Title page 1

Contents 4

List of acronyms 6

Executive summary 7

1. Introduction 10

2. India's power sector 12

2.1. Electricity supply 12

2.2. Electricity demand 13

2.3. Power dispatch mechanism 14

2.4. Price formation 15

2.4.1. Wholesale Power Market 15

2.4.2. Retail Market 16

3. Assessment of potential effectiveness of the interaction between the ccts & the power market 19

3.1. Power plant dispatch 19

3.1.1. Current Mechanisms and Policies 19

3.1.2. Issues Related to Effective Interaction 20

3.1.3. Options for Solutions 20

3.2. Wholesale electricity prices 20

3.2.1. Current Mechanisms and Policies 20

3.2.2. Issues Related to Effective Interaction 22

3.2.3. Options for Solutions 23

3.3. Retail electricity prices 23

3.3.1. Current Mechanisms and Policies 23

3.3.2. Issues Related to Effective Interaction 24

3.3.3. Options for Solutions 26

4. Achieving an effective interaction between the CCTS & the power market 28

4.1. Action plan 29

4.2. Phased transition roadmap 32

Annex 1. International experience of carbon cost pass-through & support for vulnerable consumers 34

References 39

Tables 5

Table 1. Proportion of Ownership of Different Types of Generation 13

Table 2. Tariff Regulation Structure 16

Figures 5

Figure 1. ETS & Power Market Interactions for Power Sector GHG Emissions Reductions 11

Figure 2. Breakdown of Generation Capacity by Type 12

Figure 3. Breakdown of Electricity Demand by Consumer Type 13

Figure 4. Cost Categories Allowable in a DISCOM'S Revenue Requirement 17

Figure 5. Facilitators & Challenges for Reflecting CCTS Costs in Power Plant Dispatch Decisions 20

Figure 6. Facilitators & Challenges for CCTS Cost Pass-Through to DISCOMs 22

Figure 7. Facilitators & Challenges for CCTS Cost Pass-Through to Consumers 24

Figure 8. Suggested Solutions for an Effective CCTS-Power Market Interaction in India 31

Figure 9. Potential Expansion & Transition of CCTS 32

Figure 10. Suggested Roadmap & Timeline for Effective Interaction of CCTS & Power Market 33

Annex Figures 5

Figure A1.1. EU Support with the Indirect Effects of Carbon Pricing for Industry Exposed to Carbon Leakage 38