How electricity trading happens in India, and why a restructuring is on the cards

The Central Electricity Regulatory Commission (CERC) has issued draft regulations — the Central Electricity Regulatory Commission (Power Market) (Second Amen...

What Happened

The Central Electricity Regulatory Commission (CERC) has issued draft regulations — the Central Electricity Regulatory Commission (Power Market) (Second Amendment) Regulations, 2026 — proposing a fundamental restructuring of how electricity prices are discovered across India's power exchanges.
The key proposal is "market coupling": replacing the current fragmented, exchange-specific price discovery with a single uniform price determined by a Market Coupling Operator (MCO), with Grid India (the national transmission utility's subsidiary) designated as the MCO.
Implementation is proposed in a phased manner, beginning with the day-ahead market (DAM), with the draft open for comments until May 16, 2026.
Currently, the Indian Energy Exchange (IEX) dominates exchange-based power trading with approximately 90% market share; the restructuring would require all three exchanges (IEX, PXIL, and HPX) to function on a rotational MCO basis with Grid India as backup and audit operator.
CERC is simultaneously considering rationalising transaction fees charged by power exchanges, which could lower electricity costs for bulk buyers.

Static Topic Bridges

Electricity Act, 2003 — The Foundation of India's Power Market

The Electricity Act, 2003 (EA 2003) replaced the earlier Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948, creating a unified national framework for generation, transmission, distribution, and trading of electricity. The Act delicensed power generation (except for hydro above a threshold), introduced open access as a right for large consumers, and established independent regulatory commissions at both the central (CERC) and state (SERC) levels. It also explicitly recognised "electricity trading" as a licensed activity separate from transmission and distribution.

Section 42 of EA 2003: Mandates open access in distribution networks for eligible consumers (typically above 1 MW load), allowing them to purchase power from any source
Section 66: Empowers CERC to develop a power market and promote trading in electricity
Section 79: Lists CERC's functions, including granting trading licences and regulating inter-state trading
Open access surcharge: A cross-subsidy surcharge payable by open-access consumers to the distribution licensee — a key policy tension

Connection to this news: CERC's authority to draft market coupling regulations flows directly from Section 66 and Section 79 of EA 2003, which give it broad powers to regulate and develop a competitive electricity market.

How India's Electricity Market Currently Works

India's electricity supply comes from a mix of long-term Power Purchase Agreements (PPAs) — where discoms (distribution companies) sign 25-year contracts with generators — and short-term markets. The short-term market includes bilateral contracts, day-ahead and term-ahead transactions on power exchanges, and the recently introduced Green Day-Ahead Market (GDAM) and Real-Time Market (RTM). Power exchanges operate as platforms where electricity sellers (generators) and buyers (discoms, open-access consumers) bid simultaneously; the exchange clears the market at a uniform equilibrium price.

Long-term PPAs: Dominant mode; ~85–90% of India's electricity is contracted through PPAs
Day-Ahead Market (DAM): Bids submitted the previous day for next-day delivery, settled at a market-clearing price
Real-Time Market (RTM): 15-minute blocks, allows real-time balancing
Power exchanges: Indian Energy Exchange (IEX) — ~90% volume; Power Exchange India Ltd (PXIL) — ~8%; Hindustan Power Exchange Ltd (HPX) — ~2%
Price discovery: Currently exchange-specific — IEX clears at one price, PXIL at another for the same delivery hour

Connection to this news: The fragmentation of price discovery across exchanges — each clearing independently — creates arbitrage opportunities and prevents the most efficient matching of national supply and demand. Market coupling eliminates this by creating a single national clearing price.

Market Coupling: The Proposed Reform

Market coupling is an internationally established mechanism, used widely in Europe's integrated electricity market, where a single algorithm simultaneously processes all bids from all exchanges to determine a uniform market-clearing price. In India's context, the Market Coupling Operator (Grid India's dedicated Market Coupling Cell) would aggregate buy and sell orders from IEX, PXIL, and HPX, solve a single optimisation problem, and assign a single area price. Exchanges would remain as platforms for bid submission, but price discovery would shift to the MCO.

MCO: Grid India (a subsidiary of Power Grid Corporation of India Ltd., a Navratna PSU)
Rotational MCO role for exchanges: Each of the three exchanges could act as a backup MCO on rotation, with Grid India as permanent operator and auditor
Market coupling started in Europe: Nord Pool (Nordic countries), then extended via the EUPHEMIA algorithm across EU member states in 2014
Phased rollout: DAM first, then potentially term-ahead and green markets

Connection to this news: Market coupling is expected to increase overall market liquidity, reduce price distortions, and improve the utilisation of cheaper renewable energy by matching bids optimally across the national grid — directly supporting India's clean energy transition goals.

CERC: Composition, Powers, and Independence

The Central Electricity Regulatory Commission (CERC) is a statutory body constituted under Section 76 of the Electricity Act, 2003. It functions as an independent quasi-judicial body regulating inter-state electricity transmission, bulk power tariffs, and the development of the electricity market. CERC's members are appointed by the Central Government and serve 5-year terms (or until age 65). It operates independently of government direction on regulatory matters, though it is accountable to Parliament via the Ministry of Power.

Established: January 2004 (operationalised under EA 2003; earlier CRC existed under EA 1998)
Jurisdiction: Inter-state transmission and trading; bulk tariff determination; power market development
State counterparts: State Electricity Regulatory Commissions (SERCs) under Section 82 of EA 2003
Appellate body: Appellate Tribunal for Electricity (APTEL) — appeals against CERC/SERC orders

Connection to this news: The draft market coupling regulation is a CERC exercise of its power under Section 66 of EA 2003. The comment period (until May 16, 2026) reflects the quasi-legislative, consultative process that CERC must follow before finalising regulations — similar to subordinate legislation procedures.

Key Facts & Data

India's total installed electricity capacity: approximately 950+ GW as of early 2026 (including renewable ~200 GW solar, ~47 GW wind)
Power exchange volume: Exchange-based trading = ~10–15% of total electricity consumed; PPAs dominate
IEX market share: ~90% of exchange-based power trading
Market coupling: Single uniform clearing price replacing fragmented exchange prices
MCO: Grid India (subsidiary of Power Grid Corporation of India Ltd.)
Three exchanges: IEX, PXIL, HPX
CERC authority: Sections 66, 79 of EA 2003
Section 42 of EA 2003: Open access right for consumers above 1 MW load
Fee rationalisation: CERC's simultaneous proposal to lower transaction charges on exchanges
Comment deadline on draft: May 16, 2026
Market coupling model: Already operational in European Union via EUPHEMIA algorithm since 2014