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Presentation
SOUTH ASIA REGIONAL WORKSHOP ON THE
REGULATORY ROLE OF PROMOTING CROSS BORDERENERGY TRADE
27.06.2012
Vijay Menghani, Joint Chief(Engg.),CERC
27th
June 20126/25/2012 1
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Generation Capacity Growth India
6/25/2012 3
65941 70224 70096 74689 7611679392 82453 85667
38790 3992345121
48361 4897150993 54413
5968313688 1413917113
20011 2287929014 37496
54276
0
50000
100000
150000
200000
250000
Private Sector Capacity Addition
Private gencos
Central gencos
State gencos
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Indian Power Sector
6/25/2012 4
1146313897
1807313024 15157 12031 13815
12.313.8
16.6
11.912.7
9.810.6
0
2
4
6
8
10
12
14
16
18
0
20000
40000
60000
80000
100000
120000
140000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
%shortage
India Peak Demand
Peak Demand (MW) Peak Met (MW) Peak Shortage (MW) Percentage (%)
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Indian Power Sector
6/25/2012 5
5273586092 73336 86001 83950 73236 79313
8.4
9.69.9
11.1
10.1
8.5 8.5
0
2
4
6
8
10
12
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
%shortage
India Energy
Requirement (MU) Availability (MU) Energy Shortage (MU) Percentage (%)
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International Cooperation
6/25/2012 8
132.0 145.6
289.9 276.3
486.8
639.7 633.7
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Export to Nepal (Million Units)
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International Cooperation
6/25/2012 9
1763.0
2957.3
5230.0
5884.0
5337.05577.5
5253.0
0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.0
7000.0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Import from Bhutan ( Million Units)
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Objective of the workshop.
Overview of regulations and policies thatsupport successful cross border
electricity exchange.
To identify existing regulatory barriers tocross border trade and identify solutions
to be made to overcome these barriers.
To discuss "next steps" in adaptingregulations to better support cross
border electricity exchange projects
6/25/2012 10
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Mandate of CERC as per Act
o Tariff Determination Tariff for bulk supply from Central Government owned/inter-state
generating companies and transmission companies
(Consumer tariff is under the jurisdiction of State ERCs)
o Regulating Inter State Transmission and Grid Code
o
Market Developmentfacilitating framework(Generation capacity planning responsibility of Government)
o Licensing, Adjudication, Advice to Government
6/25/2012 11
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Role CERC :Balancing Consumer Interest and Investment promotion need
o Consumer interest served by Enhanced Power Supply and Transmission Availability
Inducing Efficiency in operation of power plants gains forConsumers
Ensuring Reliable Power Supply
Providing Alternatives to procure power
o Investment Promotion: Enabling framework for Market Access to Generators
Development of Power Market
Competition in Transmission Promoting Green Energy
o CERC is responsible for Oversight of Market and Grid Security
6/25/2012 12
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Role of CERC:
Tariff Regulations that improveAvailability and Efficiency of
existing power plants
6/25/2012 13
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Tariff Regulation inducing operating
efficiency in Generating Stationso
CERC determines tariff for about 40,000MW ofgeneration assets
o Introduced Availability Based Tariff ( ABT) in Generation
Incentive provided to generator to increase availabilityand efficiency/ Disincentive for underperformance
Efficiency and operating norms of generators tightened
Sharing of benefit of savings in secondary fuel oilconsumption in 2009-14 regulations
o Plant Availability Norms raised from 80 to 85 %
Increased Availability of existing power stationsfacilitated
( More value for money for Consumer )
6/25/2012CERC regulations have improved generation efficiency
14
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Role of CERC:
Ensuring Reliable Transmission Gridand Power Supply
6/25/2012 15
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Ensuring Reliability of Grid Operation
o Frequent Grid Disturbance before 2002
