SRLDC 1 COMPETITION IN GENERATION Power Grid Corporation of India Limited New Delhi, India

SRLDC 2 NATIONAL POLICY OBJECTIVES ACCESS TO ELECTRICITY - AVAILABLE FOR ALL HOUSEHOLDS IN NEXT FIVE YEARS AVAILABILITY OF POWER - DEMAND TO BE FULLY MET BY ENERGY AND PEAKING SHORTAGES TO BE OVERCOME AND SPINNING RESERVE TO BE AVAILABLE. SUPPLY OF RELIABLE AND QUALITY POWER OF INTERNATIONAL STANDARDS AT REASONABLE RATES TO BE ACHIEVED BY 2012 PER CAPITA CONSUMPTION OF ELECTRICITY TO BE INCREASED TO OVER 1000 UNITS BY MINIMUM LIFELINE CONSUMPTION OF 1 UNIT/HOUSEHOLD/DAY. PROTECTION OF CONSUMERS’ INTERESTS.

SRLDC 3 WHY COMPETITION? INTERACTING MARKET FORCES OFTEN REDUCES THE PRICE INTERACTING MARKET FORCES OFTEN REDUCES THE PRICE EFFICIENCY IS INCREASED – OPTIMAL UTILISATION OF RESOURCE EFFICIENCY IS INCREASED – OPTIMAL UTILISATION OF RESOURCE COMPETITION BY VIRTUE – MEANS CHOICE COMPETITION BY VIRTUE – MEANS CHOICE LEVEL PLAYING FIELD LEVEL PLAYING FIELD ‘CUSTOMER IS KING’ APPROACH ‘CUSTOMER IS KING’ APPROACH

SRLDC 4 WHAT DROVE THE CHANGE ELECTRICITY BOARDS BECAME FINANCIALLY WEAK ELECTRICITY BOARDS BECAME FINANCIALLY WEAK EXPANSION/CAPACITY ADDITION WAS NOT FORTHCOMING EXPANSION/CAPACITY ADDITION WAS NOT FORTHCOMING DEMAND SUPPLY GAP INCREASED DEMAND SUPPLY GAP INCREASED TRANSMISSION BOTTLENECKS WERE PREVALENT TRANSMISSION BOTTLENECKS WERE PREVALENT AS GOVT FUNDING INCREASED SO DID ITS INTERFERENCE AS GOVT FUNDING INCREASED SO DID ITS INTERFERENCE SEB’S BECAME LARGE,MONOLITHIC AND DIFFICULT TO MANAGE SEB’S BECAME LARGE,MONOLITHIC AND DIFFICULT TO MANAGE THE END USER SUFFERED THE END USER SUFFERED

SRLDC 5 EVOLVING CULTURE EVOLVING CULTURE COMMAND AND CONTROL COMMAND AND CONTROL CO-OPERATIVE CO-OPERATIVE CONTRACTUAL CONTRACTUAL

SRLDC 6 THE STRATEGIES RESTRUCTURING RESTRUCTURING UNBUNDLING UNBUNDLING DEREGULATION DEREGULATION COMPETITION IN GENERATION COMPETITION IN GENERATION INDEPENDENT POWER PRODUCERS INDEPENDENT POWER PRODUCERS COMPETITION IN DISTRIBUTION COMPETITION IN DISTRIBUTION PRIVATE PLAYERS IN DISTRIBUTION PRIVATE PLAYERS IN DISTRIBUTION

SRLDC 7 COMPETITIVE AND NON- COMPETITIVE SECTORS GENERATION IS A COMPETITIVE SECTOR GENERATION IS A COMPETITIVE SECTOR TRANSMISSION AND DISTRIBUTION – ‘WIRE BUSINESS’ – NATURAL MONOPOLIES TRANSMISSION AND DISTRIBUTION – ‘WIRE BUSINESS’ – NATURAL MONOPOLIES

SRLDC 8 THE PRE- REQUISITES ROBUST TRANSMISSION SYSTEM ROBUST TRANSMISSION SYSTEM A SCIENTIFIC, IMPARTIAL AND TRANSPARENT SETTLEMENT MECHANISM A SCIENTIFIC, IMPARTIAL AND TRANSPARENT SETTLEMENT MECHANISM TREATMENT FOR INADVERTENT INTERCHANGE TREATMENT FOR INADVERTENT INTERCHANGE GOVERNANCE GOVERNANCE ‘OPEN –ACCESS’ ‘OPEN –ACCESS’ UNBUNDLED SEB’S UNBUNDLED SEB’S 2 PART TARIFF 2 PART TARIFF

