Context: Central Electricity Regulatory Commission’s (CERC) proposal to implement market coupling in the Day-Ahead Market (DAM) segment of India’s power exchanges from January 2026.
For UPSC CSE, particularly for General Studies (GS) Paper 3 (Energy), a comprehensive analysis of this issue requires covering multiple dimensions, from basic concepts to advanced policy implications, tailored to the UPSC syllabus.
Also, UPSC has asked basic terms related to economy in prelims examination: (2018)
Which one of the following best describes the term “Merchant Discount Rate” sometimes seen in news?
A The incentive given by a bank to a merchant for accepting payments through debit cards pertaining to that bank.
B The amount paid back by banks to their customers when they use debit cards for financial transactions for purchasing goods or services.
C The charge to a merchant by a bank for accepting payments from his customers through the bank’s debit cards.
D The incentive given by the Government to merchants for promoting digital payments by their customers through Point of Sale (PoS) machines and debit cards.
What are Power Exchanges?
Power exchanges are platforms where electricity buyers (e.g., distribution companies, industries) and sellers (e.g., power generators) trade electricity contracts for various timeframes. For instance:
Day-Ahead Market (DAM): involves trading electricity for delivery the next day in 15-minute blocks.
Real-Time Market (RTM): Covers immediate delivery (next hour).
Term-Ahead Market (TAM): covers longer periods.
What is Market Coupling?
Market coupling means the process where the collected Orders from all the Power exchanges are aggregated together and then matched to discover a uniform market clearing price. In this process, the market coupling operator takes the Order books from all the power exchanges, how many ever there might be, and combines these buy and sell Orders to develop one set of prices for the entire country.
Through this process, the transmission allocation can happen after accounting for all power flows netted within each bidding zone thereby leading to the most efficient allocation of transmission.
CERC’s plan involves a round-robin system where IEX, PXIL, and HPX take turns as MCO, with Grid-India as a backup and audit operator.
Economic Implications of Market Coupling (Basic to Intermediate)
The article suggests that these marginal gains do not justify full-scale implementation, especially given IEX’s 99% market share, which already ensures efficient price discovery.
Proposed Benefits:
Uniform Pricing: A single MCP reduces arbitrage opportunities where buyers choose exchanges based on lower prices, potentially lowering spot market prices.
Increased Liquidity: Pooling bids across exchanges could increase matched bids, benefiting distribution companies (DISCOMs) and industrial consumers.
Transmission Efficiency: Coupling optimizes transmission capacity by reducing cross-regional congestion.
Consumer Benefits: Lower spot prices could eventually reduce electricity tariffs for end consumers.
Limited Gains as per Pilot Study:
A shadow pilot by Grid-India showed minimal benefits: a 0.3% increase in social welfare (₹38 crore, theoretical) and a 0.2% increase in cleared volume (52 million units). The uncleared volume was only 0.10% of the unconstrained volume in FY24.
RTM coupling yielded even lower gains (0.01% in welfare and volume).
The article suggests that these marginal gains do not justify full-scale implementation, especially given IEX’s 99% market share, which already ensures efficient price discovery.
also, market coupling requires integrating software, upgrading infrastructure, establishing data-sharing protocols, and agreeing on financial settlements.
Hence the shadow pilot’s marginal gains (0.3% welfare, 0.2% volume) and operational complexities question its necessity, especially given IEX’s dominance.