o CERCs Intervention 2002, Introduction of UI*mechanism and Grid Code(IEGC
**)
Frequency Range tightening
2002 : 49.0- 50.5 Hz
2009 : 49.2- 50.3 Hz
2010 : 49.5- 50.2 Hz
2012 : 49.7- 50.2 Hz
o Improved Reliability of power supply through Grid
Discipline , UI mechanism and Grid Security
No major Grid failure since 2002
6/25/2012* Unscheduled Interchange* *IEGC Indian Electricity Grid Code
Frequency Band tightening improved quality of power and supply voltage
16
I f R l I i F i NEW G id
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6/25/2012Frequency Excursions reduced
Impact of Regulatory Intervention on Frequency in NEW Grid
(1998 onwards)
17
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Improved Transmission System Availability
o Availability Based Tariff in Transmission
Incentive / Disincentive linked to Normative
system availability Has resulted in higher actual availability than prescribed Operating
Norms
o Operating Norm 98 % for AC System, Actual
availability ranges between 99.90- 99.99 % across
all regions
6/25/2012 18
CERCs Regulations have helped ensure consistent power supply
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Role of CERC:
Enabling framework forInvestment in Generation
6/25/2012 19
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Enabling framework for Investment
in Generationo Pre 2003:
Government guarantee on PPA required to attract investment inprivate generation
No marketsor alternatives to sell in case of default by buyer
o EA 2003 and CERC regulations : Concept of open access through Act : Framework by CERC
o Interstate Open Access regulations
Allowed generators to sell power to any buyer across the country
o Connectivity, Long term and Medium Term Open Access Improved Market Access for generators
Provides certainty and surety of evacuation for new capacity
6/25/2012 20
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Enabling framework for Investment in
Generation o Development of Power Market through regulations
Provided multiple buyer seller model
Multiple alternatives available to generators to sell powerdirectly, traders, power exchange
o Regulatory approval for transmission networkaugmentation Ensures Transmission Network expansion keeps pace with
Generation capacity addition
Ensures new generation is not stranded
o
Introduced Point of Connection Tariff Removes regional cascading of transmission charges
Level playing field among all generators to compete in Competitivebidding
6/25/2012 21
CERCs framework has reduced various risks - default /payment risk,
operational risk, liquidity risk in generation business
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Enabling framework for
Investment in Generation
6/25/2012 22
o Regulatory Intervention and GOI policies in last 5 yearsnow showing results
In 11th Five Year plan Private Generation Capacity addition of23,000 MW
Private Generation capacity addition 41.8 % of the totalcapacity addition in 11th Plan
Five
Year
Plan
Private Generation
Addition ( MW)
Total Capacity
Addition
(MW)
% of Private capacity
addition to Total
Capacity Addition
10th Plan 1,930.60 21,180.24 9.1%
11th Plan 23,011.50 54,963.90 41.8%
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Role of CERC:
Providing alternatives for powerprocurement through development
of Power Market
6/25/2012 23
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Alternatives to Procure Power
o Created a Market Structure and Market Rules
License to electricity traders , power exchanges
o Multiple alternatives available to purchase power today
Directly through Open Access
Electricity Traders
Power Exchange
o Open access in interstate transmission being encouraged
Approx 1000 industrial consumers and Discoms procuring electricitythrough Power Exchanges regularly
o Total Generation = 877 Billion Units ( in FY 2011-12)
Short Term Market is 8 % of total generation (68 BU )
Short Market size of approximately 18,000 crore
Volume has grown at 25 % CAGR over last 4 years
6/25/2012 24CERC is working towards providing choice
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Development of Power Markets
o License to electricity traders Large number of licensed traders (43)
Two Power Exchanges operational for last 3 years Anonymous and Competitive price discovery
Based on real demand and supply
Electronic platform
Quick Price dissemination across countryo Introduced various products
Day ahead, week ahead, intraday/contingency traded, REC
