is intimated to the system operator (also called the state load dispatch center (SLDC)), one-day prior to dispatch.<sup>21</sup> The SLDC verifies this demand against supply-side information provided by generators, such as, capacity at 15-minute intervals, machine maintenance schedule and overall expected congestion in the system. Based on these factors, the SLDC notifies the final drawl schedule for the next day to the generating company and the utility.

Finally, unscheduled power is the difference between forecasted (i.e., scheduled) and real-time demand. The market for unscheduled demand, also called the unscheduled interexchange (UI), is a real-time balancing mechanism that allows utilities and generators to adjust the scheduled demand to the instantaneous demand and supply of power.

Given that utilities and generators can take arbitrage positions across all the different segments of the short-term market, the prices in these sequential markets are expected to be closely correlated. As price determination in the day-ahead market occurs through an auctioning process, we consider the market clearing price of this market segment to be the best economic measure of marginal cost of generation at each 15-minute interval that best encapsulates the marginal cost of generation and transmission constraints.

To test if the market clearing price (MCP) from the India Energy Exchange (IEX) wholesale market<sup>22</sup> reflects the instantaneous price of power in the UI market, the generator-wise dispatch information from Rajasthan’s SLDC is compared to the MCP information of the N2 region of IEX (comprising the state of Rajasthan) for January to December 2018. Aggregating all prices to daily frequency, the correlation between average prices in the two markets to be 0.76. Ryan (2018) using data for 2009-2010, finds a correlation of prices in these two markets to be 0.808 – supporting the view that even though the wholesale electricity market in India comprises of different segments with separate rules and regulatory limits on market participation, the prices discovered in the short-term segments of the wholesale market appear to move closely together. Moreover, the strong correlation of prices also suggests that the cost of transmission constraints as measured through MCP in the IEX market reflects the cost of constraints in other segments of the market.

Given these features of India’s short-term wholesale markets, this paper uses IEX’s N2 regional price at every 15-minute interval to be marginal cost of power generation for Rajasthan. The average market clearing price in the N2 region for FY2016-17 is Rs. 3.93 with a standard deviation of 1.55.

# • **Transmission losses**

The marginal price of energy delivered to a household will be higher due to transmission losses. Transmission losses imply that for each unit of energy delivered to the consumer, the utility must buy an extra amount of energy from the generator that is lost over wires. This energy is lost in the form of heat dissipated as a natural consequence of electrical resistance. Electrical resistance increases with the square of electricity flowing through the wire, meaning that loss per unit of additional energy is highest during hours of peak-demand. Moreover, transmission losses are lower when electricity is transmitted

> 21 The utility does not have to inform the operator about the variable cost of each generator. As a result, the system operator does not have to necessarily follow a merit order dispatch schedule.

> 22 India also has another wholesale market named Power Exchange India. Given that bidders can freely move between the two exchanges, prices discovered in IEX and PEI are highly correlated: 0.92 and 0.98 at hourly and weekly frequency (Ryan (2018)).

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