Power Exchange India Limited

1. Session 3 Advance Metering Infrastructure, Power Trading and Cloud Computing Transmission, Distribution and Metering India (Enabling Smart Grid & Smart Metering) Nov 10, 2010 Mrs. Rupa Devi Singh, MD & CEO Power Exchange India Limited

2. Power Exchange India Limited- Voluntary but Institutionally promoted PXIL leverages on promoter and shareholder experience : - NSE -largest stock exchange in India and 3rd largest in the world - Govt entities discharging the Universal service obligation - Leading Private producers in the country

3. Indian Power Sector Source: CEA, NLDC *Deficit numbers for Jan 2010 One of the largest interconnected power systems in the world Generation Capacity of 164,836 MW(Sep 2010)-800,000 GW by 2030 Energy deficit of about -9.6% and peak demand deficit of -10.5% (Sep 2010) Predominant focus on fossil fuels, especially coal

4. Indian Power Sector -Installed Capacity Installed Capacity as on September 2010 Installed Capacity-Fuel Mix • Source- CEA

5. Indian Power Sector Source: CEA *Extrapolated by PXIL Even with higher rates (6% y-o-y) of capacity addition and energy generation, India would continue to remain a power deficit country • Demand – Supply Summary Forecasts

6. India’s Projected Energy & Capacity requirements Immense task ahead in terms of capacity addition requirements

7. Role and impact of power exchanges in energy market development

8. Electricity Act 2003- transition to a market Committed the Nation to Development of a Vibrant Market in Electricity • Development of a multi-buyer multi-seller market in power • Compulsory Unbundling of utilities • Complete De-licensing of generation • “Trading” of Electricity – a licensed activity • Provides Consumer level choice of supplier • Separation of “transmission ownership” and “system operation” • Universal Open Access to transmission networks for all consumers over 1 MW • Robust Policy framework providing ground rules for competition • National Electricity Policy detailing roadmap for development of markets - PXs • Mandated Competitive procurement of power by uitilities • Global competitive bidding for projects in transmission • A proactive approach for development of a market in renewables

9. Indian Power Sector – Post Reforms Transition Introduction of Power Exchanges

10. Products • Product Development at PXIL is a consultative process involving stakeholders of power sector • PXIL’s In-house software development enables dynamic responses to local market needs • Lack of clarity over regulatory jurisdiction impacting launch of forwards and futures

11. Volumes Transacted • Volumes on Exchanges have shown an increasing trend as percentage of total generation • Proactive approach from the regulator and efficient grid management by the system operator • Absence of Universal Service Obligation on Utilities resulting in reduced demand

12. Prices • Efficient Price Discovery leads to Lower prices on exchange • Softer Prices at the exchange cast a spill over effect on the OTC market • Average Price of electricity • Traded over Exchanges • 2008 Rs. 7.57/kWh* • 2009 Rs. 5.73/kWh • Traded in OTC market • 2008 Rs. 7.04/kWh • 2009 Rs. 6.41/kWh • Prices in 2010 exhibit a further declining trend. * Exchanges were in operation only during the last three quarters of the year

13. Participation • Access – Easy, Electronic and Efficient • Information Dissemination – Fast and reliable • Evolution of the market from utility based to industrial consumers oriented • 29 States • More than 300 participants • More than 400 portfolios • Maximum Volumes Transacted • Day Ahead Market 65.5 MUs on 21st Aug 2010 • Term Ahead (weekly) Market 22 MUs on for the delivery week 19/07/2010 to 25/07/2010

14. Services • PXIL’s two pronged strategy for services • To be the thought leaders in the Indian Power Markets • Knowledge sharing amongst stakeholders through continuous engagement • Information Dissemination • Region-wise hourly price data • Congestion occurrence and details • Close interaction with System Operator • Capacity Building – Power Markets Centre of Excellence • Power Markets Leadership Programme • Jointly organized with premier institutes like IIM Ahmedabad/IIT Mumbai • More than 150 participants • Power Markets Certification Programme • Jointly organized with NPTI/ASCI/ISPE • More than 50 participants