o Regulations notified
Grant of Trading License Power Market Regulation
Trading Margin Regulation
Short Term Open Access Regulation
6/25/2012 25CERC has helped create a robust market structure
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6/25/2012 26
Requirements for Trading Licensee
TechnicalRequirement
Power system operations and commercialaspects of power transfer
Degree in Engineering with at least10 years experience
Finance, Commerce and Accounts CA/ICWA/MBA(in Finance) withat least 5 years experience
FinancialRequirement
Networth as per category for the last 3 yearsbefore application
Current ratio 1:1, Liquidity ratio1:1for last 3 years before application
Categories Volume of electricity traded in a year Minimum Net Worth (Crore)
Category 1 No limit 50
Category II Not more than 1500 MUs 15Category 111 Not more than 500 MUs 5
Category IV Not more than 100 MUs 1
Steps Process of Grant of Licence
1 Applicant files petition to CERC with public notice inviting objections to the grant of licnese and
publishing application on its website
2 Applicant files reply to objection raise with 45 days of publication of public notice
3 CERC hears the petitioner and objections raised
4 CERC publishes public notice proposing grant of license and inviting objections if any
5 CERC conducts public hearing to hear objections
6 Trading License Granted
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Role of CERC:
Introducing Competition inTransmission
6/25/2012 27
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Competition in developing
Transmission Assets
o CERC notified Transmission Licence Regulations
Entity selected through competitive bidding is eligible
to get licence
Tariff discovered through Competitive bidding isadopted
o Eight projects bid out through competitive bidding
o Tariffs discovered are 30-40% lower than cost plus tariffs
for similar projectso Empowered committee chaired by Member CERC
identifies projects for competitive bidding
6/25/2012 28
Competition in Transmission is reducing cost significantly
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29
Creation of Transmission Highways
6/25/2012
CERC has granted approvalfor investment (of about Rs.75000 crore) to CTU for
Eleven High capacitytransmission corridors :1. Orissa2. Chhattisgarh3. Madhya Pradesh4. Jharkhand5. North-East- Sikkim
6. Andhra Pradesh-Krishanapattanam area7. Andhra Pradesh-
Srikakulam area8. Tamil NaduTuticorin
area9. SRWR/NR System
Strengthening
10. Vemagiri Area11. Naggapattnam Area
Source: NLDC
Cluster of
Generationpockets
Cluster of
Concentrated
Demand
pockets
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Role of CERC:
Promotion of Renewable Energy fora sustainable future
6/25/2012 30
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Promotion of Renewable Energy
o Diversification of Energy resources for Energy
Security
o Regulatory framework in line withNational Action
Plan on Climate Change ( NAPCC)
Preferential Tariff Regulation introduced Framework for Grid Integration
Renewable Energy Certificate (REC) mechanism for
Renewable Purchase Obligation (RPO) compliance by
Discoms / open access consumer RPO mandated under the Act
6/25/2012 31CERCs initiatives to create a Sustainable Future
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Renewable Generation Capacity Growth
6/25/2012Spurt in growth of Renewables due to Regulatory and Policy initiatives
0
5000
10000
15000
20000
25000
MW
Wind Biomass Small Hydro Waste to Energy Solar
PolicyAnnouncement
by CentralGovernment
Enactment
of ElectricityAct, 2003
NAPCC,JNNSM,
GBI
Emergence ofElectricityRegulatory
Commissions
Enactment ofNational Tariff
Policy
CERC RETariff
Regulations
RECRegulati
ons
32
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Role of CERC:
Market Oversight and GridDiscipline
6/25/2012 33
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Market Oversight
o Ensures that market is Free, Fair and Transparent
o Regularly monitors Trading Margin and short term powerprices
o Publishes Monthly and Annual market reports for
Information dissemination
o CERC intervened in market when prices increasedexorbitantly
Price Cap introduced in day ahead market in September 2009 for45 day period
o Ensure large entities do not exercise market power
6/25/2012 34CERC ensures Market Integrity
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Institution of CERC has
