option
holder a right but not an obligation to purchase or sell the contract energy at a delivery time
for a given price. This allows both seller and buyer to take advantage of flexibility in generation
and consumption to obtain monetary benefits while simultaneously removing the risk of
market price fluctuations.
D. Vesting Contract
Vesting contracts are a powerful tool to allow the existing electricity industry transition to
open and functional markets. The electricity market in Australian State of Victoria was
deregulated in the mid-1990s.With the increased privatization, power plants improved their
capacity & availability. When market opened, there was a potential for exacerbated oversupply
which results the spot market prices hovered at or just above the marginal fuel cost for much
of 1996 and 1997. Hedging contracts acted to shield the newly privatized generators from
several financial losses.
In contrast to Victoria, the Australian State of South Australia entered the Australian National
Electricity Market in late 1998 with a potential shortage of generating capacity and a high
reliance on imported power from other states similar to the case of California. Spot prices
were very high. Due to vesting contracts in South Australia, they insulated end-use customers
from price shock as well as controlled the potential market power held by newly privatized
generating stations. One of the major causes behind crisis in California electricity market
during summer 2000 was weakness and flaws in the design of electricity market including
limitations on forward contracting. Taking a lesson from this, New Electricity Trading
Arrangements (NETA) for England and Wales has encouraged forward and future contracts.
E. Swap Contract
A swap is an agreement whereby a floating price is exchanged for a fixed price over a specified
period. It is a financial arrangement that involves no transfer of physical oil; both parties settle
their contractual obligations by means of a transfer of cash. The agreement defines the
volume, duration, fixed price, and reference index for the floating price (e.g., ICE Brent).
Differences are settled in cash for specific periods usually monthly, but sometimes quarterly,
semi-annually or annually.
Swaps are also known as "contracts for differences" and as "fixed-for-floating" contracts -
terms which summarize the essence of these financial arrangements. The amount of cash is

determined as the difference between the price struck at the initiation of the swap and the
settlement of the index. In a swap contract, you trade with your counterpart (a
company/institution/individual) and take risk on their capacity to pay you any amount that
may be due at settlement. Thus, investors should carefully enter into a swap agreement with
other party considering all these parameters.
The first energy derivatives covered petroleum products and emerged after the fundamental
restructuring of the world petroleum market in the 1970s. At roughly the same time, energy
products began trading on derivatives exchange with crude oil, heating oil, and gasoline
futures on NYMEX and gas oil and Brent crude on the International Petroleum
Exchange (IPE).
There are 3 principal applications for the energy derivative markets:
1. Risk Management (Hedging)
2. Speculation (Trading)
3. Investment Portfolio Diversification

Risk Management in Derivatives
This describes the process used by corporate, governments, and financial institutions to reduce
their risk exposures to the movement of oil prices. The classic example is the activity of an
airline company, jet fuel consumption represents up to 23% of all costs and fluctuations can
affect airlines significantly. The airline seeks to protect itself from rises in the jet fuel price in
the future.
In order to do this, it purchases a swap or a call option linked to the jet fuel market from an
institution prepared to make prices in these instruments. Any subsequent rise in the jet price
for the period is protected by the derivative transaction. A cash settlement at the expiry of the
contract will fund the financial loss incurred by any rise in the physical jet fuel. Allowing the
companies to better measure future cash flows.
There are limitations to be considered when using energy derivatives to manage risk. A key
consideration is that there is a limited range of derivatives available for trading. If we take the
above example, that company uses a specialized form of jet fuel, for which no derivatives are
freely available, they may wish to create an approximate hedge, by buying derivatives based
on the price of a similar fuel, or even crude oil. When these hedges are constructed, there is
always the risk of unanticipated movement between the item actually being hedged (crude
oil), and the source of risk the hedge is intended to minimize (the specialized jet fuel).
Fuel price risk management focuses primarily on when and how an organization can
best hedge against costly exposures to fuel price risk. Fuel price risk management is generally
referred to as bunker hedging in a shipping context and fuel hedging in an aviation context. It
is considered a continual cyclic process that includes the following:
1. Establishing the context
• Current and future business environment
• Financial position and budgets
• Objectives and needs
• Required fuel consumption, etc.
2. Risk assessment
• Fuel cost calculations
• Risk identification
• The organization's attitude to risk

• Exposure analysis to fuel price fluctuations
• Scenarios of various hedging strategies
3. Risk treatment
• Implementation of a fuel price risk strategy
4. Monitor and review
The present deregulated market environment in India has separated the business functions
related to transmission, generation and distribution. Consequently issues that were not
present in the past in managing and accounting above functions have surfaced with problems
and approximate solutions. Some of the important issues are:
• Transmission Pricing
• Grid Support Charges
• Wheeling and Banking Charges
• Influence of transmission congestion on the pricing
• Pricing for the reactive power support
• Actual energy transactions between various stake holders
• Tariff calculations
• Transmission facilities used by a consumer may have been used by other consumers
as well
• Should the charges payable to new transmission facility and old transmission facilities
be same

Transmission Rights
To hedge the congestion prices and facilitate trading in power market few transmission rights
are introduced. These include financial transmission right and physical transmission right.
A. Financial Transmission Rights
The financial transmission rights are called transmission congestion contract (TCC). FTR is a
purchased right and can hedge congestion charges on constrained transmission paths. It
provides FTR owners with the right to transfer an amount of power over a constrained
transmission path for a fixed price.
Advantage
FTRs are advantageous when designated paths are in same direction as congested flow, which
also indicates that point of extraction location marginal price (LMP) is greater than point of
injection LMP. It might happen that FTR holder pays for having the FTR when the point of
extraction LMP is less than point of injection LMP. In this case the monetary share is equal to
MWh value of the FTR multiplied by difference in LMPs from the point of receipt to point of
delivery.
Disadvantage
The disadvantage of not holding FTR is that participants do not have a mechanism to offset the
extra cost due to congestion charges. On the other hand, the holders of FTR will receive a
credit that counteracts the congestion charge for specified path.
Each FTR holder receives a congestion credit in each congestion hour proportional to the value
of FTR. This credit allocation is calculated based on preferred schedule while congestion
charges are based on actual deliveries. Alomoush suggested a combined zonal and FTR
schemes to manage congestion problem. The problem of FTRs that it is requested for any two
points in the system is solved using zonal scheme.
A static simulation model is proposed by R. Mendez for congestion management. This
incorporates FTR for nodal pricing under a centralized electricity market and flow gate rights
(FGR) for zonal pricing under decentralized market.
B. Physical Transmission Rights
PTRs are tradable rights referred to as the right to use transmission capacity and represent a
claim on physical usage of the transmission system. Unlike financial rights, they do not provide
payment, and they are only useful to those actually trading power. These rights are used to
guarantee an efficient use of transmission system capacity and to allocate transmission

