This document provides an overview of power trading concepts in India. It defines power trading as the transfer of surplus electricity from one utility to another with a deficit. Open access to transmission networks is key to enabling power trading. Bilateral contracts between buyers and sellers and trading on power exchanges are the two main mechanisms. Derivatives like futures, forwards and options are used to hedge risks associated with price volatility in power trading. Entities like PXIL, IEX and PTC play important roles in facilitating power trading in India.

1. POWER TRADING
IN INDIA CONCEPTS

2. INTRODUCTION
Electricity is a non-storable commodity, which indicates the
electricity generated should be consumed timely. In competitive
environment, the price is determined by stochastic supply and
demand functions. The price can change at any time.As a
consequence of increased volatility, a market participant could
make trading contracts with other parties to hedge possible risks
and get better returns.
Open access is the key to a free and fair electricity market.
Power producers (sellers) and dealers/customers (buyers) have
to share a common transmission network for wheeling the power
from the point of generation to the point of consumption. Thus,
interconnected transmission system is considered to be a natural
monopoly so as to avoid the duplicity, the problem of right-of-the-
way, huge investment for new infrastructure and to take the
advantage of the interconnected network viz. reduced installed
capacity,increased system reliability and improved system

3. IMPORTANT
DEFINATIONS
According to the Electricity Act 2003,
“Power trading is an activity in which the utility having
surplus power transfers electricity to the utility having
deficit of power, at some price (mostly Rs/Kwh)”
According to Section 2(Definitions), Sub-section 71 of the
Act,
"Trading‟ means purchase of electricity for resale
thereof.

4. According to Section 12 (Authorized persons to transmit, supply, etc.,
electricity) of the Act,
No person shall
Transmit electricity
Distribute electricity
Undertake trading in electricity, unless he is authorized to do so by a license
issued under Section 14, or is exempt under Section 13
According to Section 14 (Grant of license) of the Act,
The appropriate commission may, on an application made to it under Section
15, grant a license
To transmit electricity as a transmission licensee; or
To distribute electricity as a distribution licensee; or
To undertake trading in electricity as an electricity trader, in any area as may be
specified in the license. In this regard, CERC has given license to 43 no of
entities till date for trading in electricity

5. POWER TRADING
MECHANISM
Long-termPowerPurchase Agreements
Power from various generating stations is allocated to State Electricity
Boards (SEBs) and distribution companies (Discoms) at the price
determined on the basis of historical cost based tariff principles
notified by the regulatory commission or as per the Power Purchase
Agreement (PPA). The SEBs/Discoms, which have the obligation to
provide electricity to their consumers, mainly rely on supplies from
these long-term contracts. The annual transmission charges, which
are determined after deducting adjustable revenue from short term
customers, are shared by the long term customers. Generally for the
last couple of years on an average 89% of electricity has been traded
by long term power purchase agreements and 11% by short term
trading.
Short-TermBilateral Contracts:
Short-term contracts are mostly inter-state or inter-regional, requiring
open access through the Central Transmission Utility (CTU) network
and purchase and sale of electricity takes place mostly through
traders, which have been granted license by the CERC.

6. TYPES OF
TRANSACTIONS
“Bilateral transactions”means a transaction for
exchange of energy (Mwh) between a specified
buyer and a specified seller, Directly or through a
trading licensee, or discovered at power exchange
through anonymous bidding from a specified point of
injection to a specified point of drawl for a fixed or
varying quantum of power (MW) for a fixed or
varying quantum of power for any time period during
a month.
“Collective Transaction” means a set of transaction
discovered in power exchange through anonymous,
simultaneous competitive bidding by buyers and
sellers.

