CERC Clears Market Coupling for Day-Ahead Power, but Design Raises Concerns

The Central Electricity Regulatory Commission (CERC) has approved the introduction of market coupling in the Day-Ahead Market (DAM) segment starting January 2026. The order, issued on 23 July 2025 under Petition No. 8/SM/2025, aims to unify price discovery across India’s power exchanges and enhance overall market efficiency.

The regulator’s decision follows two years of policy development, simulations, and public consultation. It marks a structural change in the way electricity prices are determined in short-term wholesale markets, though the expected market impact remains a subject of debate.

What the order proposes

CERC has mandated a phased implementation of market coupling, beginning with the DAM segment. The Real-Time Market (RTM) and Term-Ahead Market (TAM) may be coupled later, pending further analysis.

Under this framework, buy and sell bids submitted across all exchanges will be aggregated and cleared at a single Market Clearing Price (MCP), replacing the current system where each exchange determines its own MCP.

Power exchanges will act as Market Coupling Operators (MCOs) on a rotational basis, while Grid-India will serve as a backup operator and auditor. The exchanges are also required to share operational data with CERC and Grid-India to enable detailed process design and regulatory amendments.

CERC has instructed Grid-India to develop and test software for a TAM pilot. The feedback from this shadow pilot, along with operational inputs from the exchanges, will guide further coupling decisions.

Pilot outcomes show modest efficiency gains

Market coupling was first proposed by CERC in a 2023 staff paper, followed by two pilot exercises. The second pilot, conducted from December 2024 to March 2025, showed marginal efficiency improvements: a 0.3 per cent rise in social welfare in DAM and daily savings of Rs 1.4 crore.

These pilots also highlighted concerns related to skewed liquidity and inconsistent bid structures across exchanges. The feedback was submitted by Grid-India and reviewed by the Commission in its July 2025 decision.

As noted by Moneycontrol, government officials expect that market coupling, combined with the launch of electricity futures on MCX and NSE, will eventually reduce per-unit electricity costs for end-users.

Academic research supports further integration

A research study presented by Abhishek R.S. at the 2024 National Power Systems Conference (NPSC), titled “Benefits of Integrating Indian Electricity Market Segments and Regulated Dispatch Stacks”, provides empirical support for broader market integration.

Using data from August 2022 to July 2023, the study simulated the coupling of Security Constrained Economic Dispatch (SCED) with the Real-Time Market (RTM). It estimated daily savings of Rs 2.2 crore and a 7 per cent reduction in high-price events. Price volatility declined significantly in the simulations, from Rs 2.1/MWh to Rs 639/MWh.

The methodology involved matching aggregated bids and supply offers across SCED and power exchange platforms to calculate a unified System Marginal Price (SMP). In some scenarios, coupling avoided price-cap events, with potential hourly savings of up to Rs 3 crore.

For the October to December 2023 period, the study reported daily social welfare gains of Rs 0.8 crore and improved liquidity of 285,550 MWh across exchanges. The findings suggest that integrating market segments with regulated dispatch mechanisms can improve cost efficiency and system reliability.

Critics say the reform mischaracterises ‘market coupling’

Raj Pratap Singh, a former civil servant and energy sector expert, has described the reform as “misguided” in a blog titled “Market Coupling: A Misguided Reform with Limited Impact”. He argues that CERC’s proposal is more accurately described as “exchange coupling,” since India’s market is already unified in terms of access and dispatch.

He notes that the rotational MCO model, where exchanges alternate as operators—departs from international norms that favour a single, neutral, technically independent MCO, typically the system operator. The absence of such a neutral party raises potential conflicts of interest and operational ambiguity.

Singh also highlights IEX’s entrenched dominance in the DAM segment, with over 90 per cent market share. This advantage is supported by early platform development, product breadth, strong surveillance systems, and trust among participants. The coupling model, he argues, does not address these structural factors and is therefore unlikely to shift trading volumes meaningfully.

The same blog questions the pilot results used to justify the reform. The reported 0.3 per cent improvement in DAM convergence and 0.01 per cent change in RTM are viewed as insufficient to warrant a major overhaul. No stress testing or robustness checks were published.

Singh contrasts this with SEBI’s approach in financial markets, where it rejected coupling between NSE and BSE to maintain innovation, operational independence, and market integrity. In his view, the power market should follow similar principles.

He also criticises the lack of an enabling regulatory framework. Regulation 39 of PMR 2021 requires a separate framework for market coupling, but no audit, cybersecurity, or dispute resolution protocols have been issued to support the proposed model.

Structural dominance of IEX likely to persist

Even with a common MCP, market participants will retain discretion over which exchange they transact on. Singh argues that most buyers and sellers will continue to prefer IEX due to its high liquidity, user familiarity, and better order execution rates.

Unless future reforms include volume-sharing mechanisms or stronger incentives for participants to use smaller exchanges, the dominance of IEX is expected to continue. The coupling initiative may thus achieve price alignment without affecting underlying market behaviour.

There are also concerns that centralising price discovery will reduce exchanges to clearing entities, dampening innovation and competition. In the long term, this could further entrench IEX’s position instead of creating a level playing field.

Lessons from Europe’s experience with coupling

A 2013 study commissioned by the European Parliament, “The Role of Market Coupling in the European Electricity Market”, offers relevant insights. The paper outlines how market coupling in Europe helped improve cross-border trade, enhance grid utilisation, and reduce generation costs.

It also identifies key challenges: fragmented national capacity mechanisms, inconsistent renewable support schemes, and limited transmission capacity. These issues resulted in underused assets and higher consumer costs—outcomes that India may risk replicating if integration is not supported by harmonised policy and robust infrastructure.

The European experience suggests that market coupling works best when aligned with broader reforms: consistent capacity allocation rules, integrated renewable energy policies, and strong interconnection. In India’s case, this means better coordination between state and central policies, transparent procurement rules, and expanded transmission planning.

A reform with uncertain impact

The immediate goal of market coupling is to eliminate price arbitrage across exchanges. However, as Singh notes, this alone may not deliver meaningful competition or improve market depth. Without complementary measures such as volume redistribution, transparent governance, and a neutral MCO, the current structure may only redistribute market functions without changing market dynamics.

Despite modest gains shown in simulations, the coupling model leaves core issues—such as market concentration and exchange competitiveness—largely unaddressed.

Unless the design is refined to include operational safeguards and a clear roadmap for structural reform, the implementation of market coupling in January 2026 may serve more as a symbolic alignment of price discovery than a shift in how India’s power market operates.

Further studies and pilots ahead

CERC has committed to reviewing the model after DAM coupling is operational. Additional shadow pilots for TAM and RTM-SCED integration are planned.

A related study, “Progressive Integration of Market Segments in India Through Coupling of Multiple Power Exchanges Along with SCED Optimization in Indian Context”, also highlights the future savings potential of over Rs 1,000 crore annually if India optimises its short-term markets through tighter integration with regulated dispatch systems.

The next phase of regulatory consultation will likely focus on implementation readiness, software architecture, and regulatory amendments. The eventual success of market coupling in India will depend not only on price convergence but also on the ability to drive meaningful changes in market behaviour, governance, and competitiveness.

The featured photograph is for representation only.