New system to cut discoms’ purchase cost by Rs 12,000 crore

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June 04, 2021 3:30 AM

Under the proposed market-based economic dispatch (MBED), the estimated annual savings is seen to be more than Rs 12,000 crore for the electricity consumers, the government said.

“It’s complicated but worth a shot for the promise it holds,” Mohit Kumar, lead analyst at DAM Capital Advisors said, adding, “A lot of changes will be needed or issues ironed out before it rolls out”.

To optimise the cost of power for state-run electricity distribution companies (discoms), the Union power ministry has proposed a new electricity market design which will accumulate demand requirements from all states in a central pool, and allocate power to them from the cheapest source available.

Currently, discoms have to optimise their power costs based on their available resources among the limited portfolio of plants with which they have power purchase agreements. Under the proposed market-based economic dispatch (MBED), the estimated annual savings is seen to be more than Rs 12,000 crore for the electricity consumers, the government said.

“It’s complicated but worth a shot for the promise it holds,” Mohit Kumar, lead analyst at DAM Capital Advisors said, adding, “A lot of changes will be needed or issues ironed out before it rolls out”.

The government has sought stakeholders’ comments on the new mechanism by June 30. The pilot phase of the MBED system is proposed to begin from April 2022 and will only involve NTPC’s power plants “to test the efficacy of the MBED mechanism, identify deficiencies or potential issues that need to be addressed prior to a nation-wide rollout”.

The pilot phase is seen to bring in Rs 1,825 crore per year reduction in power procurement cost. The electricity market operations reform through MBED will move towards a “One Nation, One Grid, One Frequency, One Price” framework, the government said. MBED will ensure that the cheapest generating resources are despatched to meet the overall system demand, it said.

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