capacity to users who value it the most. Usually a trade will require several rights on a number
of lines. On a power line, with a capacity limit of P MW, at most P MW of physical rights can be
issued in each direction. The feasible set of physical rights cannot account for counter flows.

IMPACT OF DODD- FRANK REGULATIONS ON ENERGY DERIVATIVE
MARKET
CFTC is coming up with dozens of rules, keeping Dodd-Frank financial reform bill as a base, to
try to prevent the kinds of trading abuses that led to collapse in derivatives markets in 2008.
A primary objective of the Act is to reduce the systemic risk in the financial system by
regulating the over-the-counter (OTC) derivatives market. The legislation could affect energy
companies through new regulation of both cleared and unclear financially settled derivative
products (swaps).
All derivatives market participants are potentially subject to the new regulations, regardless of
whether they will register as a swap dealer (SD) or major swap participant (MSP) or whether
they are a participant in the cleared or unclear swaps market (end users).
The primary burden will fall on swap dealers and major swap participants. The current draft
definition of a swap dealer is very broad and includes: “any person who regularly enters into
swaps with counterparties in the ordinary course of business or for its own account.” The
regulation also includes an exemption for a person who engages in a “de minimis” amount of
swap dealing.
The current definition of a major swap participant includes:
• A person that maintains a substantial position in any of the major swap categories
(excluding positions held for hedging or mitigating commercial risk)
• A person whose outstanding swaps create substantial counterparty exposure that could
have serious adverse effects on the financial stability of the US banking system or
financial markets
• Any financial entity that is highly leveraged relative to the amount of capital such entity
holds and that is not subject to capital requirements established by an appropriate
federal banking agency and that maintains a substantial position in any of the major
swap categories
Singapore’s energy derivatives markets, Asia’s biggest by volume, have been thrown into
turmoil as the ripple effect of new US regulations. It is a hub of trading of energy swaps in
crude oil, gas oil and fuel oil which is used in power stations and ship bunkering. These
products are traded OTC between counterparties.

Up to half of the volume of such business is negotiated by specialist energy brokers over the
telephone in the Singapore. Such interdealer brokers have been caught out by Dodd Frank
requirements that would force their customers to register with US regulators.
Reaching a threshold of $8bn in OTC derivatives trade, would trigger requirement that trader
needs to be register as a swap dealer with CFTC, the US derivatives regulator. Asian customers
of interdealer brokers want to avoid this as it would add significantly to compliance cost.
Its impact is seen clearly as customers are shifting from brokers swap market to other options
offered on exchanges for clearing by CME group. We could say that OTC swap market is
shunning down. To the reaction, ICE converted all its cleared energy swaps to futures, partly to
help derivatives. Users avoid cost of registration as swap dealers. CME has started allowing
more OTC swaps to be done as “block trades” in futures markets.
Singapore based brokers are unable to provide their customers with such block trades because
most are not approved as futures broker by Monetary Authority of Singapore. MAS is in
progress of reviewing all options to allow the unregistered interdealer brokers to serve their
customers on the temporary basis.
Response from One of the Energy Experts in Market
Jeff Kittrell of Anadarko: company fears the pending rules will increase market volatility,
decrease trading opportunities, and thereby lower the amount of money available for new
exploration and production.

Indian Energy Market Overview
Both government and private sector firms generate electric power in India.
National Hydroelectric Power Corporation, National Thermal Power Corporation and various
state level corporations (state electricity boards - SEBs) are the major power generators. T&D is
provided by the State Electricity Boards (SEBs) or private companies. There has been significant
improvement in the growth of actual generation over the last few years. The total installed
capacity as of March 31st, 2009 is about 147 000 MW, of which private sector companies
produce about 13.5% , central government own 34% and the remaining 52.5% is produced by
various state governments. However, the current electric power supply is 30% less than the
demand.
Factors Driving Growth
With responsibility for electricity supply shared between the central and the state
governments, the Government of India (GOI) has placed increased emphasis on improving the
efficiency of supply, consumption, and pricing of electricity. The Indian government, with
World Bank assistance, has been encouraging the states to undertake in-depth power sector
reforms. This involves establishing an independent regulatory framework for the sector,
progressively reducing subsidies and restoring the creditworthiness of the utilities through
financial restructuring and cost-recovery based tariffs, and divesting existing distribution assets
to private operators.
Power sector reforms are critical for providing the impetus to states' economic growth and for
redirecting public spending to priority areas. The government of India has set an ambitious
goal, which is to provide power for all by 2012. This mission would require that the installed
generation capacity should be at least 200,000 MW by 2012 from the present level of 147,000
MW. The power requirement will double by 2020 to 400,000 MW. About one-fourth to one-
third of this growth will come from Independent Power Producers (IPPs), with the rest coming
from the public sector. It is estimated that building 100,000 MW in additional power capacities
and associated transmission & distribution infrastructure will require an investment of $170
billion.

