Transmission; Foundation of a Power Market 12 May 2006

A Natural Monopoly? Definition in classical Economics; –When economies of scale of the industry imply that maximum efficiency of production and distribution will be realized through a single supplier. –Occurs in capital intensive industries, where barriers to entry are high. Applicability to Electricity Industry; –Accepted to be applicable to transmission in particular because of its key focus on providing equitable framework for logistics that connect load centers with production centers (both of which are amenable to competition).

Two key roles of transmission in a power market; Portability; –Ensure sufficient capacity and interconnection for unconstrained wheeling of power. –Manage temporary congestions efficiently. Economic Pricing ; –Ensure that power sources that add economic value get a fair chance at dispatch. –Evolve a convention for ensuring equitable financial burden on market participants; does not necessarily have to follow engineering logic.

The First Role - Portability Work towards a long-term vision of the system; –A `Copper-Plate’ for the entire country or a Regional Transmission Organization (RTO) concept? Operate to high service standards and parameters within the envisioned role; –Perspective plan for future expansion, `right of way’ is a scarce commodity. –Build redundancies required, to eliminate downtime.

The First Role – Portability (contd..) Two aspects of the role; –Developing and owning the transmission assets. –Operating the network. ( retaining a neutral position with respect to market participants is subsumed in these roles) Case for separation of the two aspects of this role; –Related to `Core Competencies’ required, rather than any conflict of interest. –In India, the LDCs have operated with independence, but within the CTU ownership and organizational framework.

The Second Role – Economic Pricing No single `right’ approach to transmission pricing in a power market; –Approach should aim to facilitate competition. –Implies a new approach to both capital investment and network management. (lower lead times will be available for planning and upgrading transmission capacity, generation and demand patterns can vary daily) Will need to study the nature of the market and adapt accordingly. Considerations of system security will need to balanced with economics.

Approach of Regulation in Transmission Surrogate for Competition; simulate the competitive pressures / efficiencies to bear on the monopoly segment (will be evidenced by price and service levels). Allow market forces to develop in other segments; to drive pricing and service levels in competitive segments.

Long-Term View of the Market and its forces Need to recognize market segments by time blocks Long-term (incl. medium term) Short-term Very Short-term (incl. Day-ahead) Balancing / Real-time Market forces in each segment have different dynamics Transmission services need to be dovetailed to meet the requirements of each of these segments

Meeting the challenges of the Market The short-term and very short-term markets are served by the provision of Short-term Open Access (including provisions for `Day-Ahead’ and `Same-Day’ given effect from April 1, 2005) Balancing / Real-time; adequately handled by LDCs through the ABT mechanism. Long Term; Open Access regulations are in place; but generation project investments still face uncertainty on account of transmission.

The Outcomes desired… User / consumer confidence. Stability of the service delivery system. Adequate information for enabling users to make informed decisions. Preventing monopolistic trade practice.

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