SRLDC 9 MAIN TRANSMISSION SYSTEM- NATURAL MONOPOLY REGIONAL TRANSMISSION SYSTEM- NATURAL MONOPOLY DISTRIBUTION SYSTEM GENERATOR CONGESTIONGRID CODECONTRACTS Quality Of Supply COMPETETION REGULATORWEATHER CONDITION TRADEREND - USERRETAILER Physical flowExternal Influences Commercial RelationImportant issues determining mutual relation SCHEMATIC OF UNBUNDLED ACTIVITIES TRANSMISSION SYSTEM HAS TO FOSTER COMPETITION

SRLDC 10 THE THREE STAGES OF COMPETITION FOR GENERATORS CONCEPTION STAGES CONCEPTION STAGES LOCATION AND TYPE OF PLANT ( PEAKING/ BASE LOAD / REVERSIBLE HYDRO) LOCATION AND TYPE OF PLANT ( PEAKING/ BASE LOAD / REVERSIBLE HYDRO) FUEL : VARIABLE COST IN LONG TERM? FUEL : VARIABLE COST IN LONG TERM? FIXED COST IMPLICATION FIXED COST IMPLICATION WHY NOT APPROACH THIS THROUGH THE BIDDING ROUTE? – BASKET OF PROJECTS – SOCIAL OBLIGATION WHY NOT APPROACH THIS THROUGH THE BIDDING ROUTE? – BASKET OF PROJECTS – SOCIAL OBLIGATION DAY-AHEAD- SCHEDULING DAY-AHEAD- SCHEDULING DE-CENTRALISED DESPATCH SCENARIO DE-CENTRALISED DESPATCH SCENARIO MERIT ORDER REQUISITIONS MERIT ORDER REQUISITIONS SPOT MARKET SPOT MARKET PRICE IS KNOWN TO ALL(FREQUENCY) PRICE IS KNOWN TO ALL(FREQUENCY) GENERATOR COMPETES AGAINST THE UI PRICE (PSUEDO COMPETITOR) GENERATOR COMPETES AGAINST THE UI PRICE (PSUEDO COMPETITOR) UI VECTOR IS SUBJECT TO CHANGE DEPENDING ON MARKET / REGULATORY OBJECTIVES UI VECTOR IS SUBJECT TO CHANGE DEPENDING ON MARKET / REGULATORY OBJECTIVES

SRLDC 11 UK ELECTRICITY POOL EARLIER UNDER CEGB GENERATION WAS WITH GOVERNMENT EARLIER UNDER CEGB GENERATION WAS WITH GOVERNMENT ENGINEERING DRIVEN RATHER THAN CUSTOMER DRIVEN ENGINEERING DRIVEN RATHER THAN CUSTOMER DRIVEN TARIFF WAS ON COST PLUS BASIS TARIFF WAS ON COST PLUS BASIS ELECTRICITY ACT OF UK IN 1989 BROUGHT ABOUT SWEEPING CHANGES ELECTRICITY ACT OF UK IN 1989 BROUGHT ABOUT SWEEPING CHANGES PRIVATISATION PRIVATISATION COMPETITION COMPETITION

SRLDC 12 UK ELECTRICITY POOL NGC WAS IN CHARGE OF OPERATING THE ‘POOL’ FROM 1989 NGC WAS IN CHARGE OF OPERATING THE ‘POOL’ FROM 1989 GENERATORS AND REGIONAL ELECTRIC COMPANIES (REC’S) ENTER INTO PPA GENERATORS AND REGIONAL ELECTRIC COMPANIES (REC’S) ENTER INTO PPA THE PURCHASE RATE IS THE ‘STRIKE’ PRICE THE PURCHASE RATE IS THE ‘STRIKE’ PRICE EVERY GENERATOR BIDS INTO THE DAY AHEAD POOL EVERY GENERATOR BIDS INTO THE DAY AHEAD POOL POOL ADOPTS HALF HOUR SCHEDULES POOL ADOPTS HALF HOUR SCHEDULES COSTLIEST GENERATOR FOR THAT HALF-HOUR DECIDES THE POOL PRICE COSTLIEST GENERATOR FOR THAT HALF-HOUR DECIDES THE POOL PRICE SALE AND PURCHASE OF POWER IS AT THE POOL PRICE SALE AND PURCHASE OF POWER IS AT THE POOL PRICE REC AND GENERATOR SETTLE THE DIFFERENCE BETWEEN POOL PRICE AND STRIKE PRICE THROUGH A CONTRACT-FOR-DIFFERENCE (CFD) MECHANISM REC AND GENERATOR SETTLE THE DIFFERENCE BETWEEN POOL PRICE AND STRIKE PRICE THROUGH A CONTRACT-FOR-DIFFERENCE (CFD) MECHANISM

SRLDC 13