Indian Gas Sector
India is the world's 5th largest energy consumer accounting for about 4.1% of the world's total
annual energy consumption and moving fast enough to become the third largest consumer by
2025 after US and China. The current per capita energy consumption of India is 0.5 toe as
compared to the world average of 1.9 toe, and this indicates a high potential for energy
consumption. Per capita consumption of India is expected to reach 1.22 toe by 2030. China and
India are two Asian nations which are expected to show highest energy consumption growth
rate in coming years, owing to rapid urbanization and consequent high demand.
With the massive rate of urbanization, the demand for energy has grown manifold in the past
few years and will continue to grow in future. Last decade also showed tremendous growth in
Indian gas sector and gas has slowly emerged as a primary source of energy for India along
with coal and oil. The demand of natural gas has sharply increased in the last two decades. In
India natural gas was first discovered off the west coast in 1970s, and today, it constitutes 10%
of India's total energy consumption.
According to BP statistical review, the share of natural gas is expected to reach 20% by 2025
from current 10%. As per the global consulting firm McKinsey, by 2015 Indian gas market is
likely to be as large as Japan which is currently the largest consumer of LNG in Asia region.
In fact, gas suppliers now will look to India and China to provide growth instead of other
developed markets like USA or Europe. In the next five years alone, for instance, these
opportunities will grow to a revenue potential of USD 50 billion from USD 25 billion today, with
a corresponding growth in EBIDTA to USD 30 billion from USD 15 billion today.

Indian Power Sector
The Ministry of Power is the nodal central ministry responsible for development of power
sector in India.
Administration of the Electricity Act, 2003, the Energy Conservation Act, 2001, the Damodar
Valley Corporation Act, 1948 and Bhakra Beas Management Board as provided in the Punjab -
Reorganization Act, 1966.
Rural Electrification; Power schemes and issues relating to power supply/ development
schemes/programs/ decentralized and distributed generation in the States and Union
Territories.
The all India installed power generation capacity as on 30.08.2011 was 181558 MW comprising
of 118409 MW thermal, 38206 MW hydro, 4780 MW nuclear and 20162 MW R.E.S. Over the
years share of state sector in installed capacity has gone down, whereas the share of central
sector and private sector has increased. In the XII plan, 60% of the capacity is expected to
come in private sector.

Generation
The annual growth in the energy generation during the year has been 5.55% against the CAGR
of 5.17% during the period 2001-02 to 2010-11. The target and actually achieved generation
2010-11 is as given below-
Target generation: 830.8 BU
Actual Generation: 811.1 BU
Growth in Generation: 5.55 %
Fig: Fuel wise % share of Energy Generation during 2010-11

The average Plant Load Factor (PLF) achieved during the year 2010-11 was 75.07% as
compared
to 77.68% in the previous year. 53 power stations with an aggregate installed capacity of
53827.5 MW achieved PLF greater than the national average PLF. Main reasons of low PLF, as
compared to the previous year were mainly:
• Increased forced outage of thermal units
• Unscheduled/ extended planned maintenance of some of the thermal units
• Forced shut down/ backing down of some thermal units due to raw water problems
• Coal shortages and receipt of poor quality / wet coal
• Due to receipt of lower schedule from the beneficiary states.
Dahanu TPS (500 MW) of M/s Reliance Energy Limited recorded a PLF of 101.00%. In 2010-11,
operational availability of thermal stations has marginally reduced to 84.24% as compared to
85.10 % during the previous year as an effect of increased forced outages of thermal units. 19
coal based thermal power stations with an aggregate installed capacity of 21995 MW operated
above 90% PLF. Of these 19 stations, 10 are NTPC stations and 1 is the Bhilai TPS, a JV of NTPC
and SAIL.

Private Sector Participation In Power
Power Market Regulations, 2010
The provisions of these regulations would govern transactions in various contracts related to
electricity. These regulations shall apply to various types of inter-state contracts related to
electricity whether these contracts are transacted directly, through electricity traders, on
power exchanges or on other exchanges. Launching electricity related contracts on exchanges
would require permission of the Commission. Power exchanges have been required to realign
their rules and byelaws with the new regulations within a period of three months.
Regulations For “Fixation Of Trading Margin”, 2010
The CERC had earlier fixed a trading margin of 4 paise per unit. New regulations has cleared
that trading margin should not exceed 4 paise per unit if the sale price of electricity is less than
or equal to Rs. 3 per unit. Regulations also considered w the increase in the risk faced by
traders which is also a function of the prices of electricity. The ceiling of the trading margin
shall be 7 paise per unit in case the selling price of electricity exceeds Rs. 3 per unit. Traders
cannot circumvent the ceiling by routing the electricity through multiple transactions.

Regulations On “Terms And Conditions For Recognition And Issuance Of
Renewable Energy Certificate For Renewable Energy Generation”, 2010
The RE generators will have two options - either to sell the renewable energy at a preferential
tariff fixed by the concerned Electricity Regulatory Commission (ERC) or to sell the electricity
generation and environmental attributes associated with RE generation separately. On
choosing the second option, the environmental attributes can be exchanged in the form of
REC.
The price of electricity component would be equivalent to weighted average power purchase
cost of the distribution company including short-term power purchase but excluding
renewable power purchase cost.
The Central Agency designated by CERC will issue REC to RE generators. The value of REC will
be equivalent of 1 MWh of electricity injected into the grid from renewable energy sources.
The REC will be exchanged only in the power exchanges approved by the CERC within the band
of a floor price and a forbearance (ceiling) price to be determined by the CERC from time to
time.
Indian Electricity Grid Code Regulations, 2010
These regulations consist of a set of technical and commercial rules for all entities taking part
in grid operation and consist of planning code, connection code operation code, scheduling
and dispatch code as well as compliance thereof. These regulations lay down the rules,
guidelines and standards to be followed by various persons and participants in the system to
plan, develop, maintain and operate the power system, in the most secure, reliable, economic
and efficient manner, while facilitating healthy competition in the generation and supply of
electricity.