o Brought Transparency in Regulatory processo Introduced Efficiency in Operation
o Created environment to attract private investment in
Generation
o Promoted Competition in generation and transmission
o Created Market Structure in power sector
o Facilitated Sustainabledevelopment through promotion
ofRenewable Energy
6/25/2012
Intent of the Electricity Act being
translated into reality through
CERC Regulations
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1541418128
19883
24111
30521
39457
55232
66987
0
10000
20000
30000
40000
50000
60000
70000
80000
2008-09 2009-10 2010-11 2011-12
Short Term Open Access - Number
of Transactions and Energy
NO. OF TRANSACTIONS APPROVED ENERGY (MU)
6/25/2012 36
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Prices showing a declining trend in Short term power market
Short Term volume has grown at CAGR of 25 % over last 4 years
Short Term Power Price-Volume Trend
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00 7.31
5.26
4.79
4.18
7.49
4.96
3.47 3.57
Rs/Kwh
Trader Price( Rs/ kwh)
PowerExchangePrice ( Rs/kwh)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
24.19
33.91
43.22
51.38
Volume(BUs)
Total Volume of Electricity Transactedthrough Traders andPower Exchanges
at6/25/2012 37
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Electricity Trading Margin
6/25/2012
PeriodVolume of
Electricity Traded
(Mus)
WeightedAverage
Purchase Price
(`/kWh)
WeightedAverage
Sale Price
(`/kWh)
Actual Trading
Margin
charged(`/kWh)
2005-06 14,189 3.14 3.23 0.09
Introduction of Trading Margin Regulation in 2006
2006-07 15,023 4.47 4.51 0.04
2007-08 20,965 4.48 4.52 0.04
2008-09 21,917 7.25 7.29 0.04
2009-10 26,820 5.22 5.26 0.04
2010-11 29,683 4.74 4.79 0.052011-12 35,840 4.13 4.18 0.05
Trading Margin has reduced
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Requirement for Cross Border
Trade- Institutional Framework
6/25/2012 39
Legal and RegulatoryFramework
Durable Framework forSystem planning and
Operation
Equitable CommercialFramework for Energy
Exchange
Ref: USAID-2008
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Requirement for Cross Border
Trade- Physical Infrastructure
6/25/2012 40
Surplus Capacity ondomestic Network
during some time period
Sufficient transmissionInterconnection betweenCountries to transport
Surplus Power
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Road map of Institutional
Framework
5.Responsibility for setting trades delegated toindependent entity
4.Cross-border trading is coordinated by regionalentities &takes advantage of centralized dispatch
3.Decisions made on framework for cross borderpower trading
2.Entities established to coordinate cross-border
trading
1.Government commitment to cross-borderpower trading
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Road map of Physical Framework
3.New Investment in cross-borderinterconnection and generation capacityresponds to regional market prices
2.Cross-border interconnections andgeneration capacity to support powertrading between multiple parties
1.Limited cross-borderinterconnections, used for long termtrading and short-term reliability.
Cross
BorderTransmission
Company
between
India Nepal
Many
IPPs inNepal &
Bhutan
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Interconnection
6/25/2012 43
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Cross Border Power Trade:
6/25/2012 44
Power
Transmit
Schedule
Procure
For successful execution each of this need to
handled through rule of the game i.e formulized
through Act, Regulation, Standards and treaty.
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CERC Enabling Regulations
6/25/2012 46
Generation
Government-AdviceTo Govt
Generator- TariffRegulation
Trader/ PowerExchange Trading
License and PowerMarket Regulation
Transmission
Transmission Utility-Regulatory Approval
Regulation
TransmissionCharges- Point of
AccessCharges(POCMechanism)
Open AccessConnectivity, Long
Term and Short Term
SystemOperation
Schedule andDispatch- Grid Code
Unbalancesettlement( UI
Regulation)
CongestionManagement( In Real
Time and Powermarket)
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Regulatory Building Blocks for
Cross Border Energy Trade Procurement of Power:
Terms and conditions of Tariff
Renewable Generator Tariff
Trading License Regulation Power market Regulations
Transmission:
Regulatory Approval for Construction
Transmission License Regulation.
