Govt Report Bats For Boosting Renewables In Day-Ahead Electricity Market

A report by an expert group constituted by the Ministry of Power to review the Indian electricity markets batted for including variable renewable power in the day-ahead markets. The report said this could be done with some revenue protection for the developers. The inclusion of RE was one of the reforms the Group advocated in their 151-page report, besides other power sector-related reforms. 

The ministry earlier constituted the Group on July 29, 2022. The main objective behind this was to review the major issues faced in the power market and suggest ways to bring reforms in the sector. The Group comprised representatives from several government bodies and institutions dealing with the issue of power at the central and state levels.

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“Renewable energy currently in India is mainly contracted through long-term contractual means. It is also treated as a must-run resource, requiring Discoms to plan for procurement after netting off RE from their demand. There is an emerging need for transiting RE to market-based dispatches,” the report said. 

The document said that allowing the infusion of renewable energy in the day-ahead markets would involve mandating RE resources to participate in the market and compete with conventional sources. 

“RE developers could be offered some sort of revenue protection to manage the spot price volatility. The report said that such protection would be transitionary and remain until there is adequate investor confidence,” the Group said. 

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The government-backed report has recommended several measures that could be implemented in the short, medium, and long term. In the short-term measures, the Group suggested that the government can consider the participation of RE in the power market in a pilot mechanism with revenue protection. It said that the concerned nodal agency could tend an initial capacity of around 1000 MW as a pilot project under the single price option with a 15-year Power Procurement (PPA) tenure. 

In the medium term (1-2 years), the Group advocated for the participation of additional RE capacities in the market through revenue protection. Finally, in the long term (two years and above), the Group suggested the implementation of MBED. 

“For RE participation in the market, other variants could be introduced instead of a single strike price option. In addition, with increased investor confidence and increased market penetration (through MBED), all new RE additions could be treated as dispatchable resources,” the report suggested as its long-term measure. 

The report pointed out the dominance of inflexible long-duration contracts with discoms as one of the hurdles in the electricity market. This lack of depth in power exchanges, the report said, was not only an efficiency concern but also had a long-term implication for integrating renewable energy into the power market. 

The report also said that the yet-to-be-implemented Market-Based Economeleic Despatch (MBED), another format of a day-ahead market, could be implemented in India in a time bound-manner that can help better integrate RE in the day-ahead market. 

“It is also proposed to evaluate a suitable timeline for implementation of MBED in due course of time for integrating Renewables and new capacities along with transitioning existing capacities,” the report said.