Enabling India’s clean energy transition

This article is authored by Harish Saran, managing director, Hindustan Power Exchange Limited.

India's energy transition is entering a new phase. While the country has made significant progress in expanding renewable-energy capacity, the next challenge lies in integrating this capacity efficiently into the power system. With electricity demand reaching nearly 1,707 billion units in FY26 and peak demand touching a record 270.8 GW, the scale and complexity of grid operations continue to grow. At the same time, non-fossil sources now account for over 54% of installed capacity, reflecting India's rapid shift towards cleaner sources of energy. The focus is, therefore, moving from simply adding generation capacity to creating market mechanisms capable of efficiently balancing an increasingly dynamic grid.

Renewable Energy (ANI)

This transformation is also reflected in the evolution of electricity markets. India's short-term power market has expanded rapidly, growing significantly faster than overall electricity consumption in recent years. Exchange-traded volumes have increased from less than 3 BU during the early years of power-market development to over 168 BU annually, making exchanges an increasingly important platform for price discovery and procurement. The growing participation of generators, distribution companies, traders and open-access consumers highlights the rising importance of market-based mechanisms in meeting India's energy needs.

As market participation increases, ensuring efficient price discovery becomes increasingly important. Today, liquidity is distributed across multiple power exchanges. While competition among exchanges drives innovation and service improvements, fragmented liquidity can sometimes result in differences in market outcomes despite similar underlying supply-demand fundamentals.

Market coupling seeks to address this challenge by aggregating bids from different exchanges through a common market-clearing mechanism. Instead of prices being determined separately at each exchange, the market discovers a single efficient outcome based on the combined pool of buyers and sellers. This allows available supply to be allocated more efficiently and helps maximise economic welfare across the market.

The benefits of this approach have already been demonstrated through CERC's shadow pilot exercises. The assessment of day ahead market coupling showed welfare gains of approximately ₹38 crore and an additional 52 million units of power cleared during the pilot period. Similar exercises in the real time market (RTM) indicated improvements in market efficiency while reducing price divergence and volatility. These findings reinforce the value of deeper market integration as India's power system continues to expand.

The relevance of market coupling becomes even greater in a renewable-dominated power system. Solar and wind generation are inherently variable and can change significantly depending on weather conditions. At the same time, electricity demand fluctuates throughout the day, creating the need for continuous balancing between generation and consumption.

India is already witnessing the emergence of these market dynamics. High solar generation during daytime hours is contributing to lower electricity prices, while evening demand peaks often result in significantly higher prices. Such price signals underscore the increasing value of flexibility, storage and demand-side responsiveness.

A coupled market can strengthen these signals by providing access to a larger and more liquid pool of participants. Better liquidity enables market participants to adjust positions more efficiently and access available supply across a wider network of buyers and sellers. This becomes particularly important for renewable integration, where timely market responses are essential to managing forecast deviations and changing system conditions.

The rapid growth of the RTM illustrates this trend. RTM volumes have emerged as one of the fastest-growing segments of India's electricity markets as participants seek greater flexibility to respond to changing grid conditions closer to delivery. As renewable penetration continues to increase, the importance of liquidity in real-time and near-real-time markets is likely to grow further.

Market coupling can also contribute to more efficient utilisation of transmission infrastructure and generation resources across regions. Renewable energy resources are often concentrated in specific states, while demand centres may be located elsewhere. A more integrated market enables electricity to flow more efficiently from surplus regions to deficit regions within the limits of network availability.

This becomes increasingly valuable as new technologies such as battery energy storage systems, pumped-storage projects and demand-response resources become larger participants in the electricity ecosystem. Stronger and more representative price signals provide clearer incentives for these resources to operate when they deliver the greatest value to the grid.

In this sense, market coupling is not merely about achieving a single market-clearing price. It is about creating a broader marketplace where energy, flexibility and reliability can be valued efficiently as the electricity system becomes more sophisticated.

Market coupling should be viewed as an important building block in the continued evolution of India's electricity markets. Alongside emerging developments such as capacity markets, carbon credit certificate trading, virtual power purchase agreements (VPPAs) and electricity derivatives, it can help establish the market infrastructure required for the next phase of power-sector development.

However, achieving these benefits will require robust governance frameworks, harmonised market processes, effective surveillance mechanisms and continued investments in transmission networks, forecasting systems and digital infrastructure. Equally important will be preserving competition and innovation while ensuring confidence in the fairness and transparency of market outcomes.

India's clean-energy ambitions will ultimately depend not only on how much renewable capacity is installed, but also on how efficiently that energy is integrated, traded and consumed. As the power system becomes larger, more renewable-intensive and increasingly dynamic, organised electricity markets will play a central role in maintaining reliability and economic efficiency.

Market coupling represents an opportunity to create a deeper, more liquid and more efficient market capable of supporting this transition. By improving price discovery, strengthening liquidity and enabling more effective integration of renewable energy, it can serve as a key enabler of a flexible, competitive and increasingly decarbonised electricity system for India.

(The views expressed are personal)

This article is authored by Harish Saran, managing director, Hindustan Power Exchange Limited.