Indian Power Sector - Commercial

Ownership Structure
• Both State & Central Govt. have control
• Single buyer model in most states
• Supply deficits have led to 19509 MW of captives
• Poor credit quality of utilities due to :
o Heavy “Cross Subsidy” burden
o Huge Technical and Commercial losses
• Restrictive policies of Sate Govt. in giving Open-Access
Allocation of Available Transmission Capacity in the following order
• Long Term – More than 25 years
- Transmission access given for specific seller and buyer
- Transmission pricing as a regional socialization
• Short Term – Upto 3 months
- Transmission pricing through Contract Path Method
• Day-Ahead Spot Market – For the next day only
- Transmission access for trades through Power Exchanges - Collective transactions
- Point of connection tariff – equal price for connection from anywhere in India

Energy Trading and How It Could Be Functional In India
Trading of power is a multi-billion dollar business worldwide. However, in India, power trading
is still in its infancy with the volume of exchanges being fairly low (about 2.5 percent of energy
generation).
Power is the key to all economic activities especially manufacturing activities in the country.
Power distribution losses on average have ranged from 15-20%. Fluctuations in power supply
have become endemic with peak hour shortage threatening to upset production schedules of a
number of manufacturing companies. The regional demand/supply mismatches also add to
transactions, costs apart from power losses.
In such a scenario it has become imperative to ensure a smooth power (electricity) supply. The
FT group has received an approval to float the country's first PX that seeks to mitigate the
volatility in power supply by bringing about equilibrium between demand and supply through
the platform of IEX.
Currently 90% of electricity is sold through long-term, bilateral power purchase agreements
between buyers and producers. Yet distributors rely on traders for short-term needs. The deals
negotiated over telephone and other means often tend to be non-transparent and
counterparty's are never sure whether they have got the best right price in the deal.
Role of Energy Exchange
Basically, an energy exchange is a trading platform for electricity where electricity generators,
distribution licenses, CPPs, IPPs and MPPs at the national level can trade for smaller quantities
and smaller number of hours without additional overloads.
For payments security, the exchange will be the counterparty for all settlements. The power
exchange will provide a tool to minimise price risks. The nature of product traded on IEX is
electricity that cannot be stored unlike commodities that can be stored in warehouses. IEX is a
spot exchange where actual demand/supply of energy takes place and price of electricity
determined on the basis of bids and offers during the transaction period.

A robust trading system is very important for free and fair competitive electricity market
operation. Trading system should be capable of risk hedging associated with price volatility and
other unexpected changes. Operating behaviour of a competitive power market is significantly
affected by the trading arrangements, strategic bidding, market model and rule. Trading
arrangement is properly designed in every country to take care of other abuse of market.
These arrangements are kept on changing from time to time depending on the requirement for
transparent and non-discriminatory electricity market.
In this study, we have discussed various financial risks hedging instruments and trading
arrangements of Indian and some developed markets are discussed. The important key issues
and challenges in this field are also critically analysed.
Currently there is monopoly in the Power industry and by RESTRUCTURING we aim to abolish
this monopoly in the generating and trading sectors, thereby introducing the competitiveness
at various levels wherever it is possible.
Generating companies (Sellers) may enter into contracts to supply the generated power to the
power dealers/distributors (Buyers) or bulk consumers or sell the power in a pool in which the
power brokers and customers also participate. On Power-Exchange, the buyers could put their
demand with the willingness to pay against it. Power generation and trading will, thus become
free from the conventional regulations and become competitive.
Electricity sector restructuring, also popularly known as deregulation is expected to draw
private investment, increase efficiency, promote technical growth and improve customer
satisfaction as different parties compete with each other to win their market share and remain
in business.
Power producers (sellers) and dealers/customers (buyers) have to share a common
transmission network for wheeling the power from the point of generation to the point of
consumption. This will avoid:
• The duplicity, the problem of right-of-the-way
• Huge Investment of new infrastructure
• Reduced installed capacity
• Increased system reliability
• Improved system performance
Trading system’s primary task is to manage risk. When it comes to electricity trading, it is very
hard to perceive it as electricity being non storable commodity. Prices depend on Demand and
supply. High volatility allow market participants to make trading contracts with other parties to
hedge possible risk & get better results.

Power Exchange Implementation in India
Salient Features:
The salient features of the Power Exchange implementation in India are:
a) Voluntary participation
b) Day ahead
c) Energy only
d) Physical delivery only
e) Double sided bidding
f) Hourly bids
g) Uniform pricing
h) Multiple Exchanges envisaged
i) Congestion Management by Power Exchange using Market Splitting
Prices Discovered By Power Exchanges
It is observed that the quantum of buy bids is much more than the quantum of sell bids [5, 6]
reflecting clearly the shortage scenario prevailing most of the time. The maximum Market
Clearing Price (MCP) is of the order of Rs. 11.00 per kWh and the average MCP is of the order
of Rs. 7.50 per kWh with a standard deviation (daily average) of Rs. 1.17 per kWh[5]. The
minimum MCP recorded is Rs. 0.92 per kWh. The bids placed in the Power Exchange(s) are
reflective of the UI Price anticipated for the next day.
Physically, there are two grids in the country i.e., NorthEast-West-North East (NEW) Grid and
the South Grid. The two grids are interconnected asynchronously through HVDC links and
operate at different frequencies, rated frequency being 50 Hz for both the systems. The two
grids thus signify two electricity markets having different real time (UI) prices. There exists a
possibility of arbitrage between these two markets.

