Govt Considering To Route All Power Purchase Via Exchanges; Will Enable Effective Price Discovery And Cost Saving

The government is aiming to obtain around four per cent savings in the entire power procurement expenses by putting forward the idea of a centralized system to route electricity consumption in every state via power exchanges.

This will enable it to discover a national uniform price and thereby warrant that the cheapest available power is dispatched.

The ‘market-based economic dispatch’ (MBED) draft proposal issued by the Union Power Ministry explains that such a process could have provided benefits worth Rs 12,300 crore to the government in 2019-20.

“It will help develop truly one national electricity market and benefit all the electricity consumers of India,” said Power secretary Alok Kumar adding that MBED is a major initiative for bringing efficiency in energy procurement.

Consultations with the concerned stakeholders on this issue will take place in June whereas the final procedures for the same will be finalized by March 2022.

Moreover, the opening phase of this program that will consist of the fleet of stations under the NTPC Ltd will kick off from April 2022.

It should be noted that in the present time, everyThe cheapest state has its own set of power contracts with generators. Cheapest electricity among the existing contracts gets scheduled a day in advance through a system called ‘merit order despatch’.

However, since states operate in their individual capacities, some costly power generation is operating while many low-cost projects remain underutilised according to the ministry draft.

The draft stated, “...a centralised system of selecting power dispatch purely on economic principles, followed in Europe and parts of the US, will enable cost optimisation.”

The draft proposals include fusing in every buy and sell bid for the coming day on the power exchanges and then preparing a common national merit order that will start with the cheapest power that is available across all the states.

Then, a clearing price will be discovered by the exchanges and the buyers will pay that to them. Subsequently, the cost will be paid to the cleared sellers by the exchanges.

The aim is to ensure that even economical power stations manage to realize their optimum utilization by selling their produce.

The distributors will be rolling out a fixed price to expensive plans that already have power agreements with the states. Additionally, the draft even projects using selected agencies such as the Rural Electrification Corporation (REC) Ltd and the Power Finance Corp to supply a line of credit to the discoms that need it.

Furthermore, the government is looking to encourage the practice of discoms settling the payments upfront on exchanges by offering them a two per cent rebate on such quantum of bought power, Economic Times reports.