Until August 2020, exchange-based power markets could only procure renewable energy through renewable energy certificates (RECs). Entities on the demand side were procuring renewable energy through either long-term contracts or short-term RECs to fulfil their renewable purchase obligations (RPOs), mandated as per the Indian Electricity Act, 2003. This changed in August 2020, when the Central Electricity Regulatory Commission approved trading in renewable energy with term-ahead contracts on the power exchanges, paving the way for the establishment of a first-of-its-kind “green market” in India.
The green market
The green market at the exchanges now offers delivery-based contracts on day-ahead as well as term-ahead basis, up to 11 days. Trading in term-ahead contracts commenced in August 2020, while trading in the day-ahead market was inaugurated in October 2021 by R.K. Singh, minister for power and new and renewable energy. Since inception, the green market has achieved trade of 4.13 billion units and has enabled transparent, competitive price discovery for both solar and non-solar power, besides enabling flexibility in procurement of renewable energy.
In the green day-ahead market, bids for conventional and renewable energy are received in an integrated manner, but through separate bidding windows. The market pursues a double-sided, closed, anonymous auction framework to allow the most transparent and competitive price discovery. The clearing of electricity volumes takes place in a sequential manner – first in the priority renewable segment, followed by the conventional segment. As of date, many renewable energy generators are getting paid a fixed “feed-in tariff” for a contractual term. Some of these contracts may expire in the near future. These generators would now have the option of selling power in the green day-ahead market or the term-ahead market, which offers trading in intra-day, contingency, daily and weekly contracts in both solar and non-solar segments.
Markets and energy transition
As a signatory to the Paris Climate Agreement 2015 and as per the recent commitments made at COP26, India has voluntarily committed to installing 500 GW of renewable energy by 2030 and meeting 50 per cent of total electricity consumed through renewable energy. Having already achieved over 100 GW, we need to deploy another 400 GW of green capacity in this decade, requiring 40 GW of green capacity addition on a yearly basis for the next 10 years.
The green market offers immense benefits such as transparency, competitive prices, payment security and flexibility in procurement, which could catalyse the creation of a pan-India green market and help achieve India’s renewable energy targets. The market will also encourage green generators to adopt part-market and part-power purchase agreement model. The payment security offered by the market mechanism also helps in addressing the issue of non-payment of dues faced by renewable energy developers, which continues to plague renewable energy development across India. The markets will also encourage renewable energy-rich states to develop capacity beyond their own obligations and offer it for sale on a pan-India market.
The government has also announced some measures, including waiver of inter-state transmission charges for trading of electricity generated or supplied from solar, wind, hydro-pumped storage and battery-based energy storage systems; well-defined RPO trajectories; redesign of the REC mechanism; and increased focus on local renewable energy manufacturing to boost markets as well as the ecosystem. However, much more needs to be done. The time is appropriate for deepening green markets and introducing other futuristic market products.
Markets around the world
Globally, greater penetration of renewables has been facilitated by power markets. European countries such as Norway, Sweden and Finland have higher shares of renewable energy as a part of their total energy mix, and the green energy in these countries is routed through exchanges, enabling efficiency, competitiveness and flexibility in trade. Also, several global electricity markets around the world now have a single market for renewable and conventional energy sources, which has greatly eased access to energy, driven down prices, and helped deepen renewables penetration.