The Ministry of Power has recently released the Framework for Implementation of Market Based Economic Despatch (MBED) Phase 1. This move is aimed at reducing power purchase costs by 5% for consumers. It marks an essential part of the efforts to reform electricity market operations whilst propelling the “One Nation, One Grid, One Frequency, One Price” initiative. The implementation of the framework is slated to commence from April 1st, 2022.
The Central Pool Strategy
As per the proposal, all state power demands are set to be fulfilled through a central pool that will allocate power at an optimal price. Currently, power distribution companies (discoms) acquire power from various sources within their respective states which often leads to elevated energy costs. By implementing MBED, the cheapest available generating resources across the nation will be dispatched to meet the overall demand of the system. Consequently, this will prove beneficial for both discoms and generators, and result in substantial annual savings for electricity consumers.
The Uniform Pricing Framework: MBED Aim
MBED aims to establish a uniform pricing framework that will prioritize the least-cost generators while sidelining the more expensive ones, thereby creating a national merit order. The objective is in accordance with the draft National Electricity Policy (NEP) 2021, which aims to double the penetration of short-term power markets by 2023-2024.
“One Nation, One Grid, One Frequency” Status
India possesses a substantial inter-regional power transmission capacity through its complex interconnected power grid. This requires meticulous coordination between grid operators and power project generators across various sources like coal, gas, hydro, nuclear, and green energy run by the Centre, states, and private sector. Over the past decade, significant investments have been made, enabling the Indian power system to facilitate larger inter-regional transfers of electricity and eradicate most constraints. This has helped the country achieve the “One Nation, One Grid, One Frequency” status.
Management and Operation of Power System
The management of these complex functions is complied by the state-owned Power System Operation Corp. Ltd (Posoco), through the National Load Despatch Centre (NLDC), Regional Load Despatch Centres (RLDCs), and State Load Despatch Centres (SLDCs). The nation operates with 33 SLDCs, five RLDCs (for the five regional grids that form the national grid), and one NLDC.
The Challenge of Existing Electricity Scheduling and Despatch Mechanisms
Despite these enablements, the current electricity scheduling and despatch mechanisms in India are isolated. As a result, the day-ahead procedures cause sub-optimal utilization of the country’s generating resources. The day-ahead market is a financial market where participants trade electric energy at financially binding day-ahead prices for the subsequent day.
This initiative by the Ministry of Power marks an important step towards more efficient and cost-effective power distribution in India, saving costs for consumers and promoting better utilization of resources.