In a move that conspicuously contradicts the path taken by the European Union (EU), India is altering its power market system from a decentralized, voluntary, and short-term market to a mandatory pool model that abolishes fixed-price contracts. This change is towards a more centralized system that mandates the inclusion of all electricity suppliers, thereby eliminating fixed-price contracts.
EU’s Change in Policy Related to Power Market
The European Union, on the contrary, is planning to transform its power market due to a 2022 gas shortage that led to a significant spike in electricity prices. Since electricity prices are determined by the most expensive power plant, usually a gas plant, this price surge occurred. The European Commission is currently exploring diverse methods for altering the way power plants sell electricity to stabilize electricity prices for homes and businesses. Their proposal is to introduce long-term contracts that offer power plants a fixed price for their electricity.
India’s New Market-Based Economic Dispatch (MBED) Model
India is creating an innovative electricity market model known as the MBED mechanism. The initiative aims to centralize the scheduling of the dispatch of the country’s annual electricity consumption of approximately 1,400 billion units. The MBED mechanism serves as a progressive strategy to enrich power markets consistently with the government’s ‘One Nation, One Grid, One Frequency, One Price’ formula. It assures that the cheapest electricity generating resources across the nation fulfil the overall system demand, benefiting both the distribution companies and the generators and result in savings for consumers. Essentially, this model will replace the current decentralized model which is supported by the Electricity Act, 2003.
Changes Proposed in India’s Power System Working
At present, the electricity grid comprises state-wise autonomous control areas overseen by State Load Dispatch Centers (SLDCs), Regional Load Dispatch Centers (RLDCs), and the National Load Dispatch Centre (NLDC). However, with the MBED model, this structure stands to be reformed with a central market operator assuming control of all electricity. This shift will curtail current options as the State Load Dispatch Center and discoms will have to trade electricity in real-time, even if it’s to balance demand. Additionally, a new rulebook for the electricity grid and a more accessible and flexible methodology for people to use the electricity network, called General Network Access (GNA), is in the making.
Concerns Associated with the Centralized Model of MBED
The proposed MBED model brings along certain reservations. It impacts the relative autonomy of states in managing their electricity sector, including their generating stations, and makes DISCOMs largely reliant on the centralized mechanism. It might also conflict with emerging market trends, such as the increase in renewable energy and electric vehicles connecting to the grid. These developments necessitate greater decentralization of markets and voluntary pools for efficient grid management. Furthermore, the essential status of some power stations, critical for supply security to key cities, will come under question.
A Glimpse of the Future
As Power is a subject of the Concurrent List of the Indian Constitution, state recommendations should be considered for effective implementation of the new model. The Security Constrained Economic Dispatch (SCED), developed by the NLDC, is a potential solution that is designed to aid regulators in making informed calls on scheduling decisions on an All-India basis.