, 13 tweets, 3 min read Read on Twitter
This is at best hasty like the California roll out and at worst a recipe for another round of NPAs and massive system dysfunction. There many low hanging fruit in terms of policies that CERC could pursue. Why it went for this is beyond me (thread) 1/n m.economictimes.com/industry/energ…
Here a few reasons a national spot market won't solve things any time soon.
1a We don't truly have a national grid. Between congestion, wheeling charges, U/I and more only certain corridors can actually move large amounts of power. Spot markets can't fix this. 2/n
1b These kind of RTMs necessarily push the grid and congestion in ways which are unpredictable. We don't even have powerflow and congestion data in the public domain. How are buyers expected to model price risk and volatility in this situation? 3/n
2 Currently about 4% of all Indian power is on spot. The current PPAs have their problems, but they do provide price stability. We've already seen power prices soaring before elections and other events. How do we control volatility (which has massive fiscal implications)? 4/n
3a There is a reason APP is worried about operations and settlements. Spot markets don't lower offtaker risk. There may be cost savings, but bankrupt discoms need more help than cheaper power. Cheap power prices are just a way of avoiding more difficult institutional reform 5/n
3b Power markets are already biased in favour of CPSUs. They have all kinds of scale and leverage benefits which private and state gencos don't. A national spot market would simply price out the people who are already approaching bankruptcy. 6/n
3c Market design cannot be independent of India's massive NPA problem. Power plant finance will continue to remain inextricably linked to bank health in the short run. Which is related to our macro. Any market design which kills old plants should be avoided in the short run. 6/n
3d Ultimately older, inefficient plants should be phased out. But macro > power sector. There is a sequencing on initiatives required to solve the power sector's problems. And spot markets are nowhere near the top of the list. 7/n
4a Are our discoms even equipped to deal with such complicated real-time markets? Some utilities can barely submit their accounts on time to state legislatures. There needs to be a good deal of capacity building in discoms before this can be anywhere near effective. 8/n
4b Otherwise a national spot market will simply reward market savvy discoms and nail the ones who aren't. They will have to develop trading desks, learn trading strategies, think about fiscal implications of price variations etc. This is not trivial. 9/n
5 There are many things CERC and FoR can push in the short run. For example, easier accommodation of force majeure price increases, faster price responses to the increasing regulatory costs of generation, a genuine commitment to open access etc. 10/n
Ultimately having more power in spot markets is definitely desirable and will lead to certain efficiencies. But without keeping other constraints in minds, this is yet another technoeconomic fix which will muddle the system rather than improve it. 11/11
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