Electricity markets in India are still in the nascent stage. Whereas conventional day-ahead markets (DAMs) have existed from 2008 onward, alternative market segments, such as term-ahead markets (TAMs), real-time markets (RTMs) green day-ahead markets (G-DAMs),and ancillary services (ASs) are recent additions. At the subnational level, many factors make it challenging for states to participate in electricity markets, such as complex regulatory frameworks, long-term PPAs, lack of technical capacity for resource planning, and the self-scheduling practices that state utilities use to optimize power procurement.

This paper recommends establishing robust frameworks at the state level that will encourage greater collaboration between state utilities to foster the regional resource sharing, effective resource utilization, and efficient power procurement that are needed to ensure a clean energy future.

Executive Summary:

Market participation in Indian power exchanges is currently thin. At the subnational level, many factors make it challenging for states to participate in electricity markets, such as complex regulatory frameworks, long-term PPAs, lack of technical capacity for resource planning, and the self-scheduling practices that state utilities use to optimize power procurement. Further, there is an increasing need for transparency in prices and tighter measures to mitigate potential misuse of markets, and innovative products to enhance market utilization in the future.

Hence, overcoming these challenges will be vital to increase the adoption of electricity markets in India. This paper details the challenges stakeholders face in adopting these market mechanisms at the state level, and identifies options based on international lessons, stakeholder consultations, and our own analysis to improve the uptake of market mechanisms and thus enable the clean energy transition at the state level.

Markets have the potential to help the states in their clean energy transition efforts, by allowing them to transition to RE resources, which typically have lower marginal costs than older, inefficient power plants. Markets can also enhance flexibility by dispatching resources from a larger pool, from a broader footprint, and at a more granular level, which can reduce renewable curtailment and ramp up the resources needed to balance variable renewables.