Relevance: GS III (Economy & Energy Infrastructure) | Source: The Indian Express

1. The Core Issue: A Fragmented Market

India operates on a single national electricity grid. However, its short-term “spot market” (where electricity is traded for immediate delivery) is highly fragmented.

• Currently, three independent power exchanges operate in India: IEX, PXIL, and HPX.
• Because they operate separately, each exchange discovers its own Market Clearing Price (MCP) based only on its specific buyers and sellers. This results in the same electricity having multiple different prices across the country at the exact same time, preventing a true “One Nation, One Grid, One Price” system.

2. The Administrative Solution: Market Coupling

To eliminate these inefficiencies, the Central Electricity Regulatory Commission (CERC) is implementing Market Coupling under the Power Market Regulations (PMR), 2021.

• Bid Aggregation: Instead of separate pools, a central Market Coupling Operator (MCO) will collect and combine all buy and sell bids from all three exchanges into one massive, unified national pool.
• Uniform Price Discovery: From this single pool, the MCO will calculate one common, national Market Clearing Price for electricity.

3. Significance for the Economy

• Merit-Order Dispatch: A larger, combined pool ensures that the absolute cheapest sources of electricity nationwide are utilized first, optimizing resources.
• Lower Tariffs: By eliminating multiple price points and improving transmission efficiency, the final cost of electricity for end-consumers (and financially stressed DISCOMs) is expected to decrease.
• Level Playing Field: Currently, one exchange (IEX) controls roughly 90% of the market volume. Coupling breaks this monopoly, creating a fair, competitive environment for all exchanges.

UPSC Value Box

Key Concept / Body	Simple Meaning
CERC	Central Electricity Regulatory Commission. A statutory body under the Electricity Act, 2003, responsible for regulating tariffs and promoting competition in the power market.
Market Clearing Price (MCP)	The specific price point at which the quantity of electricity supplied exactly equals the quantity demanded by buyers in the market.
Merit-Order Dispatch	An administrative principle where electricity generation is ranked and dispatched strictly in ascending order of price (cheapest power gets used first) to minimize consumer costs.

With reference to the Indian power sector and electricity market regulation, consider the following statements:

1. The Central Electricity Regulatory Commission (CERC) is a statutory body established under the Electricity Act, 2003.
2. “Market Coupling” in the electricity sector aims to aggregate buy and sell bids from multiple power exchanges to discover a single, uniform Market Clearing Price.
3. The implementation of market coupling is expected to discourage the principle of merit-order dispatch in the national grid.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Correct Answer: (a)