Shortage, Surplus, And Prices: How Market Coupling Can Solve India’s Power Markets

In the summer afternoon, as air-conditioners hummed across Delhi and demand surged across the grid, electricity prices diverged sharply. In one market, buyers paid dearly, while two states away, generators remained idle with excess energy.

In modern electricity markets, this paradox, unmet demand in one region while cheap power sits unused in another region, is solved by 'market coupling'.

In essence, market coupling knits together separate power markets so that all generators and buyers bid into a single, integrated market. The result is a uniform clearing price and flows that match physical grid realities.

Since the late 2000s, many European countries have coupled their day-ahead and intraday markets, reducing cross-border price gaps and maximising the use of transmission capacity. As the backbone of Europe’s electricity trade, market coupling aggregates bids into a single auction to find a common clearing price, improving efficiency, price signals, and trade dynamics.

For a country like India, with a single synchronous grid but multiple isolated trading platforms, coupling is not just about theoretical elegance but also practical urgency. It promises efficiency, lower prices, better renewable integration, and a more competitive power landscape.

Yet, despite recent pilot projects and regulatory signals, India remains at the threshold of a transformation it desperately needs.

Understanding Market Coupling

At its core, market coupling integrates bids from multiple electricity exchanges into one unified auction. Rather than each power exchange clearing its market independently, all buy and sell bids are pooled, and a single algorithm determines the optimal dispatch and a uniform price.

This approach aligns market signals with physical realities, ensuring that the cheapest available electricity flows across regions to meet demand.

The mechanism relies on implicit auctions, where constraints on transmission are internalised in the price discovery process. Traders no longer need to separately procure grid access. Instead, the algorithm ensures that electricity flows in a way that maximises the utilisation of transmission lines and smooths out regional price disparities.

Europe’s experience offers the clearest precedent.

Since the late 2000s, the EU has linked its national power exchanges through the Single Day-Ahead Coupling (SDAC) and intraday mechanisms like XBID. These systems rely on common algorithms like Price Coupling of Regions (PCR), which match bids and allocate cross-border flows, leading to greater liquidity, reduced price volatility, and better utilisation of renewable energy.

Price convergence between countries like Germany, France, and the Netherlands has validated the model’s efficiency.

India’s Fragmented Power Markets

India’s short-term electricity trade is dominated by the Indian Energy Exchange (IEX), which held over 90% market share in 2023. The Power Exchange India Limited (PXIL) and Hindustan Power Exchange (HPX) account for marginal volumes.

This siloed architecture undermines efficiency. When one exchange is congested, prices can spike even if cheaper power is available on another platform. Disparate markets limit liquidity, leading to price distortions and underutilisation of generation and transmission capacity.

In February 2024, IEX transacted around 4,742 million units on its day-ahead market, while PXIL and HPX combined traded only about 4.36 million units, a thousand-fold disparity.

Compounding the issue is the limited size of India’s short-term market. Despite ambitious targets to grow power trading, only about 12% of India’s electricity was traded on exchanges in 2023, the rest governed by long-term power purchase agreements (PPAs).

Meanwhile, renewables, often cheaper and more variable, are mostly tied up in state-specific contracts, curtailing their potential to balance the grid dynamically.

The regulatory response has been evolving. The Central Electricity Regulatory Commission (CERC) recognised these inefficiencies and introduced Power Market Regulations in 2021, explicitly allowing market coupling.

These regulations envision a Market Coupling Operator (MCO) to aggregate bids, discover a uniform price, and ensure optimal transmission use. Still, implementation has been cautious, though more decisive action began in early 2024.

CERC’s Shadow Pilot: A First Step

In February 2024, CERC launched a “Shadow Pilot” to simulate market coupling without changing actual trades. Grid Controller of India Ltd. (Grid-India) was tasked with acting as the Market Coupling Operator (MCO) on a trial basis.

Under the pilot, all three exchanges — IEX, PXIL, and HPX — are required to share their anonymised bid data with Grid-India daily.

The pilot's purpose is to aggregate these bids and compute a hypothetical uniform market-clearing price using a common coupling algorithm. The outcomes are not binding on trades or schedules; instead, they help assess the potential gains in efficiency, price convergence, and system utilisation.

Initial findings from the pilot are encouraging. Simulations show that in several instances, the coupled market would have discovered lower prices and cleared higher volumes, especially when demand on one exchange was unmet despite available supply on another.

One key insight is that coupling India’s short-term exchanges with its Security Constrained Economic Dispatch (SCED) mechanism, responsible for scheduling interstate generators, could further enhance efficiency by leveraging low-cost generators outside exchange platforms.

Monthly reports from Grid-India have shown measurable benefits. In March and April 2024, the shadow pilot observed instances where a coupled clearing would have reduced system marginal prices by ₹20–₹100/MWh and improved utilisation of both renewable and conventional assets.

