An Institute for Power Economics and Monetary Evaluation (IEEFA) report says that the sale of energy within the futures market will profit renewable power builders and distribution corporations alike.
From pv magazine India
The introduction of derivatives in India’s short-term energy market will make it simpler for renewable challenge builders to enter into offtake preparations with state-owned distribution corporations (discoms), in line with a brand new briefing notice from the Institute for Power Economics and Monetary Evaluation (IEEFA).
“The launch of latest monetary devices will allow builders to hedge their offtaker threat with out requiring the signing of long-term contracts with discoms for the monetary closure of initiatives,” mentioned creator Vibhuti Garg, power economist, lead India at IEEFA.
Lengthy-term (normally 25-year) energy buy agreements (PPAs) between energy producers and discoms account for 88% of electrical energy transactions in India. PPAs present buyers with the knowledge of energy offtake over an extended period and de-risk them from value volatility.
Nonetheless, Photo voltaic Power Corp. of India (SECI) presently has 15 GW to 16 GW of auctioned capability ready to be signed by discoms. This backlog of unsigned PPAs is now impacting the event of latest renewable power initiatives.
Discoms are combating huge financial losses and have develop into more and more reluctant to enter long-term PPAs with renewable power builders, as renewable tariffs hit a document low. Photo voltaic tariffs in India dipped to a brand new record low of INR 1.99/kWh on the finish of 2020.
The electrical energy derivatives market in India will probably take form in 2021. Below the proposed construction, the bodily supply of electrical energy might be separated from monetary settlements.
Garg sees the sale of energy within the futures market as a optimistic step that can assist hedge the offtaker threat and supply flexibility and certainty of provide to each discoms and builders. This may additionally assist develop the value sign wanted to incentivize provide into peak demand durations, which is the important thing to enabling battery deployments and demand response administration.
“Discoms with their energy optimization instruments may also take part in derivatives markets and hedge their threat. This can assist discoms to decrease their energy buying prices and forestall them from being saddled with the inflexibility of long-term PPAs as electrical energy demand profiles change. Discoms could have the pliability to purchase energy based mostly on demand,” she added.
Below the proposed construction, long-term contracts within the bodily (spot) market might be traded on energy exchanges below the jurisdiction of the Central Electrical energy Regulatory Fee (CERC). Within the monetary (derivatives) market, contracts are set to be traded on commodity exchanges regulated by the Securities and Change Board of India (SEBI).
The bodily and monetary electrical energy markets will complement one another, in line with Garg.
“A spot market at energy exchanges and the derivatives market will feed into one another,” she mentioned. “It will likely be a virtuous cycle during which the derivatives market will set up ahead costs, extra contributors will shift from PPAs to exchanges, rising liquidity in derivatives and subsequently rising liquidity within the spot market at energy exchanges and vice versa.”
Monetary merchandise resembling futures, choices, and swaps don’t require the bodily supply of electrical energy. This opens up the market to hedgers, speculators, and different contributors who can add liquidity with out proudly owning electrical energy belongings.
“The monetary market will enhance commerce volumes and might be profitable for gamers together with builders, discoms, open entry patrons, merchants, buyers within the energy sector and others who even have the power to tackle threat. It should additionally allow the sale of hybrid products. With an rising share of renewable power within the whole era combine, a number of merchandise together with wind, photo voltaic, and biogas, together with battery storage, are more likely to see extra demand,” mentioned Garg.
The rollout of the monetary market follows the launch final 12 months of the Real-Time Market and the Green Term-Ahead Market.
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