Connectivity and Access Regulation
(LT/MT/STOA)6/25/2012 47
f
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Regulatory Building Blocks for
Cross Border EnergyTrade Sharing of ISTS charges and losses (for tr.
charges and losses)-Point of Connection
System Operation:
Indian Electricity Grid Code( IEGC) Unscheduled Interchange (UI) Regulation
Congestion In Real Time Regulation
Congestion in Power Market throughMarket splitting
Ancillary Power Market
6/25/2012 48
Benefits of Regional cooperation
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Benefits of Regional cooperation-Economic
Large economies of the region have thegreatest shortages looming. Resource rich
Countries can benefit
Larger unit sizes and more efficientgeneration capacity will be possible
Load shapes and time differences can be
effectively utilised
6/25/2012 49
B f f R l
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Benefits of Regional cooperation
-Economic Intermittent resources will be supported
(e.g. Sri Lanka)
Interconnections unlikely to be expensive
in relative terms Hydro dominated nations (particularly
Nepal) will gain from thermal power in
lean seasons and peak hours) The markets will help utilise the power
when the economic value is the highest
6/25/2012 50
B fi f R i l i
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. Benefits of Regional cooperation
-Investment factors Markets create a mechanism to address
governance issues that otherwise dog
capacity procurement decisions
Market access likely to attract privatecapital on much larger scale
Transparent market prices provide an
effective reference Renewable energy (intermittent
renewable resources like wind can be
harnessed through the markets)6/25/2012 51
Ground Rules
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Ground Rules
1.Home country interests must be defined and
protected A certain basic share of the power must be
designated for the home country for internal
needs
In event of surplus from this share the home
country should be able to market the power
into the market
2. Transit Costs must be kept reasonable and asper appropriate economic principles that relate to
actual transit costs. India has a new emerging
framework which can be expanded in scope to
include transit (POC mechanism 6/25/2012 52
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Ground Rules
3. A regional power pool is advisable.However provide a start the mechanisms can
initially be restricted to bilateral (but market
based) transactions. The mechanism can beexpanded subsequently
4. There would be other practical ground
rules that would need to be evolved. Inparticular technical codes, institutional andcommercial arrangements between countries
must be aligned. This must start NOW.6/25/2012 53
BARRIERSTO CROSS
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BARRIERS TO CROSS
BORDER TRADING
6/25/2012 54
a) Poor performance of many of the state-
owned utilities, rendering them unable to fully
conduct normal commercial activities.
b) Long distances involved, and thechallenging geographical and natural
environment.
c) Disparity in the countries power sector
size.d) Weaknesses of the national grids, which
require strengthening (and hence investment)
before trading is possible.
BARRIERSTO CROSS
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BARRIERS TO CROSS
BORDER TRADING
6/25/2012 55
e) Lack of infrastructure, such as powertransmission interconnections, regional/
interregional co-ordination centers or control
centers.
f) Energy strategies that rely on self-sufficiency.
g) Difficulty in obtaining project financing for
crossborder transmission interconnections,
and the difficulty (and complexity) of raising
government guarantees for cross-border deals.
.
Not Economically
efficient
BARRIERSTO CROSS
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BARRIERS TO CROSS
BORDER TRADING
6/25/2012 56
h) Lack of a (commercial/legal/regulatory) framework for
transactions to take place.
i) Lack of agreement on the tariff system to remunerate
the use of transmission infrastructure.
j) Lack of institutions to give regional trading political
legitimacy and to play the co-coordinating and energy
trade enhancement role. In some cases exactly the
opposite happens and there exist several institutions
with overlapping interests and fields of intervention that
require coordination.
BARRIERSTO CROSS
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BARRIERS TO CROSS
BORDER TRADING
6/25/2012 57
k) Lack or non coordinated legal framework forenergy trade.
l) Lack of general harmonization of technical
codes, specifications and standards.
m) Lack of trading mechanisms in the energy
sector, which is much more complex than
trading of other goods or commodities.n) Lack or scarcity of qualified human
resources to manage technical / commercial
/regulatory aspects of cross border trading.