Based on these insights, CERC is expected to draft regulations for full-scale implementation by this year.

Why India Needs Market Coupling Now

India’s electricity sector is on the cusp of a massive transformation. Peak demand is climbing steadily, set to cross 335 GW by 2030. At the same time, the government’s decarbonisation goals will see renewables account for nearly half of installed capacity.

This dual pressure of rising demand and increasing intermittency demands a smarter, more flexible power market.

Market coupling addresses several of India’s structural weaknesses. It would eliminate fragmented pricing by discovering a single clearing price across exchanges, reducing volatility and uncertainty for buyers. It would optimise the use of transmission infrastructure, allowing power to flow from surplus to deficit regions without artificial barriers.

It would integrate renewables more effectively by enabling them to compete nationally, not just within their host state. And it would reduce reliance on long-term PPAs, which are increasingly mismatched with dynamic demand and generation patterns.

Moreover, coupling would level the playing field for exchanges. Currently, IEX’s dominance discourages innovation and new entrants. With coupled markets, competition would focus on service quality, ancillary products, and customer experience, not just capturing volume.

Smaller exchanges like PXIL and HPX would gain equal access to the market, spurring diversification and growth.

Perhaps most importantly, market coupling supports India’s aspiration to be a low-carbon economy. Flexible, integrated markets are essential for renewable-heavy grids.

By dynamically routing solar and wind generation where it’s needed most, coupling minimises curtailment and ensures that green energy is not stranded due to outdated procurement frameworks.

A Blueprint for Integration

The path to coupling India’s power markets requires technical, institutional, and regulatory reforms. Fortunately, many foundational steps have already been taken.

The national grid is synchronous and centrally managed by Powergrid and POSOCO, which reduces the coordination burden seen in Europe. The existence of a regulatory framework and the appointment of Grid-India as a potential Market Coupling Operator offer a clear institutional anchor.

The first step is expanding and formalising the ongoing pilot. Grid-India has begun shadow coupling trials, aggregating real bids from all exchanges and calculating a hypothetical uniform price. These exercises must lead to operational deployment backed by software capable of handling bids, constraints, and security protocols across platforms.

Second, regulatory clarity is needed. While CERC’s 2021 regulations permit coupling, new guidelines must detail timelines, obligations for exchanges, data-sharing standards, and dispute resolution mechanisms.

Legislation should define the role and authority of the Market Coupling Operator and ensure its independence from any single exchange.

Fourth, pricing mechanisms should be aligned. Currently, each exchange applies price caps and bidding formats slightly differently. Harmonising these across platforms will be critical for successful coupling.

Incentives for DISCOMs and generators to participate in short-term markets, such as financial instruments, capacity contracts, or access to ancillary services, will improve liquidity.

The Payoff: Efficiency, Competition, and Clean Power

Market coupling is not a silver bullet, but it is a powerful tool in the transformation of India’s power sector. By converging prices across markets, it improves transparency and reduces speculation.

By integrating bids nationally, it enhances dispatch efficiency and optimises the use of low-cost generation. By opening up access, it fosters fairer competition and better services. Crucially, by enabling the flexible integration of renewables, it brings India’s clean energy ambitions within closer reach.

The European experience underscores that coupling, while complex, delivers dividends. It deepens market liquidity, balances localised shortages, and sends clearer investment signals for both transmission and generation infrastructure.

It also facilitates the emergence of cross-border balancing services, demand response mechanisms, and intraday flexibility, all critical for a renewables-driven future.

It would also offer a transformative path for regional power trade in South Asia, where India is already linked to neighbors via 27 cross-border lines exchanging over 4,100 MW, set to rise to 7,000 MW by 2026–27.

A unified market would consolidate these bilateral trades into a single auction platform, enabling efficient price discovery and optimal use of cross-border capacity. The recent Nepal-Bangladesh deal, routed through India, exemplifies India’s central role.

Coupling would institutionalise this role, lower costs by pooling the region’s cheapest generation, and deepen India’s energy diplomacy, advancing both economic integration and strategic objectives like the “One Sun One World One Grid” initiative.

One Market, One Grid, One Future

India stands at a unique juncture. With a unified national grid and a central regulatory architecture, it is better placed than many others to leapfrog legacy inefficiencies. The technical and political barriers are not insurmountable.

What is needed is sustained commitment: to move beyond pilot projects, to harmonise state and central policies, and to reimagine electricity as a unified national marketplace rather than a patchwork of state-dominated silos.

Ultimately, market coupling should serve consumers. A successful implementation would mean that Indian households and industries pay electricity prices that are closer to the true marginal cost of power — lower, more stable, and more reflective of actual system conditions.

In a country where the cost of inefficiency is borne daily by consumers, businesses, and the environment, market coupling offers a pathway to a more rational, dynamic, and equitable electricity system.