New Renewable Energy Projects To Be Traded On Exchanges By Next Year: Power Secretary
It will provide price commitment to sellers and freedom to buyers to procure when they need.
New renewable energy projects in the future can be directly contracted between aggregators/traders and renewable energy project developers, and sold on the power exchanges, where the difference between the tariff agreed and actual price will be settled between the parties involved.
It will give assured price commitment to the sellers or power generators and freedom to the distribution companies to buy from the exchange when they require power.
The contract for differences will be signed between renewable energy developers and aggregators like the SECI. The Ministry of Power is working on making a contract for difference a reality by next year, where the aggregators will select the developer through a tender at the best strike price, sign the contract for 12-15 years and sell on the exchange.
The aggregator will receive market price from the exchange and settle the difference between strike price and market price with the developer.
If the strike price is Rs 3.10 per kilowatt hour and the power got sold at Rs 3/kWh, then the procurer will just pay the difference of 10 paise to the seller as he has already secured Rs 3/kWh on the exchanges, Power Secretary Alok Kumar told BQ Prime, at the G20 Energy Transitions Working Group meeting in Mumbai.
"We are working on the process and it is likely the first project under CFD could be tendered by next year," Kumar said.
The Ministry of Power has formed a group for the development of the energy market in India. The group has been directed to undertake development of renewable capacity based on the CFD methodology to ensure competition and transparency.
Power Minister RK Singh has directed that the power exchange clearing engine could be validated by the Central Electricity Regulatory Commission.
The CFD has been operating in several developed countries, including the United Kingdom. Under the CFD, distribution companies and generators enter into a contract where the generator is free to sell power on the exchanges and the procurer is not bound by the take-or-pay obligation, and can buy only when they need power.
The contract is only for paying the difference. In case the supplier makes a gain, over and above the strike price, it shares the difference with the procurer, while the procurer pays the difference if the seller gets a price lower than the strike price.
Rajesh Mediratta, former director of the Indian Energy Exchange and managing director of Indian Gas Exchange, said distribution companies were not signing power purchase agreements for 15–20 years as they are not sure of the demand profile and growth.
"The CFD helps build new capacities without requiring a discom to buy power all the time when the generator produces," Mediratta said. "The seller is assured of a committed price."
The exchange acts like a pool where one or the other buyer keeps buying depending on their requirement, Mediratta said. The seller is selling to this pool and receives transparently discovered prices, he said.
