The Central Electricity Regulatory Commission (CERC) has initiated ‘market coupling’ of electricity prices on power exchanges — to what end, is less than clear. Under ‘market coupling’ the price at which electricity will be traded will be common for all the exchanges; a market coupling operator (MCO) will aggregate orders from all the power exchanges and match them, to discover a uniform market clearing price. CERC recently passed an order to initiate “the consultative process” with Grid-India Ltd, a PSU, and the three power exchanges in India to implement ‘market coupling’ and propose regulatory amendments for the same.
For starters, market coupling will be only for the Day-ahead market (DAM), which refers to sell and buy bids for the next day. The target date is January 2026. The regulator intends to extend market coupling to the real-time market (RTM — sell and buy bids for power supply in the next hour) and Term-ahead market (TAM, referring to beyond a day), later, in that order, based on the DAM experience.
Electricity consumption in India is about 1,700 billion kWhr (2024-25), 93 per cent of which is sold to utilities and bulk consumers through bilateral agreements — only 7 per cent is traded through the exchanges. Of the three exchanges, the Indian Energy Exchange (IEX) and the Power Exchange of India (PXIL) have been in operation since 2008; the third, Hindustan Power Exchange (HEX), has been in operation since 2022. IEX has over 99 per cent share of the DAM and RTM and 50 per cent of TAM. The high market share acts as a draw for higher volumes and traders. Notably, there have been no complaints about any abuse of the dominant position by IEX. CERC says that increased competition and enhanced transmission efficiency are the objectives of market coupling. It is hard to see how that can happen, when one exchange has almost 100 per cent share. CERC had a ‘shadow pilot’ study done by Grid India. The findings were underwhelming, making no case for market coupling. In the case of DAM, the price convergence improved 0.3 per cent and volume increased 0.2 per cent. For RTM, these numbers were 0.01 per cent and 0.01 per cent, respectively.
Market coupling is a solution in search of a problem. It will benefit none other than PXIL and HEX. Unlike the fragmented power markets of Europe, the Indian power market is already unified. Market coupling snatches two key functions of the exchanges —price discovery and settlement — and puts them in the hands of the ‘Market Coupling Operator’, which, curiously, will be one of the three exchanges and Grid India, by turns. Europe’s market coupling emerged as a partnership of the exchanges and transmission system operators, to avoid distortion of prices due to transmission capacity constraints — which is not the case in India. Redistribution of business by a regulatory fiat is anachronistic, disconcerting and anti-free market. Instead of fiddling around with business flows, CERC should address pending issues, such as longer-term contracts and derivatives.
Published on August 1, 2025