15. Achievements of Exchanges • Lowered cost of participation as well as transaction cost • Increased participation with Industrial consumers, small captives • Increased depth and liquidity • Availability of different types of membership to suit the context • Lowered the minimum bid from 1 MW to 0.1 to 0.01 MW • Increased liquidity • Increased participation • Introduced Professional Clearing Membership as a category • Membership to funding agencies like PFC to provide funds for bids • New Bidding Methodology • Bidding in week ahead market which is quasi – continuous to suit Indian context

16. Impact of Power Exchanges • PXs have demonstrated that National market for electricity is feasible • PXs have reached their second stage of development to be mandated platforms • Exchanges have made the Open Access Dream; A Reality • Access • Utilities • Industrial Consumers • Open Access Consumers • Captive sellers • Transparency & Efficiency • Better price discovery • Spill over effect on OTC market • Demand Management • Freedom to choose amongst products for better portfolio management

17. Key issues and challenges

18. Electricity Act 2003- transition to a market The intent and the ethos of EA 2003 towards creating competition at the utility level as well as the end customer level is still elusive Compulsory Unbundling of utilities Complete De-licensing of generation Separation of “transmission ownership” and “system operation” Universal Open Access to transmission networks Consumer level choice of supplier Development of a multi-buyer multi-seller market in power

19. Key issues and Challenges-Multiple State level markets • Mixed response to national legislation • Multiple States and Jurisdictions • Many still vertically integrated • Isolated nearly self sufficient markets • Open Access to transmission lines controlled by State Transmission Utilities • Limited Inter - connector capacity • Inter-connector capacities not with the exchanges • Exchanges and OTC compete for capacity

20. Creating Markets • Historically illiquid market • Planned dependence on PPA-only 8% of electricity produced traded through short term market • Trading of electricity only a few years old • A stable Day Ahead spot market on the Exchange • Pricing Challenges • Long term price view yet to emerge • Declining trend in merchant power prices-with near zero cost of avoidable load • Exposure to international coal prices-consumer level pricing shocks ? • Sudden Unrestrained growth • High capacity addition might lead to excess supply or stranding • Issues on fuel availability /fuel mix may emerge in the long run

21. Transmission Pricing • Infrastructure • 5 Electrical Regions, More than 25 Control areas • Transmission constraints across regions • Transmission pricing based on tenure of transactions • Long Term – More than 25 years • Transmission access given for specific seller and buyer • Transmission pricing based on cost of asset and socialized over all beneficiaries in the Region • Short Term – Upto 3 months • Transmission access given for each transaction separately for a specific seller and buyer pair • Transmission pricing arrived at as a percentage of long term transmission pricing • Earnings used to reduce the cost of asset for long term transmission consumers • Day-Ahead Spot Market – For the next day only • Transmission access for trades through Power Exchanges - Collective transactions • Point of connection tariff – equal price for connection from anywhere in India • Balancing – Real time • Power system frequency based pricing • Penalty or reward based on deviation from schedule in any 15 min time block

22. Transmission Access • Priority to Transmission Open Access given to Long term, followed by Short term and then power exchanges • Based on timing of application for Short Term • Congestion charge applied only on transactions happening through PXs • Different Products treated differently • Collective transactions for DAS • FCFS for Term Ahead (Weekly) Product

23. Future outlook

24. MainstreamingEnvironmentalProducts PXs evolve from being voluntary to mandated platforms • Renewable Energy Certificates • Market based instruments for trade between the Eligible Generating firms and Entities carrying Renewable Obligation • Initially Non-transferable contracts, mandated to be traded on PXs • Energy Efficiency Certificates • Market based mechanism to promote energy efficiency in 9 identified industrial sectors • Firms maintaining higher efficiency than set Targets would sell certificates whereas firms with lower efficiency would need to buy • Industrial consumers also carry renewable purchase obligation

25. Longer Tenure Products • Delivery Based Forwards • Monthly Contracts • CERC has initiated the process to develop the product attributes to suit the market • For delivery contract • Ancillary Services Contract • Concept paper floated by NLDC • Financial Products • Envisaged in future

26. Future Outlook - PXIL • PXIL remains committed to delivering to its participants contextual products and services on the following principles • Accessibility • Affordability • Reliability • Quality • Availability

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