Groups of Buyers and Sellers
Some of the regional entities participating in trading through the Power Exchange(s) are
(region wise):
a) North: Rajasthan, Delhi, Punjab, Haryana, HP
b) West: Maharashtra, MP, Jindal Power, Gujarat, Goa, Chattisgarh
c) South: AP, Karnataka, Kerela, Tamil Nadu
d) East: Orissa, West Bengal
e) North-East: Tripura, Mizoram, Assam
Fig: Groups of Buyers and Sellers trading through Power exchanges
The energy resources in the country are not evenly distributed with snow fed hydro
resources concentrated in the north, monsoon dependent hydro in the south and coal
reserves in central India.
As a result, long transmission lines are constructed from the generating stations located close
to the energy sources to the load centers and there is long haulage of power. The Indian
power grids are also characterized by a well meshed network. Power flow between two areas
may not only be direct but there may also be loop flows. A number of flow-gates, which are
corridors comprising of a group of trunk lines, have been identified by the system operators
for monitoring the power flows in addition to the inter-regional links.
The hydro generation is varying because of seasonal effects. In the Northern Region, it is
mostly snow fed run of the river type with a few plants having storage and high silt content
sometimes forces outage of these generating stations. In the Southern Region, it is mostly

monsoon dependent storage based hydro. The load pattern also varies because of hostile
weather conditions, especially in the Northern Region.
Congestion is observed sometimes in cases of skewed load generation balance. CERC has
recognized such congestion and issued orders for levy of a congestion charge of Rs. 3 per
kWh.
Transmission Congestion Management Methods
a) Explicit Auction: An auction of the available inter-connector capacity is carried out
and the capacity reservation is done on the basis of the highest bids received. Energy
charges are decoupled from the capacity charges.
b) Implicit Auction: This method does not separate energy charges and transmission
capacity charges and the process is thus simpler for the market participants.
c) Market Splitting: The market is split along the congested corridor in the Power
Exchange. The prices upstream (surplus area) are reduced and the prices downstream
(shortage area) are increased so that the flow on the inter-connector is restricted to
the available capacity.
d) Counter Trade: In some of the markets, the system operator invites bids for sale and
purchase. In case of congestion, the system operator selects bids in merit order and
enters into counter trade to relieve congestion. It is normally used as a last minute
correction method
e) Re-dispatching: The market trades as if there are no barriers. The transmission
system operator arranges for dispatch of more generation downstream and less
generation upstream of the congested corridor. The cost of congestion is borne by the
system operator. This method places the onus for capacity expansion on the
transmission system operator and does not provide any signal to the market
participants.
Congestion Management in Multi Exchange Scenario
Multiple Exchanges are operating in the same physical delivery market in India. Different
Power Exchanges arrive at solutions based on their own philosophy and algorithms.
Scheduling of the trades is possible in case there is no congestion. In the event of congestion,
allocation of available transfer margins between multiple Exchanges becomes an issue of
prime importance. This would influence the overall economy in the grid and may also trigger
realignment of the strategies adopted by the various stakeholders. Therefore, an objective
method for allocation of transfer margins between multiple Power Exchanges has to be

adopted. Some of the possible criteria that may be considered for sharing of available
margins are:
a) Priority based rules: Pre-defined rules may be agreed upon based on lowest
market clearing price (MCP), highest market clearing volume (MCV), highest MCP
X MCV, maximization of social welfare, consumer surplus, etc. Priority based rules
may not lead to overall economy. For example, in a surplus scenario, lower MCP
may be desirable and in a deficit scenario, higher MCV may be desirable
b) Explicit auctioning amongst the Exchanges: The ultimate objective of achieving
economy may be defeated in circumstances where one of the Exchanges bids
aggressively to reserve the capacity
c) Merging the bids obtained by each Power Exchanges: One of the Exchanges can
be designated as a lead exchange and it may be asked to find the solution by
merging bids received on all the Exchanges. Alternatively, all the Exchanges may
be asked to work out a solution. The merging of bids can be carried out using
suitable coding methodology, in order to take care of the confidentiality
requirements. The solution which gives a higher MCV may be accepted for
scheduling in case the solution worked out by the exchange(s) after merging the
bids is different (either MCP or MCV or both). The criterion of higher MCV may be
justified keeping in view the prevailing deficit scenario in India. This would
effectively be as if the system operator has to deal with only one exchange in the
case of congestion.
d) Pro-Rata rationing of the available margins: It is a sub-optimal method for
congestion management. Pro-rata has many disadvantages. This method provides
neither the system users nor the system operator with any incentive for efficient
use of the grid. It is likely to induce unwanted behavior by market participants,
such as gaming. This is a model where the system operator interfaces with only
one exchange. Market design in India is a complex one which provides for multiple
Power Exchanges handling physical trade.

Power Exchanges Commence Trading Of Solar Renewable
Energy Certificates
Renewable Energy Certificates (RECs) represent the attributes of electricity generated from
renewable energy sources. These attributes are unbundled from the physical electricity and
the two products-the attributes embodied in the certificates and the commodity electricity-
may be sold or traded separately.
One REC represents that 1MWh of energy is generated from renewable sources. RECs can be
used by the obligated entities to demonstrate compliance with regulatory requirements, such
as Renewable Purchase Obligations.
Who Are Obligated To Purchase RECs?
The entities mandated to purchase a defined quantum of renewable energy of their overall
consumption are obligated entities. Obligated entities may either purchase renewable energy
or can purchase RECs to meet their Renewable purchase Obligation (RPO) set under
Renewable Purchase Obligation of their respective States. Following entities are generally
obligated in the State:
• Distribution Licensees
• Captive Consumers
• Open Access users
Who Are Eligible To Sell RECs?
Eligible entities are those renewable generators who meet following criteria:
a. Type of renewable source is approved by MNRE and respective State Commission
b. Not have any Power Purchase Agreement (PPA) for the capacity related to such
generation to sell electricity at a preferential tariff determined by the appropriate
commission
c. Not having agreement to sell electricity to local distribution company at price not
exceeding pooled cost of power purchase of that distribution company
d. Sells electricity to the –
I. distribution licensee of the area at a price not exceeding the pooled cost of power
purchase of such distribution licensee, OR
II. to any other licensee or to an open access consumer at a mutually agreed price, or
through power exchange at market determined price. Selling electricity to any
entity other than local distribution company at market driven prices or otherwise

