Near-Zero MCP in India's RTM: A Signal for Deeper Structural Reforms

On May 25, 2025, India’s Real-Time Market (RTM) witnessed a rare but telling event—market clearing prices (MCP) plunged to nearly zero during solar hours. Though limited to a five-hour window between 7:30 AM and 12:30 PM, and affecting just 5–7 GW of traded volume, the implications are far from trivial. This event raises critical questions about the structural readiness of India’s electricity markets as they adapt to high levels of renewable energy (RE) integration.

The Incident: An Early Warning Sign

During the price collapse, close to 35–40 GW of capacity was available in the RTM, yet a small portion was cleared at near-zero tariffs. With India’s total installed capacity at approximately 450 GW, this may appear inconsequential. However, such aberrations during a descending summer period underscore emerging systemic vulnerabilities—particularly in forecasting, scheduling, and real-time demand matching.

It prompts fundamental questions:

• Who were the suppliers offering power at such low prices—state DISCOMs with must-run RE obligations, or private generators with surplus capacity?

• Were the supply sources concentrated in renewable-rich regions?

• What prevented alternative offtake arrangements through bilateral trades or other exchange products?

These questions point to underlying inefficiencies that must be addressed as market-based mechanisms take on a greater role in India’s power sector.

Market Liquidity and Price Volatility

India's electricity markets—RTM, DAM, and GDAM—are expanding in volume, but depth and liquidity remain limited. Traditional long-term PPAs continue to dominate, offering price certainty and volume assurance, particularly for DISCOMs and large commercial consumers.

In contrast, the PX market is marked by price volatility and relatively low visibility on forward commitments. This restricts the ability of stakeholders to rely solely on market-based instruments, especially in periods of high RE output and subdued demand.

The recent price drop reflects this disconnect. Without adequate arbitrage mechanisms—such as energy storage systems (ESS) to shift surplus generation to peak periods—market participants are exposed to price crashes. Furthermore, legacy PPA structures may not allow for the flexibility required to adapt dispatch strategies dynamically.

Pressure on the Must-Run Status for Renewables

The must-run status granted to renewable energy projects is increasingly under scrutiny. With higher RE penetration, several states are encountering challenges in absorbing surplus generation at viable rates. Morning solar output, coupled with seasonal wind surges—particularly along the Western Ghats during monsoons—can overwhelm local demand and lead to suppressed market prices.

In some RE-rich states, GDAM prices have fallen below existing PPA tariffs, forcing DISCOMs to sell power at a loss despite their purchase obligations. While efforts to procure ESS are underway, the current pace of deployment is insufficient to match the growing need for flexibility.

This environment creates financial stress for utilities and may trigger regulatory reconsideration of the “must-run” mandate—especially if near-zero MCP events become more frequent. The burden of managing surplus generation may increasingly shift to generators, compelling them to explore storage integration and hybrid project development as part of their core strategy.

Policy and Market Reform Imperatives

The May 25 event should not be dismissed as an isolated market quirk. It reflects the broader transition challenges India faces as it scales its renewable energy ambitions. To maintain market stability and protect investment viability, several reforms are urgently needed:

• Introduction of capacity markets or price floors to safeguard against extreme price volatility.

• Enhanced short-term and real-time demand forecasting, particularly at the state and regional levels, to align dispatch more closely with actual consumption patterns.

• Accelerated deployment and integration of energy storage, especially in states with high RE penetration.

• Revisiting PPA structures to allow greater flexibility and market responsiveness for generators.

Looking Ahead

The evolving power market in India must reconcile the goals of decarbonization, affordability, and reliability. Events like the near-zero MCP episode serve as important inflection points—highlighting the need for anticipatory planning, regulatory agility, and institutional coordination.

For investors, regulators, and utilities alike, this is a moment to reflect and recalibrate. Ensuring that market mechanisms are resilient, inclusive, and future-ready is essential as India progresses toward its clean energy transition goals.