Executive Summary
Power trading facilitates the buying and selling of electricity between generators, distribution companies, and bulk consumers. Understanding trading mechanisms is critical for market participants, traders, and regulatory practitioners:
- Licensing: CERC regulates inter-state trading licenses
- Exchanges: IEX, PXIL—day-ahead, term-ahead, real-time markets
- Bilateral Contracts: Direct agreements between buyers and sellers
- Market Segments: Day-ahead, term-ahead, real-time, renewable energy
- Regulatory Framework: Market surveillance, price caps, manipulation prevention
This guide examines trading licenses, exchange mechanisms, contract types, and compliance requirements.
1. Statutory Framework
Electricity Act, 2003
| Section |
Provision |
| Section 12 |
Trading license requirement |
| Section 49 |
Functions and duties of trading licensee |
| Section 66 |
Power to make regulations for trading |
| Section 79(1)(i) |
CERC to promote development of electricity market |
CERC Power Market Regulations, 2021
| Aspect |
Provision |
| Market types |
Bilateral, power exchanges, intermediary (traders) |
| Market segments |
Collective transactions, renewable energy |
| Price discovery |
Double-sided closed auctions |
| Market surveillance |
Market Monitoring Cell (MMC) |
2. Trading Licensing Framework
Who Needs a Trading License
| Entity |
License Required |
Issued By |
| Inter-state power trader |
Yes |
CERC |
| Intra-state trader |
No separate license |
Covered under distribution/supply |
| Power exchange |
Trading license + exchange registration |
CERC + SEBI |
Major Trading Licensees in India
| Trader |
Type |
Ownership |
Volume Traded (2023-24, BU) |
| PTC India Ltd |
PSU trader |
Govt. of India |
50+ BU |
| NTPC Vidyut Vyapar Nigam (NVVN) |
PSU trader |
NTPC subsidiary |
40+ BU |
| IEX (Indian Energy Exchange) |
Power exchange |
Private (listed) |
90+ BU |
| PXIL (Power Exchange India Ltd) |
Power exchange |
PSUs + Private |
25+ BU |
Trading License Application Process
| Stage |
Timeline |
Activity |
| 1 |
Month 0 |
Submit application to CERC with fee (Rs 50 lakhs) |
| 2 |
Month 1 |
CERC scrutinizes financial, technical capability |
| 3 |
Month 2-3 |
Public objections (if any) |
| 4 |
Month 4 |
CERC hearing |
| 5 |
Month 5-6 |
License granted with conditions |
License Conditions
| Condition |
Requirement |
| Net worth |
Minimum Rs 100 crore (for new licenses) |
| Trading margin cap |
Maximum 4 paise/kWh |
| Performance bank guarantee |
Adequate for trading volumes |
| Reporting |
Monthly trading data to CERC |
| Compliance |
Grid Code, scheduling procedures |
3. Types of Power Trading Contracts
Bilateral Contracts
| Type |
Duration |
Price Discovery |
Use Case |
| Long-term |
>1 year |
Negotiated |
Surplus capacity sales |
| Medium-term |
3-12 months |
Negotiated/auction |
Seasonal demand |
| Short-term |
<3 months |
Spot market/negotiated |
Emergency, balancing |
Power Exchange Trading
| Segment |
Duration |
Closure Time |
Settlement |
| Day-Ahead Market (DAM) |
Next day (24 hours) |
12:00 noon |
Hourly blocks |
| Term-Ahead Market (TAM) |
Up to 11 days ahead |
Variable |
Daily/weekly |
| Real-Time Market (RTM) |
Same day (1 hour ahead) |
1 hour before delivery |
Hourly |
| Green DAM (G-DAM) |
Next day |
12:00 noon |
Renewable energy only |
4. Power Exchange Mechanisms
IEX (Indian Energy Exchange) - Market Segments
| Market |
Launch Year |
Volume (2023-24) |