Categories Of Certificates
There are two categories of certificates:
a. Solar Certificates issued to eligible entities for generation of electricity based on solar
as renewable energy source.
b. Non-solar certificates issued to eligible entities for generation of electricity based on
renewable energy sources other than solar.
Salient Features of Renewable Energy Certificates
Participation Voluntary
REC Denomination 1Mwh
Validty 365 days after issuance
Categories
1. Solar REC
2. Non-Solar REC
Trading Platform Power Exchanges only
Banking Not Allowed
Borrowing Not Allowed
Transfer Type
Single Transfer only, repeated trade of same certificate is not
possible
Penalty for Non-compliance Forbearance Price (Maximum)
Price Guarantee Through ‘Floor’ Price (Minimum)
Price Discovery Mechanism Closed Double-Sided Auction
Trading Calendar Last Wednesday of the Month
Trading Period 1300 – 1500 hrs (T day)
Market Clearing 1700 hrs
Financial Settlement Buyers pay upfront (T day) & seller receive on (T+1 day)
The two power trading exchanges Indian Energy Exchange (IEX) and Power Exchange India
Ltd. (PXIL) commenced trading of solar Renewable Energy Certificates (RECs) on Monday
amidst keen interest within the power sector.
The trading of RECs makes it easy for several obligated entities that may be required to
purchase a certain quantum in either green power or RECs. M and B Switchgears Ltd. has
become the first solar power producer in India to be issued 249 Solar RECs by the National
Load Dispatch Centre in New Delhi.

Power Trading In Different Electricity Markets
A competitive electricity market should be supported by proper trading tools that take into
account of special nature of electricity which is different from other commodities. A successful
implementation of trading system in electric energy and its derivative markets could fulfill
restructuring objectives, which include competition and customer choice and serve vital needs
of electricity market participants.
Trading is an activity in which transactions take place directly between two participants or
indirectly through an exchange. Electricity trading through an exchange started for the first
time in 1996 in New York Mercantile Exchange (NYMEX). Electricity trading has two main
components, i.e. physical trading and financial trading.
In physical trading, supply is balanced against demand and price is either determined in
advance of trading or after trading. In financial trading, financial contracts take place between
traders as agreements that give certainty to traders. Physical trading is generally done through
an energy spot market or power pool while financial trading is through a financial market or
exchange such as NYMEX or Chicago Board of Trade (CBOT).
Trading in an electricity market is a risky task because the electricity is much different from
other commodities due to its special nature such as non-storable, generation-demand balance,
limited demand elasticity, transmission constraints and electric price related with other volatile
commodities. India has also started power trading from last four years.
A. U.K. Electricity Market
Leaders in developing spot electricity market trading system, which links physical & financial
domains. After a review, a new electricity trading arrangements (NETA) evolved slowly which
provides the new structure and rules for the E&W electricity market. The transactions taking
place within the NETA market are electricity price-quantity transactions on a half-hourly basis.
The system operator (SO) and power exchanges (PX) are central to the functioning of the E&W
electricity market under NETA.

NETA electricity market -major contractual relationship
B. Nordic Electricity Market
Nord Pool, the Nordic Power Exchange, is the world's first international commodity exchange
for electrical power. The Nordic power market which trades with neighboring countries and is
dominated by hydropower, can be seen to be very different from that in E&W.
Marketers OR
Traders
Generators
Supply and distributions companies
(Former RECs)
Power Exchanges
Spot Markets &
bilateral contracts
Large
Consume
rs
System Operator NGC
Transmission functions
and balancing operations
Consumers Consumers

Nordic electricity market’s major contractual relationships
The existence of a transmission system linking Denmark, Norway, Sweden and Finland provides
the basis for physical electricity exchanges organized on a national basis for these countries.
The national transmission system operators (TSOs) are responsible for reliability and balance
settlements. Nordel facilitates co-operation between these TSOs and deals with planning,
operation and transmission pricing.
Nord Pool organizes trade in standardized physical and financial power contracts including
clearing services to Nordic participants. The spot price for the Nordic electricity market is set
by Nord Pool every hour. Elspot and Elbas are Nord Pool auction based spot market for trade in
power contracts for physical delivery.
On Elspot, hourly power contracts are traded daily for physical delivery in the next day's 24-
hour period. On Elbas, continuous adjustment trading in hourly contracts can be performed
until one hour before the delivery hour. New contracts are opened after the day-ahead Elspot
prices have been set. Before 2 p.m. the remaining hours of the current day are tradable and
then day-ahead contracts are open for trading.
Denmark
Nord-
Pool
TSO TSO TSO TSO
ConsumersConsumers
FinlandSwedenNorway
Marketers. Brokers
& Traders
Utility distribution & Supply
companies

The objective of Nord Pool financial market is to provide an efficient market, with excellent
liquidity and a high level of security to offer a number of financial power contracts that can be
used profitably by a variety of customer groups.
C. California Electricity Market
The competitive electric power market of California state began operation in 1998 with the
California Independent System Operator (CAISO) and now bankrupt Power Exchange (PX) as
the main operationally market facilitators. The market took off smoothly, and the prices were
seemingly just and reasonable until May 2000, when the first signs of market crisis emerged.
California’s electricity crisis was the result of the collusion of a shortage of resources, poorly
designed market and inaction by regulators or “regulatory failure”. The CAISO was originally
designed to operate in conjunction with the PX, a day-ahead energy market that ceased to
operate in January 2001. Without PX day-ahead market, all short-term balancing of supply and
demand has been pushed into the more volatile real-time market. This is the result of flaws in
original design and inconsistencies between the ISO’s forward and real-time markets.
Now the CAISO is addressing these flaws through a comprehensive redesign effort known as
Market Design 2002 (MD02). It allows the ISO to match buyers and sellers through a
transparent day-ahead market that reduce reliance on the more volatile hour-ahead and real-
time markets. Since the PX ceased operating there has been no transparent market for spot
energy transactions to balance supply and demand ahead of real time. It also allows the ISO to
manage congestion on the grid the day before, rather than in real time, thus enhancing real
time reliability.

