The Market-Based Economic Dispatch (MBED) mechanism is a proposed system for the scheduling and dispatching of electricity. This system seeks to optimize the use of the country’s annual consumption, which stands at approximately 1,400 billion units. The central idea behind MBED is to shift from the existing decentralised model to a more systematic centralized one.
The Centralised Model of MBED: A Leap Towards One Nation, One Grid
MBED proposes a streamlined approach to managing power dispatches, both inter-state and intra-state. A critical aspect of this transition is aligning with the Centre’s ‘One Nation, One Grid, One Frequency, One Price’ formula. This unified approach ensures that the most affordable electricity resources are utilized to meet the overall system demand. As a result, both distribution companies and generators benefit, leading to savings for consumers.
Initially, the implementation of the first phase of MBED was planned to commence on April 1, 2022. However, this has been deferred to a later date in 2022, yet to be announced.
Electricity Act 2003: The Current Regulatory Framework
The Electricity Act, 2003, serves as the fundamental law governing the electricity sector. It provides for the establishment of Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs). These commissions play crucial roles like regulating tariffs, issuing licenses for transmission and distribution, resolving disputes within their jurisdiction, and facilitating electricity trading.
Proposed Changes: The Electricity (Amendment) Bill 2022
The Electricity Amendment Bill, 2022, aims to introduce competition in the power sector by opening up the distribution networks to multiple players and allowing consumers the freedom to choose any service provider. The bill aims to facilitate the use of distribution networks by all licensees and ensure the sustainability of the power sector. It also proposes changes to the tariff structure, punishment for offences, and strengthening the functions of regulators.
Challenges Associated with the Centralised Model of MBED
With the transition to MBED, there are concerns about the potential loss of autonomy for states in managing their electricity sector. The dependence of Electricity Distribution Companies (DISCOMs) on the centralised mechanism could infringe on the states’ rights.
Furthermore, the centralised model could clash with emerging market trends, such as the increasing incorporation of renewable energy and electric vehicles. These newer additions to the grid demand a more decentralised approach for efficient management.
In the current setup, power is in the Concurrent List of the Constitution. The regional load dispatch centres and National Load Dispatch Centre manage the state-wise autonomous control areas in real-time to match demand with generation resources. However, the new model will narrow the voluntary market design’s multiple options, making day-ahead contracts redundant.
Under the new model, certain power stations’ must-run status will come under question. These stations are crucial for supply security to major cities like Mumbai or Delhi and critical in islanding operations during a grid failure.
Other challenges include potential impacts on long term Power Purchase Agreements (PPAs), a complicated accounting and settlement process due to the proposed Bilateral Contract Settlement (BCS) mechanism, and increased volatility in the wholesale market.
A Suggested Way Forward
Considering that power is a concurrent subject in the Indian Constitution, it would be advisable to take into account recommendations from states for effective implementation of the bill’s provisions. One potential solution could be the Security Constrained Economic Dispatch (SCED), an algorithm developed by the National Load Dispatch Centre. This system could assist regulators in making informed calls on scheduling decisions on a nationwide basis.
The complexities of transitioning to a new model for power dispatch highlight the need for careful consideration of all stakeholders’ interests. This change has the potential to revolutionize the power sector, but its success will hinge on striking a balance between centralisation and autonomy, ensuring economic efficiency while maintaining security of supply.