Daily News Analysis

Market Coupling in India's Power Sector

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The Central Electricity Regulatory Commission (CERC) has proposed to implement market coupling in the Day Ahead Market (DAM) segment of India’s power exchanges starting from January 2026. However, industry analysts and officials have expressed concerns that the shift to market coupling may not offer substantial benefits to the power sector in India.

What is Market Coupling?

Market coupling is an economic model designed to create a single, uniform price for electricity across different trading platforms or exchanges. Under this model, electricity buy and sell bids from multiple exchanges are aggregated and matched to discover a single market clearing price (MCP). This means that instead of each exchange having its own separate price for electricity, a unified price will be applied across all exchanges.

Current Power Exchange Setup in India

India has three primary power exchanges:

  1. Indian Energy Exchange (IEX)

  2. Power Exchange India Limited (PXIL)

  3. Hindustan Power Exchange Limited (HPX)

These are voluntary markets, where each exchange individually collects buy and sell bids and determines its own market clearing price (MCP). As a result, while these exchanges generally have similar prices, slight differences often exist.

How Market Coupling Would Work

With market coupling, buy and sell bids from all power exchanges in the country will be aggregated. The system will then match these bids to discover a single uniform price for electricity. This price will apply to all transactions, regardless of the platform or exchange through which the electricity is traded.

In this model, exchanges would no longer be platforms for setting their own market clearing prices. Instead, they would act as venues for receiving bids and facilitating the dispatch of power to the buyers.

Potential Advantages of Market Coupling

  • Improved Efficiency: Market coupling can enhance the efficiency of the electricity market by integrating multiple markets, thus optimizing electricity distribution across various regions.

  • Higher Utilization and Reduced Energy Loss: By integrating markets, it is possible to ensure that energy is distributed more effectively, leading to better utilization of resources and potentially reducing energy loss.

  • Enhanced Market Liquidity: A uniform price can make it easier for participants to trade electricity across borders and regions, leading to higher liquidity in the market.

  • Increased Trading Volumes: With more participants and a unified pricing mechanism, the overall trading volumes in the power market could increase, potentially making the market more robust.

Challenges and Concerns

While market coupling has potential benefits, analysts and industry stakeholders have raised several concerns regarding its implementation in India:

  • Limited Impact on the Indian Market: Given the relatively small price differences across exchanges (often just a few paisa), the actual economic benefit of a unified price may not be significant.

  • Operational Complexities: Aggregating bids from multiple exchanges and creating a unified price structure could introduce operational complexities, particularly in terms of system integration and market governance.

  • Market Fragmentation: The current model allows power exchanges to differentiate themselves by setting unique market clearing prices. With market coupling, this flexibility could be reduced, and exchanges may lose the ability to tailor prices to their local markets.

Way Forward

As India moves towards greater integration of its electricity markets, market coupling could be a step towards improving the overall functioning of the power sector. However, it will require careful planning, stakeholder consultation, and a phased approach to ensure it delivers the intended benefits without creating new challenges.


 

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