Recent Regulatory Reforms and its implications on Future Electricity Transactions
- March 15, 2023
The Central Electricity Regulatory Commission (CERC) is in the process of framing many new regulations – such as Grid code, General Network Access (GNA) Regulations, Transmission Sharing Regulations, Renewable Energy Certificate (REC) Regulations, Ancillary Regulations, Deviation Settlement Mechanism (DSM) Regulations etc. which will have significant bearing on the functioning of the sector in the days to come, notes Jogendra Behera.
Particularly, Grid code, GNA Regulations and Transmission Sharing Regulations are the three regulations related to functioning of inter-state transmission system in the country. While the Grid Code lays down the framework for efficient and secure grid operations, the GNA regulations is related to obtaining open access in the inter-State transmission system. Similarly, the Transmission Sharing Regulations lay down the mechanism for recovery of Yearly Transmission Charges (YTC) from the designated users of the inter-State transmission system. These three regulations constitute the overall regulatory framework for the allocation and utilization of inter-State transmission system in the country.
As the transmission of electricity continues to be dependent upon the wired meshed network having natural monopoly characteristics, the important consideration other than having a secure and reliable grid, is to develop adequate transmission capacity and ensure efficient utilization of these highly capital intensive and scarce resources. The availability and efficient utilization of the transmission system will facilitate efficient transactions between the buyers and sellers of electricity which will lead to optimal utilization of generation resources and lowering of power procurement cost having far more significance for the sector. It is in this context that the proposed regulations are important for the market and the sector.
These regulations have covered different aspects of the inter-state transmission system proposing changes in some of the earlier mechanism and introducing newer concepts keeping in view the emerging needs of the sector. The Grid code has dealt with issues viz. resource adequacy, ancillary services and reserves, integration of renewables, unit commitment, cyber security etc. whereas the GNA Regulations has brought in a completely new approach for obtaining the access to the transmission system along with scheduling of transactions on a day ahead basis. Similarly, the Transmission Sharing Regulations has revised the methodology for recovery of transmission charges from its users. The key takeaways from these three regulations and their implications are as follows:
- Decoupling with the underlying commercial contracts: Earlier the development of the transmission system was driven by the Long-Term Access and the underlying Per Purcowhase Agreement (PPA) of the Discoms. In many cases when the PPA could not fructify, the beneficiaries have relinquished the LTA leading to stranded transmission assets which had to be eventually socialized amongst all the users. As per the new GNA regulations, the development of transmission system has been decoupled with the underlying commercial contracts. It is envisaged that the development of the transmission system will take place-based on the assessment of the upcoming generating stations and load centersand not based on the underlying PPAs which will rationalize the development of transmission system in the country.
- Scheduling of any contract under the GNA: GNA Regulations has proposed deemed GNA for the States based on their past demand during last 3 years. Discoms can take additional GNA as per their quantum of demand and can schedule any contract within this quantum without paying any additional transmission charges. In case there is seasonal demand, the Discoms even can opt for Temporary GNA up to a period of 11 months. Consequently, the Discoms will be incentivized to schedule their contracts including the power available in power exchanges based on marginal cost as the transmission charges will be ‘sunk cost’ in nature leading to merit order dispatch of the generating stations.
- Scheduling on a Day Ahead basis: Both Draft Grid Code and GNA has brought in the concept of day ahead scheduling for all the contracts. It is proposed that all the entities will schedule their transactions on a day ahead basis regardless of the duration of contract. The transmission corridor will be allocated in the following order — GNA, T-GNA Advance, Day Ahead Market (DAM), and T-GNA Exigency, which will then be utilized for the transactions taking place in Real Time Market (RTM) and for revisions under GNA on a first come first basis. The transmission corridor remaining unutilized after a particular step will get released for allocation in subsequent steps. For instance, the transmission corridor available after allocation to transactions under GNA and T-GNA Advance by 9:30 AM will be released for the transactions in DAM. This mechanism will ensure that if the users are not utilizing their transmission corridor as per their priority and within the stipulated timelines, then the same can be utilized by others for meeting their requirements. This will avoid squatting on the transmission capacity and improve its utilization.
- Rationalization of Transmission charges: For quite some time the Point of Connection (PoC) mechanism was opposed, as the transmission charges levied was largely driven by the flow of electricity in the network which was beyond the control of the users. Transmission Sharing Regulations has brought a change in this methodology – transmission costs are now largely driven by Discoms GNA which is dependent on their demand. This is expected to provide more stability and transparency in the system. The transmission charges and losses will be borne by only the buyers which will bring a clarity on the applicability of charges. It will address the prevailing double charging of the transmission charges in the collective transactions wherein the generators also have to pay the transmission charges for selling power through the collective transactions. This will provide equal footing for both the collective and bilateral transactions.
The above changes are expected to bring significant improvement in the allocation and utilization of inter-State transmission system in the country. This will facilitate efficient transactions between buyers and sellers which take place on top of the meshed transmission network. The Discoms will have opportunities to reduce their overall power purchase cost including the transmission charges by considering various alternatives available in the market on a day ahead basis. They can schedule their power from the least cost sources including the DAM of the power exchanges. However, to benefit from these changes the Discoms are required to increase their market orientation and bolster their capabilities to take advantage of the situation.
About the author: Jogendra Behera is Vice President, Market Design & Economics, Indian Energy Exchange