7. THREE TYPES OF ELECTRICITY
TRADING
Bilateral OTC Exchange Based
Contracts are negotiated
between the two contract
counterparts
Contracts are negotiated
via a broker who helps
the two parties fund each
other and reach agreed
terms
Deals are made through a
multilateral exchange,
which provides a
managed marketplace
•Contracts are often
highly customized, and of
longer duration
•Trading counterparts
are known to each other
•Pricing is opaque
•Execution is lengthy and
expensive.
• Contract parameters
can vary significantly,
though customization is
generally allowed
•Anonymity of trading
varies widely Pricing is
opaque
•Execution time and cost
can vary significantly
• Contracts are highly
standardized
•Trading is anonymous
•Pricing is transparent
•Execution is quick and
cheap Processes often
exist to safeguard market
integrity

8. SHORT-TERM BILATERAL
CONTRACTSShort-term contracts are mostly inter-state or inter-regional, requiring
open access through the Central Transmission Utility (CTU) network
and purchase and sale of electricity takes place mostly through the
traders, which have been granted license by the CERC.
Bilateral Trading in Short termTransaction Market :
As Power Market is expanding rapidly, more intermediaries are
emerging out as a licensed trader. The benefit which the trader gets
through intermediaries is that the search costs are reduced. They had
not to spend money in finding customers; intermediaries match buyer
and seller and act as a facilitator in concluding trading arrangements.
Both types of arrangement serve as a symbol of mutual bargaining
process where the actual price is not disclosed. In short term
electricity market the bilateral trading take place through following
methods
Through bilateral short term contracts between buyers and sellers
Un-Requisitioned Surplus of NTPC stations.

9. Bilateral Contracts between Buyers and Sellers:
It is a back to
back contract between a Specified buyer and a specified
seller for a definite point of injection to definite point of
withdrawal

10. POWER EXCHANGE (PX)
DEFINATION
Power exchange is a spot market mainly day ahead,
like anyother market matches demand & supply for
each time block, providing a public price Index.

11. PX- BILATERAL MARKETS
Rivals
Competition between two types of markets
Complementary
Competition limited to day-ahead
Preference to OTC in longer time frame
Inter-dependent
Prices on the PX & OTC must be very close else arbitrage
occurs
Hedging

12. PX CLEARING HOUSE
PX Clearing House is a subbordinate to Power exchange
and acts as an intermediatary for transactions. It tracks all
transactions under Power exchange. The primary role of
PX Clearing house is to guarantee financial reliability to the
participants. Participants are required to maintain margin
accounts and Clearing House effectively hedges against
credit risk.

13. ADVANTAGES OF POWER
EXCHANGE
1. Promotes trade and competition
2. Reliable price discovery
3. PX recognizes value of the commodity
(electricity)
4. Does not guarantee lower prices
5. Optimal utilization of sparse resources
6. Credit risks covered by the PX
7. Congestion Management
8. Facilitates trading of short term arising on
account of uncertainty in demand forecasting

14. POWER EXCHANGE IN
INDIA
1. Multiple Power Exchanges
2. Competition amongst Exchanges
3. Voluntary participation
4. Double sided bidding
5. Uniform pricing
6. Day-ahead exchange
7. Hourly bids
8. Congestion management by market splitting

15. INDIAN POWER MARKET
DESIGN

16. SUCCESS FACTORS IN
POWER MARKET
1. Open, free and competitive market
2. Demand –Supply optimization
3. Portfolio optimization
4. Continuous and hassle-free trading
5. Dealing with grid-constraint

17. BENEFITS OF POWER
EXCHANGE
1.Creating Liquidity
2.Promoting Competition
3.Standardized Contracts
4.Unbiased
5.Creating a sustainable Market
6.Risk Management
7.National

18. ROLE OF PXIL, IEX,
PTC IN POWER
TRADING IN INDIA

19. PXIL
Power Exchange India Limited (PXIL) is India's first institutionally
promoted Power Exchange that provides innovative and credible
solutions to transform the Indian Power Markets.
A deep understanding of the local markets is matched by PXIL’s
non-partisan, unbiased and often fearless functioning, at times
even in the face of uncomfortable conclusions.
core values are – integrity, excellence, commitment and
continued innovation. These are the bedrock on which the
edifice of PXIL stands.
PXIL’s unique combination of local insights and global
perspectives helps its stakeholders to make better informed
business and investment decisions, improves the efficiency of
the power markets, and helps shape policies and projects.
PXIL is India's first and only Quality Management System "ISO
9001:2008" certified Power Exchange in the country.

