A crucial discussion paper by CERC, the electricity regulator, has, verily, made economics stand on it's head! Incentives and economic signals seem to be downright lacking in the proposed design for a wholesale, pan-India market for electric power.
Given that such a market would cut down on costs and boost efficiency across the board in the fault-prone power sector, the lacuna seems glaring indeed.
The issue at hand is a market for transmission capacity. The key really is "open access", the assurance of carrying capacity to transmit power cross-country. With open access, efficient power producers can compete for custom.
It's essential for reform. The Electricity Act, 2003 does provide the necessary enabling environment for open access. But the problem is that for long years we have thoroughly underinvested in transmission.
Line capacity is woefully inadequate and is likely to remain so for years on end. Hence the compelling need for a system of pricing and tariffs for transmission assets.
The idea, of course, is that proper price signals would induce better utilisation of scarce assets, and boost investment as well. Open access (at the right price!) would lead to a "seamless" wholesale power market.