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Mitigation Measures
6/25/2012 58
Barriers MeasuresA. Regulatory
1.Non
discriminatory
open access to
spare capacity of
transmission,
2.Remuneration
of transmissionservices,
3.Licenses.
In India, already
Implemented through
Regulations on Open
access, Trading Licenses
and Sharing of
Transmission ChargesRegulation.
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Mitigation Measures
6/25/2012 59
Barriers Measures
Geographical region and power sector sizes
long distances, several
countries, difficultlandscape, power
sectors with different
size and different
degrees of development
Coordinated
Regional Planning.Yet to be
institutionalized to
take care and
integrate it withdomestic planning.
Mitigation Measures
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Mitigation Measures
6/25/2012 60
Barriers Measures
Lack of infrastructurefew and weak existing
interconnectors;
domestic transmission
systems with difficultiesto host transit flows
Existing with Bhutan,
Nepal, Developing with
Bangladesh and Sri
Lanka.Need to develop
regional standards ,
methodologies and
instruments for
planning.
Eleven High capacity
domestic Corridors
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Mitigation Measures
6/25/2012 61
Barriers MeasuresInstitutional basis and Government Commitment
Need of a regional
institution to take the
responsibility ofcoordinating and
promoting regional
power trade;
governmental
commitment with power
trade.
Govt of Indias supportand commitment
available.Need to create
Regional institute with
the capacity and
objective to coordinate
and promote the
process.
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Mitigation Measures
6/25/2012 62
Barriers MeasuresFinancing cross border Interconnection
Counties considered as
high risk for credit,
utilities not creditworthy, bad performance
of utilities and vicious
circle (low tariffs,
lack of investment,
lack of credit
worthiness to develop
investment)
India: Regulatory
approval process exist,
private sectorparticipation already
started, Transparent
tariff process ,
Payment security
arrangement exist.
Standard Bidding
Documents.
Mitigation Measures
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Mitigation Measures
6/25/2012 63
Barriers Measures
Domination of one or few countriesExercise of dominant
position during trade
or during decision
making process.
The regional regulator
should perform market
surveillance.
2. Proceed by writtenrules
3. Establish a
decision making
process that
minimizes the possibility of
domination during
the process itself by one or
few countries
C B d T d L i f
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Security of supply concerns need to be explicitly addressed andunderstood by the parties to proposed cross-border transactions
Regional entities need to be empowered to make decisions based on
legally enforceable national government commitments, particularly in
relation to planning, pricing, and settlement rules
Bilateral trading provides a basis for expanding trading volumes, both
through constructing the physical infrastructure that future deals will use
and by establishing workable legal and regulatory frameworks
Power pools will help to generate sustained increases in cross-bordertrading along with other regional trading arrangements, particularly in
power systems with several interconnections
The substance and process of regulatory reviews in importing and
exporting countries must be clear to create sufficient investment certainty.
Cross Border Trade: Learning form
International Experience
Agenda for discussion
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Possibility of more interconnections.
Regional Institute to take processforward.
Planning process coordination and
transparent information sharing.Possibility of power pool.
Capacity Building in Regulatory affairs.
Capacity Building in system Operation.
Renewable integration by extending
control area.
Participation in Ancillary market by
Agenda for discussion
R f
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Central Electricity Authority, India Reports.
CERC India Market Monitoring Reports. POSOCO Indian system Power Operators
Reports.
Castalia Limited, International Experience with
Cross-border Power Trading Report to the
Regional Electricity Regulators Association
(RERA) and the World Bank,September2009
Mercadoes Energy Market International report
Institutional, Regulatory and cooperative
framework model for the Nile Basin power
trade- .October,2007
Reference:
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Thank You for listening and
thinking.
Vijay MenghaniJoint Chief(Engg.),
Central Electricity Regulatory Commission, India
[email protected], [email protected]
91-11-233353503,09999035484
mailto:[email protected],[email protected]:[email protected],[email protected]