[Answered] What is the Market-Based Economic Dispatch (MBED) mechanism? Discuss the rationale and challenges associated with it.

Introduction: Explain Market-Based Economic Dispatch (MBED) mechanism.
Body: Explain the rationale behind Market-Based Economic Dispatch (MBED) mechanism. Also write its challenges.
Conclusion: Write a way forward.

Under the MBED mechanism, the cheapest power from across the country will be dispatched to meet the system wide demand. This would also lead to a “uniform clearing price”. It proposes a centralised scheduling of power dispatches, both inter-state and intra-state. This is in line with the Centre’s ‘One Nation, One Grid, One Frequency, One Price’ formula.

Rationale behind Market-Based Economic Dispatch (MBED) mechanism:

  • A site of contestation between the Centre and the states due to the distribution segment — the weakest link in the power chain.
  • The financial position of discoms continues to be unsteady. Their mounting losses have increased the fiscal risks at the general government level (Centre and states).
  • It will ensure that the cheapest electricity generating resources across the country are supplied to meet the overall system demand and will therefore be a win-win for both the distribution companies and the generators and result in savings for consumers.
  • With a centralised pool of generation and demand offers, power generators will be forced to become more cost-efficient or shut down, thus lowering the overall variable cost of power in India.
  • With power being scheduled and dispatched over a larger balancing zone, renewable energy is expected to be curtailed at a lower rate.


  • This will impinge on the relative autonomy of states in managing their electricity sector, including their own generating stations, and make the discoms entirely dependent on the centralised mechanism.
  • There are concerns this could strip states of their freedom to decide their own electricity requirement while managing seasonal and local demand trends.
  • Power is in the Concurrent List of the Constitution, with the electricity grid being divided into state, regional and the national level Load Dispatch Centre (LDC).
  • There are concerns that the new model could potentially clash with emerging market trends (renewable energy in the overall generation mix and electric vehicles), as these necessitate greater decentralisation of markets and voluntary pools for efficient grid management.
  • Greater clarity is also needed on the legality of the proposed Bilateral Contract Settlement (BCS) mechanism under the scheme for refunding the difference between the Market Clearing Price and the contract price.

All stakeholders, from state governments to load dispatch centres to power exchanges and others need to be consulted at each step in this process. Their suggestions must not only be sought, but the desirability of the policy itself needs to be discussed threadbare.

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