Short-term power trading (for a period less than an year), which includes the UI transfers (40%) and trades done through traders (41%), exchanges (10%) and on bilateral basis (9%), formed around 8% of the total energy generated in 2009. In other words, this means that exchange traded power, whose price discovery is the most efficient and administration is the most transparent, forms just 10% of the total short-term traded power or a minuscule 0.8% of the total energy consumed.
Increasing transparency and improving efficiency of traded power is especially important since all the major buyers and sellers are governments themselves or government entities. States like Himachal Pradesh, Chhattisgarh, Gujarat and West Bengal, which had surplus power due to the availability of free/power purchase agreement-based power under contract from developers, were among the top sellers in the open market through traders/exchanges.
A policy framework that facilitates the transition from all OTC trades into exchange trades is surely beneficial for all stakeholders. It will improve the liquidity in the exchanges and facilitate more efficient price discovery and provide more reliable price signals for all market participants, including new generators. In fact, as the exchanges develop the requisite depth and breadth, it may be appropriate that even the frequency-based UI pricing be linked to the exchange prices.
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