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Home News Power Sector News CERC issues new regulation - Trading Margin increased to 7 paise from 4 paise

CERC issues new regulation - Trading Margin increased to 7 paise from 4 paise

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Pramod Deo - Power traders, including PTC India, Adani, NTPC Vidyut Vyapar Nigam and Tata Power, are expected to be the major beneficiaries of the new regulations issued by the Central Electricity Regulatory Commission (CERC) to fix the margin for inter-state trading in electricity. Trading margin would apply to short-term buy and short-term cell contracts for the inter-state trading. These include day ahead, week ahead and month ahead contracts. According to these regulations, trading margin would not exceed 4 paise per unit if the selling price of electricity is less than or equal to Rs 3 per unit. The ceiling of trading margin shall be 7 paise per unit in case the selling price of electricity exceeds Rs 3 per unit.

However, CERC has exempted long-term agreements from trading margin in order to facilitate innovative products and contracts for new capacity addition that involve higher risk in transactions. Also, the trading margin on long-term contracts was not consistent with the tariff-based competitive bidding guidelines that envisage discovery of electricity prices through competition among suppliers.

CERC Chairman Pramod Deo told: “We want to increase the depth of the power market. For short-term contracts, trading margin will be attractive for traders, but onerous for state utilities. Moreover, long-term arrangements are exempt from trading margin and this will benefit trading companies that are making equity participation in power projects.”

According to CERC, if more than one trading licensees are involved in a chain of transactions, the ceiling on trading margin would include the trading margins charged by all the traders put together. In other words, traders cannot circumvent the ceiling by routing the electricity through multiple transactions. The new ceiling rates on trading margin would come into force after a period of one month so that the existing contracts can be re-aligned by the parties, if required.

CERC recalled it had fixed a trading margin of 4 paise per unit in 2006. The earlier regulations were reviewed keeping in view the increase in the risk faced by traders, which is also a function of the prices of electricity. CERC had got done a detailed study to assess the quantum of default risk, late payment risk, contract dishonour risk and inflationary risk for arriving at the new ceilings on trading margin.

Source- Business standard


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