Transforming India’s Electricity Markets

The Indian power sector has evolved rapidly over the past decades. The country has electrified every village and transformed from a power-deficit to a power-surplus nation, led by remarkable growth in renewable energy deployment. Moreover, continued rapid economic growth is anticipated to maintain a high rate of electricity demand growth over the coming decade. Demand growth, coupled with India’s declared target of meeting 50 percent of its power generation capacity from non-fossil fuel-based sources by 2030, will necessitate a paradigm shift in India’s electricity market.

India’s distribution sector continues to face many challenges, including financial distress and large cumulative debt. A fiscally healthy distribution sector is necessary to ensure robust growth of the renewable sector and to achieve projected electricity demand growth. Suboptimal scheduling and dispatch of generators contributes to the distribution companies’ economic strain at the wholesale level. To resolve this issue, the Ministry of Power has proposed a Market-Based Economic Dispatch (MBED) mechanism to optimize the day-ahead scheduling of power generators.

This report is designed to create a shared understanding among stakeholders of the status and impact of proposed changes to India’s wholesale power market. This report provides a summary of the current market design in India, outlines the proposed MBED mechanism, identifies its anticipated benefits, and looks at key barriers toward implementation. The report shares lessons learned from international electricity markets and provides recommendations to successfully transition to the MBED mechanism in India’s power sector.

Figure 1: Challenges and Barriers to Implementation of MBED

MBED is a step toward creating a system that operates efficiently with an integrated pan-India approach for generators. Building off two decades of evolution, India needs to ensure that the right electricity market operational structure is in place to develop a reliable, flexible, and cost-effective power sector. Markets well suited to integration of variable renewable generation will be key for making India a global leader in this innovative sector and maximizing the economic and environmental benefits.