Definition
Electricity markets — who decides what gets built and dispatched
Electricity markets determine two things: which power plants run right now (dispatch), and which power plants get built for the future (investment signals). Market design is not neutral — it directly determines whether the energy transition succeeds or stalls. A well-designed market rewards cheap, clean electricity; a poorly designed one protects fossil fuel incumbents through inertia.
Merit order
Cheapest generator dispatched first — zero-cost renewables go first
CERC
India's central electricity regulator — New Delhi 28.64°N 77.20°E
FERC
USA federal electricity regulator — Washington DC
₹75,000 cr
India DISCOM aggregate losses 2021–22 — the distribution crisis
Market structures
How electricity is traded — spot markets, PPAs, and capacity markets
Spot/pool markets:
In a spot market, electricity is bought and sold in real-time or day-ahead auctions. Generators submit bids (price per MWh they are willing to accept); a system operator dispatches them in order from lowest to highest bid until demand is met (merit order dispatch). The last generator dispatched sets the market-clearing price — the marginal cost of electricity at that moment. Zero-marginal-cost renewables (solar, wind) suppress market clearing prices when they generate — this is the "merit order effect." On sunny, windy days, wholesale prices can go negative (generators paying to stay on). This is good for consumers but creates investment challenges for gas plants that need positive prices to recoup capital. The UK's day-ahead N2EX market, Germany's EPEX SPOT, US PJM, CAISO (California), and India's IEX DAM are all spot markets.
In a spot market, electricity is bought and sold in real-time or day-ahead auctions. Generators submit bids (price per MWh they are willing to accept); a system operator dispatches them in order from lowest to highest bid until demand is met (merit order dispatch). The last generator dispatched sets the market-clearing price — the marginal cost of electricity at that moment. Zero-marginal-cost renewables (solar, wind) suppress market clearing prices when they generate — this is the "merit order effect." On sunny, windy days, wholesale prices can go negative (generators paying to stay on). This is good for consumers but creates investment challenges for gas plants that need positive prices to recoup capital. The UK's day-ahead N2EX market, Germany's EPEX SPOT, US PJM, CAISO (California), and India's IEX DAM are all spot markets.
India's electricity market architecture:
India's wholesale electricity market operates through the Indian Energy Exchange (IEX) (28.59°N 77.21°E, Delhi) — licensed by CERC. Products: DAM (Day-Ahead Market, 15-minute blocks for next day), RTM (Real-Time Market, 15-minute blocks), GDAM (Green Day-Ahead Market, specifically for renewable energy), GTAM (Green Term-Ahead Market). IEX traded approximately 104 billion units (BU) in FY2023-24. India's challenge: approximately 73% of electricity is still sold through regulated long-term bilateral contracts (State utilities buying from IPPs at fixed tariffs), not through competitive markets. The shift to market-based pricing is gradual. CERC approves tariffs for interstate transmission and wholesale trading. State Electricity Regulatory Commissions (SERCs) regulate distribution tariffs — these are often politically set below cost-recovery, causing DISCOM losses.
India's wholesale electricity market operates through the Indian Energy Exchange (IEX) (28.59°N 77.21°E, Delhi) — licensed by CERC. Products: DAM (Day-Ahead Market, 15-minute blocks for next day), RTM (Real-Time Market, 15-minute blocks), GDAM (Green Day-Ahead Market, specifically for renewable energy), GTAM (Green Term-Ahead Market). IEX traded approximately 104 billion units (BU) in FY2023-24. India's challenge: approximately 73% of electricity is still sold through regulated long-term bilateral contracts (State utilities buying from IPPs at fixed tariffs), not through competitive markets. The shift to market-based pricing is gradual. CERC approves tariffs for interstate transmission and wholesale trading. State Electricity Regulatory Commissions (SERCs) regulate distribution tariffs — these are often politically set below cost-recovery, causing DISCOM losses.
Key regulators worldwide
Who regulates electricity — GPS-located regulatory bodies
| Regulator | GPS (HQ) | Jurisdiction | Key mandate |
|---|---|---|---|
| CERC — Central Electricity Regulatory Commission | 28.64°N 77.20°E | India (interstate) | Sets transmission tariffs, wholesale market rules, renewable energy regulations. Grants interstate trading licences. CERC's Annual Reports are the authoritative source for India electricity market data. |
| FERC — Federal Energy Regulatory Commission | 38.90°N 77.04°W | USA (interstate) | Regulates interstate electricity transmission, natural gas pipelines, LNG facilities, and wholesale electricity markets. FERC does not regulate retail electricity — that is state-level. |
| Ofgem — Office of Gas and Electricity Markets | 51.50°N 0.12°W | Great Britain | Protects consumer interests. Regulates network companies (National Grid, distribution networks). Licensed retail suppliers. Oversees Capacity Market and Contracts for Difference (CfD) scheme for renewable energy. |
| ACER — Agency for Cooperation of Energy Regulators | 46.05°N 14.51°E | European Union | Coordinates 27 EU national energy regulators. Oversees internal electricity market integration — connecting national day-ahead markets (Market Coupling). Enforces REMIT (Regulation on wholesale energy market integrity). |
| IEX — Indian Energy Exchange | 28.59°N 77.21°E | India (wholesale) | Licensed power exchange. Operates DAM, RTM, GDAM, GTAM, and derivative contracts. ~104 BU traded FY2023-24. 7,500+ registered participants. Provides price discovery for the Indian wholesale electricity market. |
Questions
Questions about electricity markets
Why are India's electricity distribution companies (DISCOMs) in financial crisis?
India's electricity distribution companies (DISCOMs) — state-owned utilities that buy wholesale power and sell it to consumers — have accumulated aggregate losses of approximately ₹75,000 crore (₹750 billion, ~$9 billion) annually, and aggregate debt of approximately ₹6 lakh crore (~$72 billion) as of 2022–23 (Ministry of Power). The crisis has three root causes: (1) Tariff-cost gap: Retail electricity tariffs in most Indian states are set politically (often by state governments seeking rural votes) below the actual cost of supply. Agricultural consumers pay approximately ₹1–2/kWh in most states, but the actual cost of supply is ₹5–7/kWh. The gap is supposed to be compensated by state government subsidy — but subsidy payments are often delayed or insufficient. (2) T&D losses: India's T&D losses of approximately 18% mean that approximately 18% of electricity purchased wholesale is never billed to consumers — either lost technically or stolen. Every unit lost is cost without revenue. (3) Cross-subsidy: Industrial and commercial tariffs are set above cost to subsidise agricultural and residential consumers. This makes India's industry electricity cost uncompetitive with peers like China and Vietnam. The RDSS (Revamped Distribution Sector Scheme, 2021, ₹3.03 lakh crore) aims to install smart meters, reduce T&D losses, and separate agricultural feeders — but implementation is slow. DISCOMs in financial distress delay payments to generators, who then cannot service debt, causing the entire electricity supply chain to be stressed. Source: Ministry of Power India · CERC Annual Report 2024 · ICRA India DISCOM sector analysis.
Provenance
Attribution and citation
- Sources
- CERC India Annual Report 2024 · FERC State of the Markets 2024 · Ofgem Annual Report 2024 · IEX India Market Watch FY2023-24 · Ministry of Power India RDSS
- Cite as
- "Electricity Markets and Grid Regulation — The Energy Codex", The Energy Codex, https://thecodex.expert/energy/grid/markets/, last updated .