Market-Based Economic Dispatch of Power | 20 Sep 2022

Why in News?

The Market-Based Economic Dispatch (MBED) mechanism envisages centralised scheduling for dispatching the entire annual electricity consumption of around 1,400 billion units.

What is the Centralised Model of MBED?

• MBED mechanism proposes a centralised scheduling of power dispatches, both inter-state and intra-state.
• It will mark a clear shift from a decentralised model which is backed by Electricity Act, 2003.
• MBED is a way forward to deepen power markets in line with the Centre’s ‘One Nation, One Grid, One Frequency, One Price’ formula.
  • It will ensure that the cheapest electricity generating resources across the country are supplied to meet the overall system demand and will therefore be a win-win for both the distribution companies and the generators and result in savings for consumers.
• The implementation of the first phase of MBED was earlier planned to start with effect from April 1, 2022.
  • However, it was put off for later in 2022, the date for which is yet to be announced.

What are the Concerns Associated with the Centralised Model of MBED?

• MBED will have effect on the relative autonomy of states in managing their electricity sector, including their own generating stations, and make the Electricity Distribution Companies (DISCOMs) (mostly state-owned) entirely dependent on the centralised mechanism.
• MBED is inconsistent with the constitutional provisions, existing legislative framework and market structure, and could end up creating more challenges than it resolves as it infringes on the autonomy of states.
• The concerns regarding the viability of DISCOMs really need to be tackled.
  • Currently, power is in the Concurrent List of the Constitution, with the electricity grid being divided into state-wise autonomous control areas managed by the State Load Dispatch Centres (SLDCs), which in turn are supervised by Regional Load Dispatch Centres (RLDCs) and the National Load Dispatch Centre (NLDC).
    • Each control area is responsible in real time for balancing its demand with generation resources.
  • The new model will narrow the multiple options currently available under the voluntary market design with day-ahead contracts turning redundant.
  • For instance, the DISCOMs and SLDC wouldn’t be able to buy or sell power in the real-time market.
• It could potentially clash with emerging market trends i.e., increase in renewable energy in the overall generation mix and the increasing numbers of electric vehicles plugging into the grid.
  • All of these actually necessitate greater decentralisation of markets and voluntary pools for efficient grid management and operations.
• India has a diversified electricity market ranging from long-term power purchase agreements (PPAs), cross border PPAs, short and medium term bilaterals, day-ahead power exchange, and a real-time online market.
  • Around 87% of the installed power is tied up under long term PPAs and the remaining is transacted in the power markets.
  • At present, each control area or state follows merit-order dispatch (cheapest power dispatched first) from the basket of intra-state and inter-state resources and buys or sells on the day-ahead power exchange. The schedules under long-term PPAs can be revised.
  • However, this feature of pan-India visibility of the available tradable power on a daily basis on the power exchange will not be available as per the MBED model.
• The must-run status of somepower stations such as Trombay TPS, Mumbai or the Dadri TPS in the NCR region will come under question.
  • These power stations are critical for security of supply to key cities such as Mumbai or Delhi and in islanding operations in the event of a grid failure.
• The proposed Bilateral Contract Settlement (BCS) mechanism under the scheme for refunding the difference between the Market Clearing Price and the contract price under the PPA, primarily to keep the PPA prices intact, is another challenge.
  • This will dilute the objective of “market-driven prices” while complicating the entire accounting and settlement process.
  • Further, it will erode the sanctity of time tested PPAs and create a volatile wholesale market.

What can be the Way Forward?

• Being a subject of Concurrent List of Indian Constitution, recommendations from states should be taken into consideration for effective implementation of the provisions of the bill.
• Security Constrained Economic Dispatch (SCED), an algorithm developed by the NLDC can be the potential solution, which is aimed at assisting regulators in making informed calls on scheduling decisions on a nationwide basis.

Source: IE