DISCOMs’ Inflexible Contracts Limiting Participation in Power Exchanges

A committee of experts constituted by the Ministry of Power has noted that the electricity market in India faces significant challenges that hinder the integration of renewable energy and limit the participation of distribution companies (DISCOMs) in power exchanges.

The group stated that the reliance on inflexible, long-duration contracts by DISCOMs has restricted their engagement in power exchanges, hindering the growth of renewable energy.

Moreover, the current planning practices of DISCOMs need to be revised for systems with high levels of variable renewable energy, necessitating resource adequacy planning and market-based economic dispatch.

Inflexible contracts

One of the primary challenges is the heavy reliance of DISCOMs on inflexible, long-duration contracts, limiting their participation in power exchanges and impeding the integration of renewables.

The planning practices of DISCOMs need to be equipped for systems with a significant share of variable renewable energy, emphasizing the need for scientific resource adequacy planning and market-based economic dispatch.

The fragmented control areas and self-scheduling practices by DISCOMs also lead to suboptimal dispatch decisions and system inefficiencies, necessitating transitioning to market-based dispatch.

Furthermore, market-based dispatch for renewable energy is crucial as it is primarily contracted through long-term agreements and treated as a must-run resource. Ensuring the firmness of reserves becomes critical with increasing levels of variable renewable energy, requiring a new market-based mechanism to access Ancillary Reserves.

Efficiency improvement

The interventions proposed by the group include establishing a mechanism to ensure supply adequacy by state utilities, enhancing the Day-ahead Market through a transition to market-based dispatch, mandating renewable energy participation with revenue protection, and introducing a market for secondary frequency response.

There is a need to implement demand response measures and aggregation of distributed energy resources, strengthen market monitoring and surveillance, establish a 5-minute-based metering and dispatch system, implement a regional-level framework for deviation management, and introduce hedging products to manage price volatility in spot markets. These interventions aim to improve efficiency, optimize costs, integrate renewable energy, and enhance the reliability of electricity markets.

Short-term recommendations

The expert group makes the following recommendation for the short term (one year):

Medium-term recommendations

For the medium term (1-2 years), the expert group makes the following recommendations:

Long-term recommendationsThe long-term recommendations (beyond two years) made by the expert group are as under:

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