Appropriate Market Structure of Regional Integration, Pool and Exchange Nepalese Perspective

1. Appropriate Market Structure of Regional Integration, Pool and ExchangeNepalese Perspective Chandan Kumar GhoshAssistant Manager,Nepal India Electricity Transmission and Trade ProjectNepal Electricity Authority, Durbarmarg, Kathmandu, NepalHitendra Dev Shakya,Director,Large Power Generation, Operation and MaintenanceNepal Electricity Authority, Durbarmarg, Kathmandu, Nepal

2. Introduction • What should Nepal Consider • A Market Favourable for Hydro Energy • Characteristic of thermal vs hydro • Why not a mix? • In the SAARC Region? • What should the Market encourage ? • How to mitigate the risks associated in both thermal and hydro?

3. Assumptions • Surplus in Year 2016/17 • Crisis still in dry season • At leastSome Cross-border Transmission Lines across Nepal and India • Load profile of Nepal would be quite similar to the present load profile • No Bias-Prejudice towards any particular power source

4. Average Load Curve of Nepal

5. Hydro characteristics • Nepal has mostly hydro installations for its power needs. • Hydro Stations are highly capital intensive. • Run-of-river type of Hydro power stations are popular among developers. • New Choice • Peaking Run-of-River type • Low Cost • Storage type Hydro Power Stations • minimal • The demand for energy is soaring high in South Asia. Hence, there is a good chance for Private or Public Sector to enter the market.

6. Characteristics of a ROR: • No Storage in a ROR • Drawback from the market persepective • cannot exploit the advantage of the demand and pricing of a free market. • need to sell its energy in realtime, or spill it • Long term Contract, • Take-or-pay Contract • Monthly energy contract • Suitable scheme to hedge its risk for the spill. • Investment in ROR type with a small pondage • Some Storage type projects for Seasonal deficit balance. • PROR than ROR.

7. Characteristic of Nepalese Load Curve • Peak Load is nearly double of the Base Load • Duration of peak load • normally 3 hours in the evening • a few hours in the morning • No major variance from Winter to Summer • Demand almost the same during Summer and Winter. • Supply changes proportionately with the river discharges. • Market Design should addresses this issue.

8. Appropriate Market Structure • Pool • Like an Airlines Ticketing system • Commit early, buy cheap, no cancellation • Buy late, pay high or as per the demand • And try your luck • Exchange • Bilateral treaty • Power Diplomacy

9. Pricing Mechanism : Barter • Same mechanism in Summer or Winter • Barter system • Additional surcharge for every transaction. • Based on committed power and not surplus power. • The cost of committed power is high in comparison to surplus power • Surplus power can be sold in a spot market as per commercial tariff

10. Reliability and Quality Issues • Reserves of real power and reactive power are required • strategically located • Peaking ROR ramps up production during sudden surges in Power Demand. • Purchase or outsource reserves and subsequently charge to system users on some equitable basis. • Health Insurance

11. Ancillary Services 1: Black Start Capability • Ancillary Services such as Black Start should also be priced. • Hydropower has that advantage • Market should reward this advantage • The reserve capacity of a hydrostation is usable in 1 or 2 mins, where as for a thermal, it can take a half a day and for Diesel, 15 to 20 minutes at a minimum. • Reserve capacity of a Hydrostation should be priced higher ?

12. Ancillary Services 2 : Reactive Power • Voltage Support through reactive Power Generation by power plants can come at the cost of energy generation, ie, cost of fuel • Market should encourage production of reactive power production • UI and ABT based mechanisms instead of SPOT market could be a temporary measure before Market establishment.

13. Ancillary Service 3 : Standing Reserve • The market should encourage establishement of unsynchronized, fast start-up plant (hydro, gas turbine) whose energy can be made available within 5 min or less. • Hydro has a typical characteristics of a start-up time of less than 2 mins and a minute in average. • Demand reduction as per operator’s instruction can also be used in this category.

14. Ancillary Service 4 : Replacement Reserve • The market should also encourage establishment of plants that can be brought into service with longer notice in the event of a shortfall in standing reserve. • This could be termed hotstand by plant or deferred-start plant, designated by System Operator.

15. Ancillary Service 5 : Spinning Reserve Margin • Market should have provision for a fast-response capability of a partially loaded synchronized generators to check any sudden frequency change due to loss of any generation from a station. The response time should be as less as possible to manage the system surge averting collapses.

16. Nodal Pricing Mechanisms • There are many cross border points between India and Nepal. • Likewise there could be many between India and Bangladesh • and so on between other bordering countries. • The regional price can be different. • For example, the cost of energy in North-East India could be cheaper in comparison to the Eastern of Central Region. • The solution to the problem is a Nodal Pricing Mechanism. It takes care of the Transmission Postage Stamps (fixed surcharges).

17. Congestion Pricing and Contingency • Price needs to be increased in congested transmission lines • Contingency Optimization: • If one line of a generating station trips, there should be reserve capacity of generation or transmission. • Pricing Signals for reserve capacity and transmission capacity should be considered while designing a market.

18. Thank you • chandankghosh@gmail.com