Key Feature |
| DAM |
2008 |
60 BU |
Largest volume, price discovery |
| TAM |
2011 |
8 BU |
Up to 11 days ahead |
| RTM |
2020 |
15 BU |
1-hour ahead, balancing |
| G-DAM |
2020 |
5 BU |
100% renewable energy |
| REC (Renewable Energy Certificates) |
2011 |
20 million RECs |
Green attribute trading |
PXIL (Power Exchange India Limited)
| Market |
Key Feature |
| DAM |
Competitive to IEX |
| TAM |
Daily, weekly, monthly contracts |
| RTM |
Real-time balancing |
| HPX (High Price Segment) |
No price cap, for willing buyers/sellers |
5. Day-Ahead Market (DAM) - Price Discovery
Auction Mechanism
| Stage |
Time |
Activity |
| Bid submission |
10:00 AM - 12:00 noon |
Buyers/sellers submit bids |
| Gate closure |
12:00 noon |
No more bids accepted |
| Matching |
12:00 - 2:00 PM |
Exchange matches buy/sell orders |
| Results |
2:00 PM |
Market clearing price (MCP) declared |
| Scheduling |
3:00 PM onwards |
RLDC schedules power flow |
| Delivery |
Next day 00:00 - 24:00 |
Actual power delivery |
Market Clearing Price (MCP)
MCP = Price at which aggregate buy quantity = aggregate sell quantity
- If buy quantity > sell quantity at price cap → Price cap
- If sell quantity > buy quantity at floor → Floor price (no floor since 2020)
DAM Price Trends (2023-24)
| Period |
Average MCP (Rs/kWh) |
Remarks |
| Summer peak |
5.50 - 7.00 |
High demand, coal supply tight |
| Monsoon |
3.50 - 4.50 |
Good hydro, lower demand |
| Winter |
4.00 - 5.50 |
Moderate demand |
| Night hours |
2.50 - 3.50 |
Low demand, surplus capacity |
6. Real-Time Market (RTM)
RTM vs. DAM
| Aspect |
DAM |
RTM |
| Horizon |
Next day |
1 hour ahead |
| Gate closure |
12:00 noon (day-ahead) |
1 hour before delivery |
| Trading blocks |
24 hourly blocks |
Each hour separately |
| Price volatility |
Moderate |
Higher |
| Use case |
Planned procurement |
Urgent balancing |
RTM Benefits
| Participant |
Benefit |
| Renewable generators |
Sell surplus from forecasting errors |
| Discoms |
Manage last-minute demand-supply mismatch |
| Traders |
Arbitrage opportunities |
7. Green Energy Markets
Green Day-Ahead Market (G-DAM)
| Aspect |
Specification |
| Eligibility |
Only renewable energy (solar, wind, hydro, biomass) |
| Certification |
REC not issued (energy bundled with green attribute) |
| Buyers |
Discoms meeting RPO, corporates with sustainability goals |
| Price premium |
Typically Rs 0.20-0.50/kWh above regular DAM |
Renewable Energy Certificate (REC) Market
| Aspect |
Details |
| Trading platform |
IEX, PXIL |
| Trading frequency |
Last Wednesday of month |
| REC types |
Solar REC, Non-solar REC |
| Price |
Market-determined (floor/forbearance removed in 2022) |
8. Trading Margins and Charges
Trading Margin Regulation
| Trader Type |
Maximum Margin |
Basis |
| Trading licensee |
4 paise/kWh |
CERC regulation |
| Power exchange |
Transaction fee (not margin) |
2-5 paise/kWh (buyer + seller) |
Power Exchange Transaction Charges
| Exchange |
Buyer Fee (paise/kWh) |
Seller Fee (paise/kWh) |
Total |
| IEX DAM |
2.0 |
2.0 |
4.0 |
| IEX RTM |
3.0 |
3.0 |
6.0 |
| PXIL DAM |
2.0 |
2.0 |
4.0 |
9. Market Surveillance and Manipulation Prevention
Market Monitoring Cell (MMC)
| Function |
Responsibility |
| Price monitoring |
Detect abnormal price spikes |
| Bidding behavior analysis |
Identify collusion, manipulation |
| Market power assessment |
Monitor dominant player behavior |
| Compliance reporting |
Report to CERC quarterly |
