In a step toward restructuring electricity trading in the country, India’s top electricity regulator has issued draft regulations for market coupling — a process that matches bids from all power exchanges to discover a uniform market-clearing price.Generally, electricity generators or gencos have used long-term pacts called power purchase agreements or PPAs to sell electricity to distribution companies (DISCOMs) and large power consumers in India. But, power exchanges facilitate short-term electricity trades to meet demand fluctuations, where gencos can sell their surplus power independently of PPAs at market price.Power markets are hosted on power exchanges, and currently, each of the three major power exchanges in India sets its price based on supply and demand to purchase electricity, resulting in price variations across exchanges. The new framework aims to change this decentralised system.It proposes the Grid Controller of India (Grid India) as the central operator for price discovery. It has also proposed to entrust Grid India with implementing the market coupling process. Comments from stakeholders on the draft amendments are to be sought by May 16.What has been proposed?In the draft regulation, named the Central Electricity Regulatory Commission (Power Market) (Second Amendment) Regulations, 2026, the regulator proposed various amendments to the CERC (Power Market) Regulations, 2021, in which the concept of market coupling was first introduced.Generally, market coupling can also help act as a reliable reference price for policymakers. It can lead to more efficient price discovery, reduced price disparities across regions, and increased market stability.The move is seen as a continuation of the regulator’s order issued in July last year, which directed the phased implementation of market coupling across power exchanges in the Day-Ahead Market (DAM) segment from January 2026.Story continues below this adHowever, CERC’s July order was marred by an insider trading controversy, with the Securities and Exchange Board of India (SEBI) issuing an interim order to impound Rs 173.14 crore from eight individuals and barring them from the markets until further notice. SEBI also named a senior CERC official for allegedly leaking confidential information to them.Explained | Power markets in India: their working, advantages, and the road aheadSeparately, the order was also challenged by the power exchange India Energy Exchange (IEX) — which dominates more than 90% of market share in the DAM segment — at the Appellate Tribunal for Electricity (APTL).IEX has been opposing market coupling on multiple grounds, as a uniform price discovery mechanism is feared to reduce its competitive advantage. In terms of market share, IEX is followed by Power Exchange India Limited (PXIL) and Hindustan Power Exchange Ltd (HPX).But APTL dismissed IEX’s plea in February, stating that the petition was not maintainable at that stage as CERC was yet to formulate any regulation.Story continues below this adElectricity generators usually enter into long-term pacts called PPAs that typically span 25 years to sell electricity, while power exchanges facilitate short-term electricity trades.This market-driven approach enables generators to optimise their output and revenue, while helping utilities meet variable power demands more efficiently through bids and offers. The market-clearing price — the price at which electricity is traded — is determined by the equilibrium of demand bids and supply offers.Power markets are categorised based on the electricity delivery timing and the duration of contract. The spot market includes the real-time market (RTM) for near-immediate delivery and the intraday market for same-day trades, hours before delivery.The day-ahead market (DAM) deals with closed auctions for 15-minute time blocks for the following day, while the term-ahead market (TAM) handles trades from 3 hours to 11 days in advance.Story continues below this adIn India, the short-term power market is expanding gradually, with the total volume of short-term transactions of electricity increasing from 65.90 Billion Units (BU) in 2009-10 to 238.35 BU in 2024-25.Explained | Draft National Electricity Policy 2026 bets big on N-Power, tweaks tariffs and cross-subsidy rulesDuring this period, the volume of short-term transactions of electricity increased at a Compound Annual Growth Rate (CAGR) of 8.9%, whereas total electricity generation increased at a CAGR of 5.8%. The volume of short-term transactions of electricity as a percentage of total electricity generation stood at 13.03% in 2024-25, compared to 9.6% in 2009-10.What could the new process be?In its draft regulation, CERC proposed that Grid India would function as the market coupling operator (MCO) and would be responsible for the operation and management of market coupling.“For this, Grid India shall form a separate cell for discharging the functions of MCO,” it said. “Price Discovery shall be done by the Market Coupling Operator from such date as may be notified by the Commission separately: Provided that until such notification, the price discovery shall be done by the Power Exchanges,” it added.Story continues below this adGrid India has also been entrusted to formulate a detailed procedure for the implementation of market coupling, to be called the Power Market Coupling Procedure (PMCP). With the CERC approval, Grid India is mandated to formulate these procedures within six months of the notification of these amendments.These procedures would include the role and responsibility of MCO, a standardised format for bid submission by power exchanges, and features of the price discovery algorithm, among others.As per the draft regulation, all power exchanges would collect bids in a uniform bid format from market participants in accordance with the procedure and format stipulated in the PMCP. This would then be transmitted to MCO by power exchanges through secured channels as per the timelines stipulated in the PMCP.Subsequently, the MCO would aggregate bids for each market segment received across all power exchanges and ensure an efficient price discovery, it read. “Price discovery mechanism shall adopt the principle of maximisation of economic surplus (sum of buyer surplus and seller surplus), taking into account all bid types,” it added.Story continues below this adThe draft notification also indicated a gradual expansion of market coupling to other segments. “Market Coupling shall apply to the Day-Ahead Market (DAM), Real-Time Market (RTM) and other market segments from such date(s) as may be notified by the Commission,” it added.