IEX

Adapting to the growing energy market

Over the years, India has witnessed a rapid increase in power demand across households and industries. This has put enormous pressure on po­wer generators and distribution compani­es to generate sufficient electricity. Des­pite setting up more power plants, scaling up renewable energy, building transmission networks and improving energy efficiency, there is still scope for bridging the inequalities in power access in India. A company that has tackled this problem for over a decade is the Indian Energy Exch­ange (IEX), the first and largest power exchange in India.

The IEX was established in June 2008 to balance the excess demand and supply of electricity in India. Through this platform for trading electricity, power generators, discoms and industries that are star­ved of electricity in their respective areas can buy power from those who have excess generation. Since its establishment, the IEX has built a robust ecosystem of over 6,800 participants located across 29 states and five union territories comprising over 55 di­s­tribution utilities and more than 500 conventional generators. It also has a strong base of about 4,400 commercial and industrial consumers, representing industries such as metal, food processing, textile, cement, ceramic, chemicals, automobiles and information technology, institutional, housing and real estate, as well as commercial entities. The IEX is also ap­p­roved and regulated by the Central Elec­tricity Regulatory Commission (CERC) and is a publicly listed company with NSE and BSE since October 2017.

Products

The IEX offers several products based on the varied needs of players in the electricity, green energy and certificate marke­ts. When the exchange began operatio­ns, it launched the day-ahead market (DAM), an electricity trading market for deliveries in 15-minute time blocks on the following day starting from midnight, and the term-ahead market, where electricity is traded on a term basis up to 11 days ahead. The prices and quantum of electricity to be traded are determined through a double-sided closed auction bidding process. The DAM constitutes a large part of the energy contracts that are traded on the exchange.

In 2011, the exchange commenced trading for renewable energy certificates (RECs) to create a national-level market to help renewable generators recover their costs and meet their renewable purchase obligations (RPOs). Under the REC mechanism, a generator can generate electricity from renewable sources in any part of the country by purchasing these certificates. One REC represents 1 MWh of energy generated from renewable sources.

In the last few years, the IEX has launched several new markets. These include the real-time market, which involves the trading of 15-minute contracts that specify the trading of power within four time blocks or one hour after gate closure of the auction. More recently, the company launched cross-border electricity trade on its platform, in an attempt to build an integrated market in the South Asian region.

With renewable energy in India gaining major traction in the last decade, the IEX launched the green term-ahead market (GTAM), which is a delivery-based market for trade in renewable energy through ter­m-ahead contracts – intra-day, continge­ncy, daily and weekly – in both the solar and non-solar segments. In light of India’s re­ne­wable energy and grid integration targets, the GTAM has been designed as an alternate avenue for buying and selling re­new­able power at a competitive price with­out entering into any power purchase agree­­ment (PPA) for the fulfilment of RPOs, es­pecially in sta­tes with relatively less re­ne­w­­able energy po­tential. Additionally, re­new­­able-rich sta­tes are incentivised to de­ve­lop renewable capacity beyond their RPOs.

Future steps 

With the global movement of decarbonisation, renewables, hydro, gas and other ne­wer non-conventional technologies have a massive role to play. There is also an ur­gent need to meet the growing energy demands of the country. By providing an automated trading platform for the physical delivery of electricity, the IEX has enabled efficient price discovery and offers participants the opportunity to trade in electricity contracts. The company has increased the accessibility, transparency and speed of transactions in the Indian power market, and is set to offer even more in India’s pursuit of achieving energy security.

Since the launch of the GTAM in 2020, the volume of renewable energy traded has grown substantially, hitting an all-time high in July 2021. The renewable energy traded during this month acc­oun­ted for about 10 per cent of the total po­wer traded in the period. With 51 discoms participating, it was the highest-ever participation recorded in a month.

Going forward, the IEX looks to launch ele­c­tricity derivatives in India, for which it has entered into an agreement with the Multi-Commodity Exchange of India. This financial instrument is expected to be an eff­e­c­tive risk management avenue and help the value chain hedge price risks and the­re­­by protect their revenue margins. This co­uld potentially help power utilities that ha­ve been struggling financially. The ag­re­e­ment is subject to mandatory approvals from the central government and conce­rn­ed regulators. Once it is launched, India will be one of the few countries to offer ele­ctr­icity derivatives on its exchange platform.

 

 

By Rithvik Kumar

 

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