The current regulatory and market frameworks present significant gaps and barriers for power system flexibility resources, including demand response, batteries, pumped-storage hydro and power plant flexibility. Comprehensively reviewing and removing the wholesale and retail market barriers to new technologies and creating an equal playing field for all resources is an important ongoing task not only in India, but worldwide.
India’s wholesale power trade achieved important milestones in 2020, with improved trading across Indian states and the introduction of real-time markets and green markets. Since 2020 the real-time market has filled an important gap by providing corrections on an hour ahead timeframe for variable and uncertain generation such as solar and wind. The newly established green market enables clients such as the DISCOMs to fulfil the states’ renewable purchase obligations through market purchases.
Analysis based on the IEA India Regional Power System Model suggests that additional power trading across states is an effective renewables integration solution that could reduce curtailment by around 2.5% in the STEPS in 2030. However, significant barriers remain to reach this potential. These include: (1) the lack of transmission capacity available for interstate trade; (2) the low level of liquidity in wholesale markets; and (3) the inflexible existing contractual structures, namely long-term physical purchase power agreements (PPAs) between the DISCOMs and generators (also contributing to the low liquidity).
States will need to weigh the costs and benefits of potential new transmission investment against the costs and benefits of other flexibility options. In India existing long-term physical PPAs represent about 90‑95% of total generation. The current practice of using these PPAs to meet resource adequacy requirements may not be the most cost-effective tool for achieving resource adequacy. Existing PPAs also pose a barrier to improved power system flexibility from both interstate trade and power plant flexibility. Thus, states could consider creating alternative resource adequacy mechanisms and using financial PPAs. In the longer term, a sophisticated financial market for power sector products could be introduced in India.