Will GDAC be a game changer for India's renewable energy market?

In what can potentially be a game changer in the country's renewable energy market, the Central Electricity Regulatory Commission (CERC), in a recent order, has given green signal to the introduction of the Green Day Ahead Contract (GDAC) at the Indian Energy Exchange (IEX)) and the Power Exchange India (PXIL) in the Integrated Day Ahead Market (IDAM), albeit in a restricted manner.

GDAC, according to sector analysts, is expected to pave the way for promoting the trading of renewable energy through the market. Green Day Ahead Contracts have inherent benefits, including enhanced competition, efficient price discovery, flexible participation, payment security mechanism, and mitigate the risk of buyers and sellers entering long-term PPAs. Green Day Ahead Contracts promises to provide added opportunities for generators to sell renewable energy and help the obligated entities fulfil their renewable purchase obligation (RPO).

IEX and PXIL had earlier proposed that the conventional and renewable energy segment participants submit their bids in two parts – the quantity they would be willing to buy or sell as renewable or conventional power. The two power exchanges, in their submissions, had proposed that in addition to the existing Day Ahead Contract in Day-Ahead Market, an additional Green Day Ahead Contract will be available for allowing exclusive trade of renewable energy. All they had wanted was that the market-clearing must be sequential – first, the Green Day Ahead Contract will be cleared, followed by the Day Ahead Contract.

CERC finally found merits in the submission, since the two exchanges had agreed to introduce Green Day Ahead Contract within the existing regulatory framework without insisting on amendments to regulations.

Interestingly, IEX traded 1.68 billion units of renewable energy in the third quarter of the calendar year 2021. The exchange traded 8.99 BU of energy during September, with a 59 per cent YoY growth, across all market segments. In Q3, the market traded a volume of 25.86 BU, a 57 per cent growth across market segments compared to the same quarter last year. Last December, IEX had launched green daily and green weekly contracts on its green market trading platform.

In the new scheme of things, there will be a single window for bidding per the existing timeline of 10 AM to 12 noon. Market clearing should be sequential – first, GDAC will be cleared followed by DAC considering the uncleared bids of GDAC, if any. However, the central regulator has put on hold the proposal for coupling of power exchanges. This, according to power exchanges, would have ensured further depth and spread of the market by allowing participants in different exchanges to avail the benefits of multi-exchange requirements with the formation of a single price in the Integrated Day Ahead Market. Significantly, the commission did not rule out this possibility altogether and said that this might also be considered in near future. In another significant development, the regulator has given go ahead to the proposal for giving flexibility to buyers to choose the RPO they wish to fulfil from the power procured from GDAC. Expect lot of activities in the renewable energy space.