As the world’s fourth most attractive renewable energy market, India continues to grow in the domain of green energy at a rapid pace. As of October 2021, renewable energy accounts for approximately 38% of India’s cumulative installed power capacity. And as this mix grows ever greener by the day, the entire energy trading paradigm in India is shifting tectonically.
So, how does trading renewable energy work in India? The answer can be found in the form of traditional long-term contract trading, the nascent spot trading on power exchanges, and innovative virtual power plant providers. These are a few renewable energy trading facilitators that are enabling flexible, competitive, and transparent renewable energy procurement in line with rising demand, industry targets, and government policies.
Let us take a deeper look.
- Traditional long-term contracts
This trading of renewable energy power works much in the same way as traditional bilateral contracts used for 90% of electricity generation in India.
The renewable energy power generator sells to electricity distribution companies directly at a rate determined through public bidding. This is generally a 25 to 30-year long contract. However, this traditional way is mired in two issues:
- For power buyers, these are long-term take-or-pay contracts which can prove to be quite costly when renewable energy is available at a much-discounted price elsewhere.
- Due to politics and other circumstances, utilities are unable to pay renewable power generators on time which not only eats into their profitability but also renders the end-consumer clean energy supply unreliable.
As per the Central Electricity Regulatory Commission, the portion of electricity traded via long-term bilateral contracts will reduce to 50% to 60% by 2025. This is a welcome forecast for renewable energy producers and buyers in India as it will allow them to bring more flexibility in the trading of renewables.
- Green power exchanges
As India accelerates its move away from a coal-based economy to a renewables-based one, companies and distributors are able to bring in more renewable energy sources to meet their ESG, asset management, and trading strategy norms.
This is where power exchanges provide the ideal market for a more seamless, smooth, and competitive trading of renewable energy. Much like the stock exchanges around the world, power exchanges facilitate multi-lateral renewable energy trading by providing sellers and buyers with a unique platform to procure energy via spot contracts. The market for these spot contracts includes same-day trading, intra-day trading, or weekly trading where renewable power for the same day or the coming days is traded to meet the present demand.
The attractiveness of power exchanges comes from the fact that short-term trading of renewable energy is increasing on their platforms. Given that renewable energy supply is highly variable, suppliers require more flexibility in trading better and more cost-effective green energy sources to meet their requirements. This is where energy exchanges shine with their automated trading framework at a national level, enhanced price discovery, and greater accessibility.
These power exchanges are common in Europe and are growing in popularity in India as well. At the moment, the Indian Energy Exchange (IEX) and the Power Exchange India Limited (PXIL) are the only two power exchanges for all power, including renewables, in India.
Apart from spot contracts, power exchanges also issue renewable energy certificates (RECs). Introduced by CERC in 2010, RECs simplify renewable energy trading between obligated entities and state utilities in India. Under RECs, any generation company can generate electricity through renewable energy in any part of India. The result is improved cost optimisation for electricity generators and enhanced closure of renewable purchase obligations (RPOs) for private and state utilities.
- Green Day-Ahead and Green Term-Ahead Markets
To facilitate a shift from long-term contracts to a market-based trading framework, India became the world’s first and only large electricity market to introduce a green day-ahead market (GDAM). Its USP lies in instant payment for all renewable energy generators.
Alternatively, the power exchanges of India also have a green term-ahead market (GTAM) that enables generators to sell green power in the open market. The advantage here is that they are not required to commit to long-term power procurement agreements.
Role of virtual power plant providers in green energy trading
When it comes to trading renewable energy, many producers do not have sufficient output or expertise to trade directly on energy exchanges and markets. This is where aggregators like virtual power plant providers come into the picture.
Virtual power plant providers like Amp Energy India act as aggregators of renewable energy power and provide a unique platform to facilitate its trading on behalf of the producers. They represent an innovative concept wherein virtual power plants serve as ancillaries to store and sell surplus renewable energy and maintain grid stability in India.
Bottom line
As the push for a greater renewable energy mix in the country begins to take shape, energy trading will continue to evolve towards a streamlined market with spot power trading and innovative platforms like virtual power plants. This will enable India to create a more lucrative and empowering environment for green energy producers and achieve its gigantic renewable energy targets with greater ease.
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Renewable Energy Industry in India: Overview, Market Size & Growth | IBEF
Indian Energy Exchange (iexindia.com)
An Emerging Domain – Renewable Watch
Power trading | Definition & Background information (next-kraftwerke.com)
