Draft Regulations for Market Coupling in Electricity Trading
India's electricity regulator has proposed draft regulations for market coupling, aiming to standardize electricity trading prices by matching bids from all power exchanges to find a uniform market-clearing price.
Current System and Proposed Changes
- Traditionally, electricity generators use Power Purchase Agreements (PPAs) for long-term electricity sales.
- The short-term electricity trades are facilitated by power exchanges, where price is determined independently by each exchange.
- The new framework proposes the Grid Controller of India (Grid India) to oversee price discovery as a central operator, thus implementing market coupling.
Regulatory Proposals
The draft regulation, named the Central Electricity Regulatory Commission (Power Market) (Second Amendment) Regulations, 2026, builds on earlier market coupling concepts introduced in the 2021 regulations. It aims to increase market efficiency and price stability.
- Grid India is proposed to become the Market Coupling Operator (MCO).
- The draft highlights a phased implementation starting with the Day-Ahead Market (DAM) segment in January 2026.
Controversies and Challenges
- The proposal follows a controversial order from July, which was linked to insider trading allegations by SEBI.
- India Energy Exchange (IEX), dominating over 90% market share in DAM, opposed the uniform price discovery, fearing loss of competitive edge.
- The Appellate Tribunal for Electricity dismissed IEX's plea, citing premature filing without formal regulations.
Market Structure and Growth
- Electricity markets are categorized by delivery timing: Real-Time Market (RTM), Intraday Market, Day-Ahead Market (DAM), and Term-Ahead Market (TAM).
- Short-term electricity trading has steadily increased, with transactions growing at a CAGR of 8.9% from 2009-10 to 2024-25.
Implementation of Market Coupling
- Grid India is tasked to develop a detailed Power Market Coupling Procedure (PMCP) within six months of amendment notification.
- The procedure will outline roles, bid formats, and price discovery algorithms.
- Price discovery will aim to maximize economic surplus by aggregating bids from all exchanges for efficient price setting.
