CERC Directs Grid-India to Implement Shadow Pilot for Coupling Term Ahead Market

The Central Electricity Regulatory Commission (CERC) has taken a decisive step towards market coupling with an aim to harmonise price discovery across India’s power exchanges. By its Order dated July 23, 2025 in Petition No. 8/SM/2025, CERC directed Grid-India to implement a shadow pilot for coupling the Term Ahead Market (TAM) of power exchanges.

This decision is in continuation of CERC’s earlier Order dated February 6, 2024 in Petition No. 1/SM/2024 directing Grid-India to implement a shadow pilot for: -

• coupling of the Real Time Market (RTM) and Day Ahead Market (DAM); and
• coupling of the RTM with Security Controlled Economic Despatch (SCED) mechanism.

Implementation of market coupling and its integration with SCED across the three (3) power exchanges, namely, the Indian Energy Exchange (IEX), the Power Exchange of India Ltd. (PXIL), and the Hindustan Power Exchange (HPX), in markets such as DAM, TAM and RTM is an ambitious initiative. However, results of D+1 run of the shadow pilot have been only marginally encouraging. Order dated July 23, 2025, inter alia, records that: -

• In case of DAM coupling: -
  • Welfare increases by INR 38 Crores (0.3 percent)
  • Volume cleared increases by 52 MU (0.2 percent)
• In case of RTM coupling: -
  • Welfare increases by INR 72 lakh (0.01 percent)
  • Volume cleared increases by 1.54 MU (0.01 percent),
• In case of RTM-SCED coupling, despite the reduction in aggregate costs, the average cost increases by INR 1 per MWh in the coupled scenario due to reduced demand catered.

There is considerable debate over the net impact of market coupling and implementation of SCED. While initial data from the shadow pilot shows gains and cost savings in the RTM-SCED coupling category, the scale of these gains remains modest in DAM and RTM. This raises questions on whether market coupling and its combination with SCED can deliver consistent positive results.

There are some foreseeable challenges and roadblocks that are elucidated below: -

• Dominance of IEX in the Power Market – When one power exchange (IEX) commands around 90 percent of the market share, it defeats the purpose of market coupling i.e., to aggregate bids across all three power exchanges for uniform price discovery. However, when majority of bids originate from a single power exchange, coupling the bids from the other two power exchanges would only have a marginal impact on price discovery.
• Reduced Utility of Power Exchanges – Power exchanges provide a platform for price discovery in trading. In a coupled scenario, the three Power Exchanges would function as mere intermediaries that collect the bids to be forwarded to a Market Coupling Operator (MCO). Consequently, Power Exchanges would not have any incentive to innovate or develop the market further. The apprehension over such reduced utility of power exchanges is evidenced by plunges in the share value of IEX every time the concept of coupling is promoted by the CERC.
• Marginal Improvement in Transmission Utilisation – Considering the fact that the power exchange market only constitutes around 7 percent of the total generation, the objective of improved utilisation of transmission infrastructure appears misplaced. The current approach of allocating transmission corridors amongst the power exchanges on a pro-rata basis by the system operator does not leave any further scope for improving the utilisation of transmission corridors for the exchange market. This is because the exchanges do not have enough market impact to cause any significant “congestion” on Inter-state lines that coupling could relieve.
• Deployment of SCED along with Market Coupling a Novel Concept – Unlike market coupling which has previously been successful in Europe, integrating the SCED model with market coupling is a novel concept with no prior data to support its long term viability. The CERC has duly acknowledged that this is a novel experiment, and therefore, decided to implement the proposed model in a shadow pilot. However, implementation might require continued regulatory intervention and oversight.

While the above-mentioned roadblocks must be addressed, the potential benefits of market coupling cannot be overlooked, being: -

• Increased economic surplus - In the case of coupled collective transactions on the power exchange, Market Clearing Price (MCP) discovered through the matching of aggregate buy and sell bids would result in creation of a surplus for the buyers and sellers of electricity, the summation of which is referred to as the ‘economic surplus.’ This surplus is calculated as the difference between the accepted bid price and the clearing price per unit of electricity, multiplied by the total cleared volume.
• Discovery of a uniform MCP – Apart from enhancing economic surplus for market participants, it may also include other benefits. Pertinently, since Deviation Settlement Mechanism (DSM) charges are currently indexed to the clearing price of DAM, a single price from market coupling would minimise the scope for any arbitrage between deviation settlement and the market.
• Improved Liquidity and Prices – In the coupled scenario, when sell and buy bids from all the exchanges are merged, there is a greater possibility that more volumes would be cleared, creating more liquidity in the market. Additionally, merging bids and offers would also lead to price efficiency, and, therefore, MCP may be discovered at the lower end.

 
CERC’s Order dated July 23, 2025 also directs that: -

• Grid-India shall share operational experience of running the shadow pilot with the CERC.
• The three power exchanges shall share the necessary data and other information as required by the staff of the CERC and Grid-India for necessary analysis.

 
Although the CERC has set a deadline of January 2026 for coupling of DAM, however, the enabling regulatory amendments are yet to be notified. Until these are in place, the entire scope of potential impediments or the incentives for stakeholders cannot be fully ascertained. Success of the phased implementation will depend on timely regulatory action, stakeholder cooperation, and effective resolution of issues identified during the shadow pilots.

Notably, IEX has filed Appeal No. 298 of 2025 titled ‘Indian Energy Exchange v. CERC’ before the Appellate Tribunal for Electricity (APTEL) challenging Order dated 23.07.2025. APTEL by its Order dated September 9, 2025 has admitted the appeal filed by IEX and issued notice to the respondents. While there is still no stay on Order dated July 23, 2025, yet, any decision by APTEL could significantly shape the trajectory of market coupling in India’s power sector and determine whether the experiment evolves into a structural reform or remains a regulatory curiosity.

                  ~Anupam Varma, Partner and Aditya Ajay, Principal Associate - JSA Advocates & Solicitors