Despite a surplus scenario in the power sector, the tendency of states to overdraw from the grid is rising, with the volume of over-drawls failing to see a decreasing trend that is typical of a surplus scenario. The deviations from schedule are high in terms of absolute volume and as percentage of short-term traded volume, leading to the clamour from market players that the deviation settlement rate should be a notch higher than market-clearing price on the Power Exchange so that states are discouraged to overdraw cheaply from the grid.
Under the current grid stabilisation scheme or the ‘UI mechanism’, as it is referred to in grid parlance, a power station can make big profits by injecting electricity into the grid when demand is high and the grid frequency is low. Conversely, when the grid frequency is within the permissible band, consuming states can draw electricity way higher that their entitlements at reasonably cheap rates.
While the scheduled energy exchanges with the grid are priced under the agreements between the buyer and seller utilities or through the market discovery price on the exchanges, deviations (positive or negative) from the scheduled exchanges which are termed as ‘unscheduled interchange’ (UI) are priced at a dynamic price known as the ‘UI rate’. The UI rate during real time reflects the system marginal price at that instant, thereby shooting up of this rate when the grid frequency is low during peak demand hours, and dipping if frequency is headed upwards.
According to market players, the generators and states are apparently taking advantage of the fact that charges for deviating from the contract are reasonably moderate up to 49.8 Hz and the additional penalty is not triggered up to 300 megawatts (MW) in the case of renewable energy (RE)-rich states. Further, the additional penalty for excessive over-drawl triggers for non-RE rich states if over-drawl is more than 12 per cent of schedule or 150 MW in three or four slabs. However, for RE-rich states, the additional over-drawl penalty triggers when over-drawl is more than 250 MW or 350 MW in three slabs.
In American countries and in the Europe, where RE generation is high, frequency is kept very tight including in China and Japan. The power supply position in India is very healthy, and it is clearly possible to keep the frequency in the range of 49.9–50.05 Hz, according to an executive with a power trading platform. “It requires that the deviation settlement rate should be a notch higher than market-clearing price on the Power Exchange so that states are discouraged to overdraw cheaply from the grid, up to trigger point for additional penalty on deviation from contract,” he said.
According to experts, online trading on the Power Exchange needs to be facilitated by reducing the gate closure time to one hour from four hours, which is important to enable states to adjust to forecasting errors in the availability of renewable energy generation in future. At present, contingency power service is largely provided by costly power from central generating stations, while cheaper power on the Power Exchanges goes begging. “CERC (the Central Electricity Regulatory Commission) needs to follow inclusive merit order covering IPPs (independent power producers) for providing contingency power service,” said a sector analyst.