Health of Distribution Sector November 27 th , 2018

1. Health of Distribution Sector November 27th, 2018

2. Agenda • IEX Introduction • Recent Market Trends • SMART procurement/sell options • Way Forward

3. Market Share: 97% • Average dailytrade: 6000 MW+ • High Participation: 6200+ 4000+ Industries I55Discoms(All) I 100+ ESCert Entities 400+ GeneratorsI 1500+ RE Generators & Obligated entities Company Snapshot Transparency Liquidity Competition Market Share-FY 18 (DAM & TAM) | Average Daily Trade- FY18 Market Share-FY 18 (DAM & TAM) | Average Daily Trade- FY18

4. IEX Market Segments Day-Ahead Market since June,08 • Delivery for next day • Price discovery: Closed , Double-sided Auction • Intraday: For Delivery within the same day • Day Ahead Contingency: Another window for next day • Gate closure : 3 hours Intraday Market & Day-Ahead Contingency Round the clock since Jul’15 Term-Ahead Contracts since Sep’09 • For delivery up to 11 days • Daily Contracts, Weekly Contracts Renewable Energy Certificates since Feb’11 • Green Attributes as Certificates • Sellers : RE generators not under feed in tariffs • Buyers: Obligated entities; 1MWh equivalent to 1 REC Energy Saving Certificates since 27th Sept’17 • 1 ESCert = 1 mtoe(metric Tonne of Oil Equivalent) • Trading Session on every Tuesday of the Week • Trading time 1300 hrs to 1500 hrs Auction Continuous

5. DAM Market Snapshot 28 Sep 2018

6. Demand Supply CurveDate: 03-Oct-2018 | 03:45-04:00 | MCP: Rs 4349.33/MWh

7. Demand Supply CurveDate: 03-Oct-2018 | 19:15-19:30 | MCP: Rs 18000.44 /MWh

8. Day Ahead Market Volume trend for October 2018

9. Day Ahead Market Volume trend (April –November’ 18) * Up till 25th November, 2018

10. IEX Monthly Average Price (Rs./kWh) Trend for UP FY 16-17 Avg. RTC Price: Rs2.58/kWh FY 17-18 Avg. RTC Price: Rs 3.26/kWh FY18-19 Avg. RTC Price: Rs 4.27/kWh Data as on 19th Nov 2018

11. High prices/volume in Recent months – Sept/Oct • Major Buyer: • 85% buy volume from Discom. Almost all discoms from West (except MP), South (except Karnataka) & East (except Jharkhand & Sikkim). • Maharashtra (upto 65 MUs)  I  Gujarat (Upto 60 MUs)  I  Bihar : (32 MUs)  I West Bengal ( upto 31 MUs)  I  DVC (upto 12 MUs)  IAP (upto 12 MUs) I Tamil Nadu (upto 35 MUs) I  Telangana (Upto 16 MUs) Source: CEA *Data for October has been taken from NLDC

12. Increase in Price in FY 2018-19 • Overall increase in peak demand by 7.9% during Apr-Oct 2018 over last year. Highest ever peak demand of 177 GW recorded in September’18. • Overall energy met increased by 7% in H1 2018 over same period last year. Demand increase in October 18 by 10.3% over last year. • Traditionally buying at Power Exchange increases in Sep & Oct months due less availability with state Discoms. • Demand increase in IEX is around 20-30%, which means Discoms are relying more on exchange because of flexibility and competitive price discovery. • Wind generation in Oct 18 dropped by 57% as compared to Sep 18. • Buy bids from all Major Discoms like Tamil Nadu, Gujarat, Maharashtra, Bihar, West Bengal, J&K, Telangana, & AP have significantly increased. • Coal shortage continues and E-Auction prices are very high (100% increase over notified price). Steep Increase in USD and high imported coal cost has also adversely impacted generation cost.

13. Coal Dispatch Details • E-Auction quantity has come down resulting into high Auction prices

14. 14 ‘SMART’ Options with Distribution Companies SMART PROCUREMENT SMART CONTRACTING Ensuring ideal mix of long term and short term power purchase arrangements to manage fixed cost and manage availability of supply On a day to day basis- managing demand of the area by utilizing cheaper short term sources by replacing power from high variable cost plants and ensuring MERIT order based dispatch

15. Option with the Discoms: Utilising Exchange Market Two ways in which short term market can assist Discoms: • Meeting demand shortfalls or selling surplus at the Exchange • Discoms should tie-up PPA only to manage their base demand • Many Discoms have tied PPAs to meet their peak demand as well. The Discoms have to pay the capacity charge for this quantum even in the off peak time. • So for optimum utilisation, Long Term PPA should be only for base demand and remaining energy (for peak and variations in forecast) should be bought through other available market options. • Optimising the available energy by scheduling based on merit order including Exchange prices • Scheduling of power to be done on merit order basis after including the prices available at the Exchange

