October 13, 2020 Read More →

IEEFA: India’s new green term-ahead market will boost trading of renewables

Renewable energy generators and distribution companies will benefit from participating in the short-term power market

The start of trading on 21 August 2020 of Green Term-Ahead Market (GTAM) contracts on the Indian Energy Exchange (IEX) platform marked a significant milestone in India’s transition to renewable energy.

By August 2020, India had 88 gigawatts (GW) of installed renewable energy capacity. In the pipeline, as of June 2020, there was 47GW of solar, wind and hybrid projects with another 24GW of projects in the bidding phase (where tenders have been issued but auctions are yet to complete).

The recent launch of green markets on the IEX platform will offer consumers a sustainable choice

India has gained substantially from moving from a feed-in tariff regime for renewable energy to competitive bidding. Prices have fallen continuously, and many states have entered into long-term power purchasing agreements (PPAs) to lower their power purchasing costs. This has given developers and investors confidence as it minimises power off-take risk. 

However, curtailment of renewable energy is still rampant in states such as Tamil Nadu, Andhra Pradesh, Telangana and Karnataka. Further, Andhra Pradesh is renegotiating its contracts, while in Haryana renewable energy projects are suffering due to the state granting open access.

GIVEN THE VARIABILITY OF RENEWABLE POWER, THE SECTOR STANDS TO GAIN TREMENDOUSLY BY PARTICIPATING IN THE SHORT-TERM MARKET. Although participation of renewable energy in the short-term market has been limited (less than 1%), renewables generators have benefited from the introduction of the real-time market because it allows them to sell their unanticipated surpluses and earn revenues.

The recent launch of green markets on the IEX platform will offer consumers a sustainable choice, help government to achieve its renewable energy goal and enable integration of renewables in the most flexible and efficient way. 

Energy markets are deepening with the introduction of competitive pricing-based market products

The distinction between trade of conventional vs renewable power at the power exchange means the distribution companies (discoms) and large consumers can now meet their renewable purchase obligation (RPO) by buying power from these products. It will also incentivise renewable-rich states to become export hubs and sell surplus power at the exchange beyond their own RPO obligation.

More importantly, it has created an alternative market to long-term PPAs for the sale of renewable energy which will give developers and investors more confidence. This is critical as the Solar Energy Corporation of India (SECI) is struggling to sign power sale agreements (PSAs) for 12GW of auctioned capacity.

The energy markets are deepening with the introduction of competitive pricing-based market products, and with better forecasting techniques more players will trade renewable power. Given their falling cost, renewables will be a more competitive source of electricity generation than conventional energy sources. This will help to build a sustainable and profitable economy.  

Crucially, India needs to invest in its transmission sector because availability of the transmission corridor will determine the market’s liquidity. For a deepening of the short-term market, states must allow short-term open access to encourage renewable energy generators to trade. 

Vibhuti Garg is an energy economist at IEEFA.

This commentary first appeared in SolarQuarter India

Related links: 

IEEFA: India should deepen its short-term power market to enhance price transparency and competitiveness

IEEFA: Wind-solar hybrid systems can power India’s next wave of renewables growth

IEEFA India: How state governments can manage mounting power distribution sector debts

 

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