20. PROMOTERS OF PXIL
NSE- National Stock Exchange
NCDEX- National Commodity & Derrivative
Exchange Ltd.

21. MAJOR PARTICIPANTS ON PXIL
PLATFORM
Participants % share
Distribution Licensee 2.82%
Interstate Trade, Trade Clients 0.40%
REC 35.81%
State Utility 5.23%
OA 55.73%

23. FUTURE ASPECT OF PXIL
Positively affecting the policy and regulatory environment for sustainable
development
Enhancing our product offerings
A .Long tenure products
B .Ancillary services
C .Energy efficiency certificates
D .Peaking products
e. Capacity contracts
Building a national level clearing corporation
Bringing international standards to the national electricity market.
Extending our participants base
Reaching out to short term Open Access customers

24. INDIAN ENERGY EXCHANGE
(IEX)
The Indian Energy Exchange (IEX) is an automated
electronic trading exchange regulated by the Central
Electricity Regulatory Commission (CERC). Since its
development on June 9, 2008, IEX had recorded
37.4 million transactions, the same month that
electricity prices on the exchange hit a record low 13
paisa/KWh. In November 2009, IEX won Best E-
Enabled Customer Platform at the second annual
India Power Awards for developing what was
described as "a robust platform for energy trading. "
IEX operates a day-ahead market based on closed
auctions with double-sided bidding and uniform
pricing; it has 259 registered clients and in 25 Indian
states, 150 private generators and more than 100
industrial electricity consumer.

25. POWER TRADING
CORPORATION OF INDIA
LTD. (PTC)
Power Trading Corporation of India Ltd. (PTC), the leading
provider of power trading services, in India is trading power
on a sustained basis since June 2002 through purchase
from surplus utilities and sales to deficit State Electricity
Boards (SEBs) at an economical price, providing best value
to both the buyers and sellers and ensuring that the
resources are utilized optimally.
PTC is a ‘pure-play’ trading entity, and does not own any
generating units or transmission facilities.PTC acts as a
single-window service provider that manages both financial
as well as operational risks for the buyer and seller entities
in its trading transactions.

26. On the one hand timely payments are ensured to the
sellers of power and on the other hand a definite quantum
of power is delivered to the buyers of power in a reliable
manner. For its services, PTC charges a
predeterminedamount of transaction charges, worked on a
per unit (KWh) basis or as a percentage of the cost of
power.
The pricing and margin information is known to both the
counterparties in a transparent manner. In some instances
PTC has both bought and sold power from the same entity
at different times of the day depending upon the load profile
of the entity.

27. PTC catalyses the development of power projects by entering
into multi-year contracts for future trading of power.These Power
Purchase Agreements with PTC are being recognized by lenders
as security for financial closure of power projects. Typically, the
counterparty contracts for these projects or Power Sale
Agreements are structured with multiple buyers, through which
about 80% of the power generation from the project is tied up for
long term sale, and 20% is kept as reserve for the short-term
market.
PTC has been identified as the nodal agency for cross border
trading with neighboring countries: Bhutan, Nepal and
Bangladesh, which are rich in hydro power resources. Utilities in
Bhutan account for the nearly 24% trading volumes from cross-
border sources. Being the pioneer in trading in India, PTC sees a
developmental role for itself to increase the depth and breadth of
the market under new Electricity Act 2003.
PTC also views an opportunity in alliances with emerging entities
for setting up their operations in the manner that the business is
recognized globally. In future, it intends to set up an online