D. Indian Electricity Market
Power Trading Corporation of India Ltd. (PTC), the leading provider of power trading services,
in India is trading power on a sustained basis since June 2002 through purchase from surplus
utilities and sales to deficit State Electricity Boards (SEBs) at an economical price, providing
best value to both the buyers and sellers and ensuring that the resources are utilized optimally.
PTC is a ‘pure-play’ trading entity, and does not own any generating units or transmission
facilities. PTC acts as a single-window service provider that manages both financial as well as
operational risks for the buyer and seller entities in its trading transactions. For these services,
PTC charges a predetermined amount of transaction charges, worked on a per unit (KWh) basis
or as a percentage of cost of power. Both price & margin is known to buyers & sellers in a
transparent manner.
PTC enters into multi-year future trading power contracts which are recognized by lenders as
security for financial closures of power projects. Power Sale Agreement is structured with
multiple buyers, through which 80% of the power generation from the project is tied up for
long term sale and 20% is kept as reserve for the short-term market.
Though the power-trading scenario in India is at a nascent stage, it is growing at a rapid pace.
The power market in India has evolved over the last four years and it is expected that it is
likely to grow at a faster pace – with the reforms of SEBs and building up of transmission
highways across the regions to increase Inter-regional power transfer capacity from currently
available 8000 MW to 30,000 MW.

India’s Energy Zone
India has a sum commissioned ability of 209,276 megawatt, with states contributing 41
percent, an executive appetite utility carrying a share of 30 percent and a remaining 29
percent accounted for by a private sector.
The supply shortfall varies opposite a country, that becomes strident in states like Uttar
Pradesh, while some others like Gujarat suffer a over-abundance and trade to other states.
The supervision estimates a comment requirement of $256.14 billion in an appetite zone over
a subsequent 5 years to overpass a existent opening and to accommodate a flourishing
demand.
Autonomy to Regional Load Dispatch Centers
The inquiries on a famous trance annoyed suggestions that Regional Load Despatch Centres
(carry electricity from producers to a user’s on what are called grids, 5 in number, north,
south, east, west, north-east) be given authorised powers to be means to strengthen their
infrastructure.
Accumulated Waste of Distribution Firms
India's appetite placement firms carrying amassed waste value a whopping $36 billion, and
wanting staggered hikes in tariff to safeguard their sustainability. Such vast waste arose
especially from what placement companies’ tenure as sum technical and blurb losses that is
some-more of a substitution for theft. Currently accumulative placement waste volume to
Rs.200, 000 crore ($36 billion).
As service to an appetite sector, a supervision in Sep authorized a offer to restructure state
electricity companies' (Discoms) debt value scarcely Rs.200,000 crore ($36 billion). As partial
of a intrigue for a financial turnaround of Discoms, state governments were to take over 50
percent of Discoms' short-term liabilities by approach of special securities, amends and
seductiveness payments. The change 50 per cent short-term loans were to be restructured
with a duration on principal during a best probable terms of interest.

Shortage of Coal
The simple problem for an appetite zone is strident fuel (read coal) shortage, inspiring
electricity era in a country. It was also a year when state miner Coal India came underneath
heated inspection for a prolongation and off-take. Availability of spark and gas is a pre-
requisite for spurring investments in a appetite sector. Reforms that would assistance make
spark and gas accessible as per a nation's mandate contingency no longer is hold back. The
state-run Coal India announced it can't accommodate a finish spark direct from inland sources
compartment a 13th Five Year Plan commencement 2017. During a 11th Plan, there was a
prolongation opening of 140 mt.
The Comptroller and Auditor General (CAG) estimated a notional detriment of Rs.186,000
crore ($33.67 billion) to a exchequer on comment of not auctioning spark blocks allocated to
private allottees. Tabled in parliament, news named 25 companies including Essar Power,
Hindalco, TataPower and Jindal Steel and Power, that got blocks in several states. In July, a
supervision shaped an inter-ministerial organisation (IMG) to examination swell of spark
blocks allocated to firms for serf use, though that had unsuccessful to rise mines within a
stipulated timeframe. The IMG, after a scrutiny, endorsed de-allocation of 11 mines to open
zone units, 13 blocks to private firms, and reduction of bank guarantees of 14 allottees. Sums
of 58 mines were released show-cause notices for their disaster to rise blocks within a
stipulated timeline.

Due to high growth rate of the Indian power sector, high uncertainty, haulage of power over
long distances, it is practically very difficult to identify areas where congestion may occur. To
start with each region was divided into two bid areas. Ideally, each State may be defined as a
Bid Area. Some of the large States like UP and Maharashtra may have to be sub-divided into
2-3 sub-bid areas. Other criterion for creating/restructuring the bid areas may be based on
the past experience of grid operation, pattern of drawal, seasonal variation and degree of
participation of the State and intra-State utilities in the short term open access market. The
Power Exchanges have also been advised of this possibility and the need for reconfiguration
of bid-areas, if need arises.
Market Snapshot

Average (RTC): Average of traded hours price in (24 hrs)
Peak: Average of traded hours price in (18-23 hrs)
Non Peak: Average of traded hours price in (1-17 & 24 hrs)
Morning: Average of traded hours price in (07 - 10 hrs)
Day: Average of traded hours price in (11-17 hrs)
Night: Average of traded hours price in (01-06, 24 hrs)
Area Prices
The exchange allows spot trading in electricity, which is usually sold by Indian generators
through contracts. Generators can sell as much as 20% of their output.
The Indian Energy Exchange offers hourly and blocks contracts that allow participants to draw
power from the grid a day after the trade.
The exchange’s members include generators, distributors and industrial users. Also include:
a) Generating Stations
b) Transmission or Main Transmission Lines

c) Sub-Stations
d) Tie-Lines
e) Load Despatch activities
f) Mains or Distribution Mains
g) Electric Supply-Lines
h) Overhead Lines
I. Service Lines
II. Works

General Planning Framework
The framework begins with a forecast of demand. DSM acts to reduce this demand, resulting in net
electricity generation needs. Grid operations are presented in generation dispatch, Transmission and
distribution losses and congestion.

