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Elaborating on some of my concerns about the push for spot markets. @RBharvirkar1 @east_winds I am sure that a spot market can actually reduce some costs to discoms and bring in marginal cost pricing which will improve economic dispatch. We don't need to do it so fast 1/n
In the long run this may actually solve a lot of our problems and send the right signals to slowly eliminate uncompetitive generation, whatever the source may be. 2/n
But as we've learned from the California example (among others) , a dogmatic push for sophisticated markets can lead to lots of other problems. India's problem in power right now is primarily one of state capacity and politics. Market design cannot solve these problems. 2/n
In fact, more complicated markets can actually worsen the situation by aggravating the differentiation between "good" and "bad" discoms. This is what worries me. More than half of our discoms may not even meet the capital requirements for settlement in a real spot market 3/n
This will lead to one of two things. Either a politicised dilution of market design (as we've seen in NELP or the coal auctions), or a harsh discriminatory market design which is completely unsuited to India's needs at the moment 4/n
What CERC, FoR, Mop need to focus on is the basics. Feeder level audits. Continuous monitoring of losses at nodes. Carrots and sticks for discoms which improves basic financial compliance and responsibility. The culture around electricity as a business needs to change 5/n
This is hard institutional and political work. Not some technocratic top down fix which claims to "fix the system." A lot of CERC's recent announcements are the latter not the former. 6/n
The pilots are a great idea. Doing this at small scale and seeing if it works, if the market is deep enough, if all the players understand the rules of the game. But let's not try to have some kind of holier than thou notion that spot markets will fix India's power problems 7/n
As I said before @RBharvirkar1. Mapping Power is closer to the truth. Those are the problems we need to fix first. 8/n
Also, on the macro side. India currently has ~40 GW of thermal in bankruptcy. More possibly on the way. Maybe half of it may be salvageable. From 2005-2015 India made its decisions and exposed its state owned banks majorly to the thermal power sector. 9/n
The reason we need to keep some of the almost bankrupt assets afloat right now is that the ENTIRE legitimacy of the banking sector depends on cash flows from some of these projects. If all of these projects were written off it would be catastrophic Macro > power sector. 10/n
Hence any push for market design needs to keep in mind that there are some uneconomic assets which have strategic value above some idealised notion of "efficient markets." We are dealing with long shadows of bad decisions, let's not exacerbate them. 11/n
As I said before, sequencing is extremely important here. Spot markets have their place in India. 100% is rhetoric, not practical. Let's slowly ramp them up and see what happens. 12/n
Until then. Work with discoms (not just RLDCs) and have them become smarter market players. Let old PPAs lapse and let old generators fight for their survival. Train more market monitors so we don't have our own Enron-like traders innovating ahead of regulation. 13/n
Maybe I'm old fashioned but I think gradualism work better :) Sorry for the long thread. 14/n @KartikeyaSingh @KarthikGanesan6 @navneerajs @DrTongia @shreya_jai #energytwitter
@RBharvirkar1 @east_winds @kiychettira Thanks for your engagement, although I think you're getting worked up unnecessarily here. Earlier in this thread I basically accepted the premise that spot markets can improve procurement costs for discoms.
Our apex power regulator just launched an interesting pilot (with some flaws), and then put out a public statement that it wants to move towards 100% spot markets. The pilot is fine and I hope it works. The 4% to 100% jump is what this thread was about.
But your spirited misreading of this thread I think goes to my dogma point. You are working so hard to defend the idea of spot markets (which again I don't disagree with) that you ignore other options which can improve the system to create fiscal space.
The most obvious one, which can save even more money than a simulated one-time arbitrage of procurement contracts, is simply working on reducing AT&C losses. In my view working on this would be a far more fundamental, useful, and longer-lasting reform. But also harder.
Also, this thread doesn't really engage with the specific CERC proposal, so I don't know why you're bringing that up over and over again. I certainly plan to engage with that proposal more formally.
Rather, it critiques the choice of instrument for reform. Market design is one instrument regulators use to improve the system. But there are others. Data transparency and feeder level audits. Punitive measures. Capacity building to change practice etc.
When something of this magnitude is rolled out in a capacity constrained regulatory system, other instruments necessarily take a backseat. I think that is a mistake given the plethora of more basic problems in India's electricity system. I'm questioning the prioritisation here.
Also, just to be clear, until the congestion management system is elaborated, the cost savings in the proposal are speculative, coming from historical simulation. None of this saving is guaranteed. The whole point of a spot market is that you can't fix the price.
There are many possible corner cases, when there is excess demand, restricted supply, or excess congestion where prices may actually be higher than simulated cutting into cost savings. This is why the pilot is important, to see if things behave as expected.
This is also where the California example is instructive, and not at all irrelevant. There may be lessons we've learned, but the overall pattern of ambitious design, unintended consequences and correction is a pattern we've seen across commodity markets in India.
Of course we should be circumspect and critical. The stakes are high.
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