28. CONTRACTS OF POWER
TRADINGNature of contract Duration of Contract Transmission Open access
availability
Long term > 7 years and
up to 25 years
Long term open access
is available for a period
of 12 years to 25 years
Medium Term > 1 years and
up to 7 years
Medium term open access is
available for
a period of 3
months to 3 years
Short term
Short Term –
Bilateral
Up to 1 year For
a period of up to 3
months
Short Term –
Power Exchange
Day Ahead Market
(1 day)
1 day (corridor
left after short term bilateral)
Term Ahead Market
( up to 10 days )
Up to 10 days
in advance

29. DERRIVATIVE
INSTRUMENTS
A derivative is a financial instrument (contract)
between two parties with opposite views on the
market, who are willing to exchange certain risks.
Many derivative instruments are used in electricity
trading, but the most common ones applied to
energy risk management strategies are future,
forward and option contracts. In some instances,
these financial contracts can be used to accomplish
what might be termed as virtual divesture.

30. TYPES OF DERRIVATIVE
MEASURES TO HEDGE PX
RISKS
1.Future Contracts.
2.Forward Contracts.
3.Contract For Differences (CfD’s).
4.Option Contracts.

31. FUTURE CONTRACTS
Future contracts include an obligation to buy or sell a
specified quantity of an asset at a certain future time for a
certain price. The futures are standardized contracts
which are traded on and cleared by an exchange and the
exchange could guarantee that the contract would be
honored. Note,however, that the only point of negotiation
is the price. All other terms and conditions are pre-
specified, thereby making it a standardized contract.The
main justification of futures contract is that it permits
specialization between two elements of the economic
process:the function of holding commodities and the
function of bearing the risk of price changes.The seller of
a futures contract on a commodity does not normally
intend to deliver the actual commodity nor does the buyer
intend to accept delivery; each will, at some time prior to
delivery specified in the contract, cancel out obligation by
an offsetting purchase or sell.

32. FORWARD CONTRACTS
Forward contract are in some aspects similar to
future contracts. They include an obligation to buy or
sell a specified quantity of an asset at a certain
future time for a certain price.Forward contracts are
traded bilaterally or over the counter between two
financial institutions or between a financial institution
and one of its corporate clients and the contracted
parties usually customize the contract in order to
make it fit their needs.Usually, in future contracts,
there is a range of possible delivery date. Whereas
forward contracts have a specific expiration at which
the asset is delivered and payment is made. The
buyer of contract is called long whose purchase
obligates him to accept delivery unless he liquidates
his contract with an offsetting sale. The seller of the
contract is called short.

33. CONTRACT FOR
DIFFERENCE
CfDs, which are mechanisms to stabilize the power
costs to consumers and revenues to generators, is
one form of forward contract. These contracts are
suggested due to the fact that the spot price set by
PoolCo fluctuates over a wide range and difficult to
forecast over a long periods.A CfD can be either one
way or two-way. A two-way CfD is similar to financial
future contract and is defined in terms of a strike
price (Rs./MWh), and a quantity (MWh). It is when
spot price is above the strike price, the seller pays
buyer an amount equal to difference between the
spot price and strike price and when the spot price is
below the strike price, buyer pays the seller an
amount equal to the difference between strike price
and spot price. Thus both parties have hedged their
exposure to spot price.

35. A one way CfD is similar to financial option contract
and also include an option fee in addition to strike
price and contract quantity. Under one way contract,
difference payments are made only if spot price rise
above the strike price.

36. OPTIONS CONTRACT
An option contract includes a right (not obligation) to
buy or sell a specified quantity of an asset at a
certain future time for a certain price. In case of
futures/forwards, contract is either held for delivery
or liquidity, but option contracts may be held for
liquidity, delivery or expire worthlessly. To enter an
option contract, the buyer pays a premium to the
seller of options, while in futures and forwards, the
buyer does not have to pay any charges. A call
option gives the holder the right to purchase the
underlying asset at some future date, and a put
option gives the holder the right to sell the
underlying asset at some future date.

37. REFERNCE
www.srldc.org/var/ftp/.../Training_Power_Exchanges_18-May-
2011.ppt
http://www.pmintpc.com/interface/research_activities_publishe
d_paper_ICPS04.pdf

38. THANK YOUTHANK YOU