16. 16 Way Forward: Mitigating Threats • BASE LOAD THROUGH LONG TERM AND VARIATION THROUGH POWER EXCHANGE • Discoms should sign PPA for the base demand only • Discomsin past contracted long term power on the basis of peak demand, as a result, many of the states landed up having surplus capacity during 6-7 months in a year, paying capacity charge without utilizing the power. • Seasonal variations and peak should be arranged through the Power Exchange to save on capacity charges and improve portfolio management. Month

17. 17 Smart Contracting- Ideal mix LT Methodology -Long term PPA for 80% of total energy demand • Draw load curve for a state (indicating demand met in MW for each hour of the year), • Estimate the demand met in MW that corresponds to meeting 80% of total energy demand over the year • Estimate total capacity required to meet baseload demand by applying an average Plant Load Factor (PLF) to the baseload demand met (in MW). • Demand projections for next few years (say 3) • Extent of Renewable growth • Solar Rooftop potential • Hydro potential in the State Key considerations – long-term

18. 18 SMART Procurement • Under long term & medium term PPA : two part tariff • Capacity charges (commitment charges): paid irrespective of whether discompurchase power from these plants or not • Energy charges : Paid corresponding to the number of units of power purchased from that particular plant • Discoms can replace costlier long term power by procurement from IEX, if, • Energy charge of power plant is greater than IEX rates • During night hours prices at IEX are further low and savings can be enhanced • Discoms can replace ISGS first, keeping import constraint in consideration • Discoms can continue paying fixed charge to Long Term PPAs and substitute where energy charge is higher than IEX price • IEX has provided a tool for Smart Power procurementtoDiscomsin the following states:- • Andhra Pradesh • Telangana • Haryana • Rajasthan • Madhya Pradesh

19. Merit order dispatch schedule to be prepared based on Variable cost and considering Exchange Prices Capacity Tied up by Discom Long Term Contracts Bilateral Contracts Exchange PPA I Variable Cost PPA 1 I 3.70 Contract 1 I4.70 IEX PriceI2.45 PPA 2 I 4.06 PPA 3 I 3.00 Contract 2 I3.50 PPA 4 I 1.99 Must Run Plants (includes all hydro, nuclear or other ‘take or pay’ type contractual plants) PPA 5 I 2.00 Contract 3 I2.10 Merit Order Baseline

20. Merit order dispatch schedule to be prepared based on Variable cost and considering Exchange Prices Increasing Variable Cost Contract 1 I4.70 PPA 2 I 4.06 PPA 1 I 3.70 Contract 2 I3.50 PPA 3 I 3.00 To be dispatched in this Order based on Energy Demand of the Discom IEX PriceI2.45 Contract 3 I2.10 PPA 5 I 2.00 PPA 4 I 1.99 Must Run Plants (includes all hydro, nuclear or other ‘take or pay’ type contractual plants) Merit Order Baseline

21. Contract for differencesto optimise power procurement costs Discoms to mutually agree with the (more expensive) generators to enter into Contract for differences and schedule their power via the Exchange PPA 7 I 5.10 PPA 2 I 4.06 PPA @3.70/kWh Discom Generator PPA 1 I 3.70 DC : 4,000 MU Schedule given based on state merit order PPA 3 I 3.50 PPA @3.70/kWh PPA 4 I 3.00 Discom Generator CFD Through Exchange MCP @ Rs 4.00 PPA 5 I 2.00 Pays Rs 4.00 to PX Receives Rs 4.00 from PX PPA 6 I 1.99 Pays back 0.30/unit to Discom Must Run Plants Schedule will automatically consider the merit order of all the quantum traded on the exchange, therefore expensive plants will automatically get lesser schedule and lead to savings for the Discoms Benefits: • Seller and Buyer can still deliver and get ALL their power; • Seller and Buyer also get the same financial result or even better • The arrangement opens more optimization possibilities • The contract volume and prices get optimized in the spot market

22. Saving potential through optimization Back down potential of 228 Million Units on 25th November for expensive power plants (>=3.50/unit) (Data as per GOI Merit Website)

23. 23 Flexibility in Power Procurement

24. 24 Flexibility in Power Procurement Gujarat Buy Volume on a typical day in November

25. 25 Flexibility in Power Procurement Telangana Buy Volume on a typical day in November

26. Way Forward • Power procurement from IEX is at more competitive prices than bilateral transactions • Power Exchange also provide flexibility in purchase of power • There is enough liquidity in power exchanges which should provide comfort to Discom regarding availability of power • Discoms should utilize this platform for optimizing its power portfolio by • Meeting Deficit • Replacing high variable cost power • Meeting future demand increase through exchange

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