The Central Electricity Regulatory Commission (CERC) has issued draft regulations for market coupling to reform electricity trading.
- In the draft regulation, named the Central Electricity Regulatory Commission (Power Market) (Second Amendment) Regulations, 2026, the regulator proposed various amendments to the CERC (Power Market) Regulations, 2021, in which the concept of market coupling was first introduced.
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About Central Electricity Regulatory Commission (CERC)
- The Central Electricity Regulatory Commission is the statutory regulator of the power sector at the central level.
- It was established under the Electricity Regulatory Commissions Act, 1998 and later strengthened by the Electricity Act, 2003
- Functions of CERC
- Tariff Regulation
- Inter-State Electricity Regulation
- Promotion of Competition
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What are Power Purchase Agreements (PPAs)?
- A Power Purchase Agreement (PPA) is a long-term contract between an electricity generator (genco) and a buyer, usually a distribution company (DISCOM) or a large consumer.
- Under a PPA, the generator agrees to supply electricity at a pre-determined price for a fixed period, typically ranging from 15 to 25 years.
- These agreements ensure assured revenue for generators and reliable power supply for buyers.
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About Market Coupling
- Market coupling is a mechanism in which bids from all power exchanges are pooled together to create a unified electricity market.
- Under this system, a single market-clearing price is determined based on the overall demand-supply equilibrium across exchanges.
- A designated central operator aggregates and matches these bids in a manner that maximises economic surplus, i.e., the combined benefit of buyers and sellers.
What has been Proposed under Market Coupling?
- Centralised Price Discovery: Grid Controller of India has been proposed as the Market Coupling Operator (MCO).
- It will be responsible for aggregating bids from all power exchanges and determining a uniform market-clearing price.
- Standardised Bidding System: A uniform bid format will be adopted across all power exchanges to ensure consistency.
- Bids collected by exchanges will be transmitted to the MCO through secure communication channels.
- Power Market Coupling Procedure (PMCP): Grid Controller of India will formulate the Power Market Coupling Procedure (PMCP). It will define:
- Roles and responsibilities of stakeholders
- Standardised bid formats
- Features of the price discovery algorithm
- Phased Implementation: Market coupling will be implemented in a phased manner.
- It will initially cover the Day-Ahead Market (DAM) and later expand to the Real-Time Market (RTM) and other segments.
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Advantages of Market Coupling
- Efficient Price Discovery: Market coupling enables a uniform price discovery mechanism across all power exchanges.
- It eliminates price disparities by determining a single market-clearing price based on aggregated demand and supply.
- Increased Market Transparency: A unified pricing system enhances transparency in electricity trading.
- It improves trust among market participants and ensures greater predictability in prices.
- Better Resource Allocation: Electricity is allocated more efficiently, flowing from low-cost generation sources to high-demand regions.
- This leads to optimal utilisation of available resources.
- Market Stability: Market coupling reduces price volatility and arbitrage opportunities across exchanges.
- It contributes to a more stable and integrated power market.
- Policy Benchmarking: The uniform market-clearing price acts as a reliable reference price for policymakers.
- It aids in better decision-making related to tariffs, subsidies, and power sector reforms.
Limitations of Market Coupling
- Opposition from Power Exchanges: Leading power exchange India Energy Exchange has raised concerns over market coupling.
- It fears a loss of competitive advantage and market share due to the introduction of a uniform pricing mechanism.
- Operational Complexity: Implementation of market coupling requires sophisticated algorithms for price discovery.
- Ensuring real-time coordination and integration across multiple exchanges poses significant technical challenges.
- Regulatory and Governance Issues: Concerns have emerged regarding transparency and governance following the insider trading controversy linked to decisions of the Central Electricity Regulatory Commission.
- This raises questions about regulatory credibility and oversight.
- Risk of Centralisation: Entrusting Grid Controller of India as the sole Market Coupling Operator may lead to over-centralisation.
- Over-reliance on a single entity could create risks related to efficiency, accountability, and system resilience.
How does electricity trading happen in India?
- Electricity generators usually enter into long-term pacts called PPAs that typically span 25 years to sell electricity, while power exchanges facilitate short-term electricity trades.
- This market-driven approach enables generators to optimise their output and revenue, while helping utilities meet variable power demands more efficiently through bids and offers.
- The market-clearing price — the price at which electricity is traded — is determined by the equilibrium of demand bids and supply offers.
Existing System of Electricity Trading in India
- Long-Term Market (Contract-Based Trading): Electricity is primarily traded through Power Purchase Agreements (PPAs), which are long-term contracts, typically spanning around 25 years.
- These agreements are signed between electricity generators (gencos) and distribution companies (DISCOMs) or large consumers.
- This system ensures price stability and assured supply, forming the backbone of India’s power sector.
- Short-Term Market (Power Exchanges): Short-term electricity trading is facilitated through power exchanges such as: India Energy Exchange, Power Exchange India Limited and Hindustan Power Exchange
- These exchanges enable generators to sell surplus power and buyers to meet short-term demand fluctuations.
- Currently, each exchange operates independently and discovers its own market-clearing price based on demand and supply, leading to price variations across exchanges.
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Power Markets in India
What is a Power Market?
- A power market is a platform where electricity is bought and sold between generators and consumers through structured mechanisms.
- It enables efficient price discovery based on demand and supply and facilitates both long-term and short-term electricity trading.
- Power markets help in optimising resource utilisation, ensuring grid stability, and improving competition in the electricity sector.
Types of Power Markets in India
- Day-Ahead Market (DAM): The Day-Ahead Market involves electricity trading for delivery on the next day.
- Transactions are conducted through closed auctions in 15-minute time blocks, enabling efficient short-term planning.
- Real-Time Market (RTM): The Real-Time Market facilitates near-instant electricity delivery.
- It helps manage sudden demand-supply mismatches and ensures grid stability.
- Intra-day Market: The Intra-day Market allows same-day trading of electricity, typically a few hours before delivery.
- It provides flexibility to market participants to adjust their positions within the day.
- Term-Ahead Market (TAM): The Term-Ahead Market deals with contracts ranging from 3 hours up to 11 days in advance.
- It helps participants plan short-term requirements beyond the day-ahead horizon.
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22 Apr 2026
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