India’s power sector is undergoing a transformative shift, marked by a notable transition from traditional Power Purchase Agreements (PPAs) towards an increasing reliance on power exchanges.
Recent data reveals a significant surge in the share of power exchanges, signaling a paradigm shift in the dynamics of power trading within the country. Over the past few years, the short-term market segment has grown significantly, now representing 15% of the sector compared to a modest 10% in FY’17. This growth highlights the changing landscape of power trading, where exchanges have played a crucial role in improving price discovery, operational efficiency, transparency, and payment security across the sector. According to the Central Electricity Regulatory Commission (CERC), power exchanges have experienced a robust compound annual growth rate (CAGR) of 16.4% from FY2020 to FY2024, and they now account for approximately 8% of total electricity consumption. This increase in their share highlights the growing importance of exchanges as key facilitators in the power market.
Conversely, the traditional Demand Side Management (DSM) segment has experienced a decline, largely attributed to the introduction of the Real-Time Market (RTM). The advent of RTM, enabling near real-time electricity procurement, has reshaped DSM dynamics by aligning pricing with exchange rates, thereby eliminating arbitrage opportunities. Additionally, stringent penalties for grid overdrawals and underdrawals have further catalysed this shift away from DSM. The CERC report also highlights the contrasting growth trajectories, with bilateral transactions and DSM witnessing comparatively slower growth rates of 3.4% and 2% CAGR, respectively, underscoring the ascendancy of exchanges in the power trading ecosystem.
Amidst these evolving market dynamics, India’s renewable energy focus continues to intensify, with renewable generation and installed capacity witnessing robust growth rates of 8.2% and 10.6% CAGR, respectively, over the last five years. To achieve its ambitious target of 500 GW of renewable capacity by 2030, the integration of renewables through exchanges emerges as a critical strategy to mitigate intermittency challenges associated with renewable sources.
India’s overall electricity consumption has surged by 7.6% year-over-year in FY’24, supported by substantial additions in thermal capacity, with significant investments in both construction and planned expansions to meet escalating electricity demands. The augmented supply scenario has translated into notable improvements in coal metrics, with coal production and dispatch to the power sector witnessing substantial year-over-year increases. This has contributed to competitive pricing on exchanges, with substantial decreases in average market clearing prices reported by key players like the Indian Energy Exchange (IEX).