Structure in Power Exchange

Key Components of Electric Power Grid
Generation facilities which comprise conventional power plants (e.g., natural gas, oil, gas,
coal etc) and renewable power plants (e.g., wind, solar, geothermal) produce electricity to
serve loads.
India’s generation mix is currently thermal dominated with almost 65% of electricity
produced from coal, gas and oil-fired facilities. Remaining electricity is produced from hydro
facilities (25%) , nuclear facilities ( 3%) and renewable resource facilities (7%).
Transmission facilities, which are comprised of substations and high voltage lines, carry
electricity from generation facilities to load centers. Substations step up the voltage of
electricity generated from the power plants so it can be transmitted over long distances with
minimal losses. High voltage lines carry the electricity to load centers.

Five Regional Grids In India

Overall Grid Planning and Management Framework.
Data needs: Loads and Resource Table
Loads and resource tables are system wide or regional state data on basic parameters on the
electricity system. They provide overview of system needs, operations and priorities and
generally include parameters such as breakdown of demand (energy and peak) , composition
of supply ( plant, supply type, availability), regional imports and exports and transmission
lines.

Key Issues and Challenges
The power sector is passing tough challenging times. The original target of 78,700 mw of
capacity addition for the eleventh plan was scaled down to 62,374 MW. This capacity addition
will be feasible because investment in the private sector has grown rapidly and its share in the
total capacity is likely to go up from less than 10 per cent in the Tenth Plan to 32 per cent
during the eleventh plan.; and, in the twelfth plan, private sector is likely to contribute 60% of
planned capacities.
Slippages by Public Sector that compounded the delays:
• Issues related to procurement procedures.
• Co-ordination within different Govt. agencies.
• Capacity constraint of equipment manufactures like BHEL and Balance of Plant
equipment viz coal, ash handling, cooling tower, chimney etc.
• Emergent EM is more of oligopoly than perfectly competitive due to its special features
such as, a limited number of producers, large investment size (barrier to entry),
transmission constraints and congestion which could isolate consumers from effective
reach of some generators and transmission losses which discourage consumers from
purchasing from distant suppliers.
• The substantial changes in regulatory environment have created a need for several new
market institutions for the power industry to manage the risks associated with the
operation of extremely price volatile market of electricity.
• An opportunity to trade in power arises whenever complementary deficit-surplus
situation occur in different seasons of the year, different months, or even different
hours of a 24-hour period. By identifying such situations, trading of power can help in
reducing the demand-supply gaps.
• Demand side bidding enhance the ability of consumers of electricity to respond to price
signals and make the market to operate more efficiently and satisfactorily. Trading
system should encourage this type of biding.
• In competitive power market, power quality and demand side management are still
challenging issues. Trading arrangements should tackle these concerns.
• There are several contracts running behind the market which sometime leads to the
economic and arbitration problems.
The state electricity regulatory commissions are independent only on paper and are subjected
to political compulsion. In Tamil Nadu, tariff order was issued after a gap of eight years; in
Rajasthan, last revision was in 2005.

The outcome of this inaction has resulting in monthly losses of utilities. Power Finance
Corporation has estimated the annual losses of state electric utilities at Rs.51,193 cores
(without subsidy) in 2008-09 and the losses this year could be over Rs.100,000 cores for which
uneconomic pricing is the main factor. Political pressures continue against reduction of gross-
subsidies like free power and against the cut back of distribution losses. The share of costs
recovered by the SEBs has deteriorated from 82.5% in 2006-07 to 77% in 2008-09.
Power sector has seen slow FDI, only 5% as compared to say telecom which has seen 8% of FDI
in 2010-11, although 100% FDI is permissible. Commercial losses and poor health of state
utilities, capped regulatory returns on equity, delays in land, forest and environmental
clearances and fuel linkage constraints are the main reasons for low inflow of FDI.
The findings of the study by “German Watch” ranking 57 countries on their Climate
Performance Index (CCPI) 2011 have interesting observations. CCPI has been computed on
three parameters namely trends, level and policy. The first three positions have not been
assigned as no country is said to qualify, Brazil tops the list at No 4 and India is favorably at No
9 while US and China are at 54 and 56, Canada is at the bottom at No. 60

Conclusion
Energy companies should begin to analyze their current positions to determine if they will be
subject to the position limits requirements specified in the rule and take the necessary actions
to be in compliance.
This project addresses electricity trading in competitive power market. The derivatives used in
electricity market are presented with several examples. The key issues and challenges related
to trading business models for electricity are critically examined. The risk management
objective in the power business is much more demanding. In vertically integrated structure,
risk management is primarily accomplished through ownership of generating and perhaps
transmission assets and through long term power purchase agreements. Deregulation plans
that recognize the potential for high spot market prices and incorporate appropriate hedging
strategies that will be viable regardless of spot price and without the need of price caps.
Derivatives in market play an important role in providing the price certainty for buying and
selling electricity.

References
1. “Dodd-Frank Impacts End Users,” Oil and Gas Investor, June 2011.
2. “Dodd-Frank Update: Impact on Gas & Power Transactions,” The University of Texas
School of Law, 22 September 2011.
3. http://projectfinancetoday.com/status-of-indias-power-sector-in-2013/
4. http://www.nrldc.in/docs/documents/Papers/Power
%20Exchange_Final_22_Jan_09.pdf
5. http://www.smspup.ac.in/imsj/april2007/april2007_7.pdf
6. http://www.iexindia.com/useful_links.htm
7. http://www.nrldc.org/nrdefault.aspx
8. http://www.cea.nic.in/monthly_power_sup.html#content-top
9. http://www.cargill-etm.com/energy/
10. http://www.pmintpc.com/interface/research_activities_published_paper_ICPS04.pdf
11. http://www.neb-one.gc.ca/clf-
nsi/rnrgynfmtn/nrgyrprt/nrgdmnd/nrgytrdfct2011/nrgtrdfct-eng.html
12. http://www.esmap.org/sites/esmap.org/files/Session%203-%20Overview%20of
%20Indian%20Power%20Sector%20and%20Regulations.pdf
13. http://www.eia.gov/oiaf/servicerpt/derivative/chapter5.html
14. http://feedbackinfra.com/index.php?
option=com_content&task=view&id=647&Itemid=706

Electricity Trading in India

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