The Growing Role of Renewable Energy in India's Power Trading Sector

Guy Spier

Hatched by Guy Spier

Mar 24, 2024

3 min read


The Growing Role of Renewable Energy in India's Power Trading Sector

The Indian power sector is experiencing a significant transformation, driven by the increasing adoption of renewable energy sources. As the nation strives to achieve its decarbonization and net zero targets, industrial and commercial consumers are shifting towards renewable energy to meet their energy requirements. This shift is not only aligned with environmental goals but also presents opportunities for the energy market to evolve and facilitate greater integration of renewable energy.

One notable development in the Indian power trading sector is the emergence of innovative products such as the green term-ahead market (GTAM), the green day-ahead market (GDAM), the real-time market (RTM), and market-based ancillary services. These products aim to support the large-scale capacity addition of renewable energy while reducing integration costs. They provide a platform for renewable energy generators to sell their power in short-term transactions, enabling better grid management and flexibility.

Short-term trading volumes in the Indian power sector have been steadily increasing in recent years. In 2022-23, the volume of short-term transactions reached 194.35 billion units (BUs), marking a 4.1% increase compared to the previous year. This volume accounted for 13.7% of the total power generation during the same period. The compound annual growth rate (CAGR) of short-term trading volumes between 2017-18 and 2022-23 was 8.8%, outpacing the CAGR of power generation, which stood at 1.7%.

Power exchanges played a significant role in the short-term market, accounting for approximately 53% (102.95 BUs) of the total transaction volume in 2022-23. The remaining portion comprised volumes transacted through trading licensees (17.4%), deviation settlement mechanism transactions (13.5%), and bilateral transactions between distribution companies (16.1%). This diverse mix of market participants reflects the evolving dynamics of the power trading sector.

The increasing share of short-term trading volumes indicates a growing interest in flexibility and real-time power procurement. By participating in short-term markets, consumers can optimize their electricity procurement strategies, taking advantage of favorable prices and renewable energy availability. This trend aligns with the broader objective of integrating renewable energy into the grid and reducing dependence on conventional fossil fuel-based power generation.

While the growth of short-term trading volumes is encouraging, there are still challenges to overcome. The intermittent nature of renewable energy sources poses reliability concerns, requiring robust forecasting and balancing mechanisms. Additionally, the power sector's infrastructure needs to adapt to accommodate the increasing share of renewable energy. This includes grid enhancements, energy storage solutions, and demand response mechanisms.

In conclusion, the Indian power trading sector is witnessing a significant shift towards renewable energy sources. The rise in short-term trading volumes, coupled with the emergence of innovative market products, highlights the growing role of renewables in meeting the country's energy requirements. To further accelerate this transition, three actionable advice can be considered:

  • 1. Strengthen forecasting and balancing mechanisms: Robust forecasting tools and accurate demand-supply balancing mechanisms are crucial for managing the intermittent nature of renewable energy. Investing in advanced technologies and data analytics can enhance the reliability and predictability of renewable energy generation.
  • 2. Focus on grid infrastructure development: Upgrading the power grid to handle higher renewable energy penetration is essential. This includes smart grid solutions, grid storage facilities, and grid interconnections to facilitate seamless integration of renewable energy sources.
  • 3. Encourage participation in short-term markets: Industrial and commercial consumers should explore the benefits of participating in short-term markets, such as GTAM and GDAM. By actively engaging in these markets, consumers can procure renewable energy at competitive prices and contribute to a more sustainable power sector.

As India continues its journey towards a cleaner and more sustainable energy future, the power trading sector plays a vital role in facilitating the transition. With the right policies, investments, and market mechanisms, the country can achieve its ambitious renewable energy targets while ensuring a reliable and affordable power supply for all.

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