Power exchanges: Market coupling is anti-competitive and undesirable

By SL Rao

The draft power market regulations 2020 released by the apex power regulator, the Central Electricity Regulatory Commission, proposing market coupling between the power exchanges to discover the single market-clearing price seems anti-competitive and undesirable. The regulator has further proposed to designate a market coupling operator to aggregate bids collected by the power exchanges and undertake exercise of the single uniform price discovery.

Let us try and understand how this proposal would adversely affect competition.

We all know that, as a nation, we have been in the pursuit of competition over the last two decades. It has taken years to shift the focus from the cost- and-negotiation-based models to competition across the economic landscape. In 2003, the Competition Commission of India was set up as a statutory body to ensure that all citizens have access to the broadest range of goods and services at the most competitive prices. CCI believes that with increased competition, producers will have maximum incentive to innovate and specialise, and this would result in reduced costs and wider choices for the consumers. Therefore, competition in the market is a must to achieve the win-win proposition.

The gains that competition has brought to the economy are incredible, and we do not have to go far to drive the point home. The advent of competition in telecom, retail, e-commerce, solar, aviation, transportation, etc, has brought a paradigm change to our lives, and has made an immense contribution to the development of industry and consumers as well as the economy at large.

Now, let us look at the two major stock exchanges in the country, BSE and NSE. Today, the consumer can go to either of the two exchanges and trade in the same product, which is available on both the exchanges. For instance, a given equity or security can be traded on either of the two exchanges at the same or a different price. It is the consumer who decides the platform and the price best suited to her. Both the exchanges compete to offer their best. And, to do so, they invest in technology, market development, integrated suite of services to attract the consumer. Hence, competition offers the choice and the best price to the consumer.

Similarly, let us take the instance of e-commerce. E-commerce majors such as Amazon, Flipkart, etc, offer several products and services at the same price or different prices. It is the consumer who is at the centrestage, who makes the ultimate choice everywhere, be it the stock exchange, e-commerce, telecom, solar energy, travel, etc, and market forces, while ensuring a check on all the players in the business, also help the government to move from excessive to light-handed regulation.

Now, we move to the case of power exchanges in India. As on date, there are two power exchanges, operating since 2008. The energy exchanges, since their commencement, have brought in a great deal of competition in the power market as well as the sector. The exchange power market offers market products and segments such as day ahead, real-time, term-ahead, intra-day, green certificates, white certificates, etc, and price discovery for each of these market segments takes place on both the power exchanges. The exchanges compete and their consumers—the power generators, distribution utilities, commercial and industrial consumers—have the ultimate choice to decide which exchange to go for, given product and the right price. And, this must continue.

Coupling the power exchanges in an endeavour to discover a single uniform price would kill the competition that has been built over the last 12 years, and, is, therefore, neither desirable nor required. Over the years, the price of electricity transacted through the exchange platforms has been able to provide the most competitive benchmark across the power value chain.

Today, the power exchanges are required to continually invest in technology, product innovation, process automation and human resources to be able to stay in business. If there will be no competition going forward, there would be a huge compromise on all these aspects. It is the duty of the regulator to promote competition, protect the interests of the consumers, eliminate practices having adverse effect on competition, and ensure freedom of trade. The goal of the regulator should be to create and sustain fair competition and provide a ‘level playing field’ to the producers, thus, making the markets work for the welfare of the consumers. Hence, we must encourage healthy competition in the market.

The coupling of power exchanges would centralise the platform and would not leave any incentives or room for the power exchanges to innovate products or invest in technology, which is quintessential for a diverse country like India with different resource distribution, needs and weather patterns across the regions.

Furthermore, with the increasing penetration of renewable energy, we need power exchanges to pay greater emphasis on technology and innovation to introduce the various new market products that customers need. The way forward is not to do market coupling, but to focus on the introduction of new market segments such as green markets, longer duration forward contracts, futures or derivative in power, exchange-based ancillary markets to foster power market growth and development in the larger economic interest.

The uniformity in the prices, which the power regulatory proposal is advocating, is neither required nor desirable. The regulator should promote competition and must not interfere, letting market players thrive and do their best to attract consumers. Healthy competition minimises the need for regulation, but when we suppress the competition, we require a market regulatory framework in place. At a time like this, when desperate efforts are being made to revive industrial and economic growth after the Covid-19 induced economic and humanitarian crisis, and to position the country as a self-reliant or an Atmanirbhar economy, strengthening and deepening the power markets, and the competitive edge provided by the exchange markets, will be a desirable and a much-needed move.

The author is Member, Advisory Board, Competition Commission of India, and first chairperson of the Central Electricity Regulatory Commissions
Views are personal