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.
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.
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