Prohibited Practices
| Practice |
Description |
Penalty |
| Wash trading |
Simultaneous buy-sell to inflate volumes |
License suspension, fine |
| Price manipulation |
Artificial bid inflation |
CERC penalty, license cancellation |
| Insider trading |
Using non-public grid data for advantage |
Criminal prosecution |
| Collusion |
Coordinated bidding to fix prices |
Cartel provisions, fines |
10. Transmission and Scheduling for Traded Power
Transmission Charges for Short-Term Transactions
| Tenure |
Transmission Charge |
Basis |
| <1 month |
1/12th of monthly ISTS charge |
Pro-rata |
| 1-3 months |
1/12th × months |
Pro-rata |
| Intra-day/RTM |
Same as day-ahead |
No separate charge |
Scheduling Process
| Stage |
Timeline |
Responsibility |
| Delivery schedule submission |
T-1 day, 3:00 PM |
Buyer/seller to RLDC |
| RLDC validation |
T-1 day, 4:00 PM |
Check adequacy, congestion |
| Revised schedule |
T-1 day, 6:00 PM |
If curtailment needed |
| Final schedule |
T-1 day, 10:00 PM |
Locked for delivery |
| Real-time dispatch |
Delivery day |
RLDC monitors, adjusts |
11. Compliance and Reporting Requirements
For Trading Licensees
| Report |
Frequency |
Submitted To |
| Monthly trading data |
Monthly |
CERC |
| Financial statements |
Quarterly |
CERC |
| Annual compliance report |
Annually |
CERC |
| Margin compliance |
Per transaction |
CERC audit |
For Power Exchanges
| Report |
Frequency |
Submitted To |
| Daily market results |
Daily |
CERC, MMC |
| Surveillance report |
Monthly |
MMC |
| Financial audit |
Annually |
CERC, SEBI |
| Member compliance |
Quarterly |
CERC |
12. Emerging Trends in Power Trading
Market Innovations
| Innovation |
Status |
Impact |
| Long-duration contracts (GDAM) |
Proposed |
Green energy long-term certainty |
| Ancillary services market |
Pilot stage |
Frequency regulation, reserves trading |
| Derivatives market |
Under consideration |
Price hedging, futures |
| Cross-border trading |
Bangladesh, Nepal, Bhutan |
Regional market integration |
13. Key Takeaways for Practitioners
Trading License for Inter-State Only: Intra-state trading doesn't need separate CERC license.
4 Paise Margin Cap: Trading licensees cannot charge >4 paise/kWh—excess is violation.
Exchanges Offer Liquidity: DAM, RTM provide anonymity, competitive pricing—preferred for short-term.
RTM for Balancing: 1-hour ahead market critical for RE generators and discoms managing variability.
Green Markets Growing: G-DAM and REC markets expanding—corporates increasingly participate.
Surveillance is Active: MMC monitors closely—avoid coordinated bidding, wash trades.
Transmission Charges Apply: Short-term trades bear pro-rata ISTS charges—factor in economics.
Conclusion
Power trading is the lifeblood of India's competitive electricity market, enabling efficient allocation of generation resources and price discovery. The dual structure of bilateral contracts and power exchanges, regulated by CERC, ensures flexibility and transparency. As renewable energy penetration increases, green markets (G-DAM, REC) and real-time balancing (RTM) will gain prominence. Practitioners must understand licensing requirements, exchange mechanisms, and market surveillance rules to navigate this dynamic landscape effectively. With innovations like ancillary services and derivatives on the horizon, power trading will continue evolving as a sophisticated financial and physical commodity market.
