Many developments have happened in the energy market in the recent past — introduction of Real Time Market (RTM), where one could buy or sell electricity just one hour from placing the bid. Indian Energy Exchange (IEX) one of the two power exchanges in the country with 95 per cent share in traded volumes, recently introduced a platform for trading in gas.
Meanwhile, the Central Electricity Regulatory Commission (CERC) is ready with a quiver full of measures to deepen the power markets. A ‘market-coupling mechanism’, under which all sell and buy bids through all the exchanges will be centrally matched to arrive at a uniform market-clearing price, is on the anvil. Also on the cards is ‘market-based economic dispatch of power’ (MBED), under which more generators and buyers are likely to be pushed into the markets for their transactions.
And, the decks are ready for introduction of derivatives — only a formal nod from the Supreme Court is awaited. The country’s third energy exchange is also very close to being set up — it will be owned mainly by BSE, PTC and ICICI Bank.
Against this backdrop, BusinessLine caught up with Rajesh Kumar Mediratta, Director – Strategy and Regulatory Affairs of IEX, the only listed energy exchange, to get a sense of how the company sees itself in the dramatically unfolding scenario. Excerpts:
When the CERC brings in ‘market- coupling’, will it affect your dominance in the market?
No. We will continue to be the leader. The way the market would operate would be different. We won’t be negatively impacted.
We will be able to hold on to market share, too. When the ‘real- time market’ came in, we could still hold on to almost 100 per cent share. It was a totally new segment; there was no first-mover advantage to IEX.
Do you see volumes increasing when the regulator brings in MBED?
Volumes will go up, but by how much will depend upon what type of MBED they bring in. If they bring in MBED as was envisaged in the CERC discussion paper of 2018, where everything goes through the market, then it would be 100 per cent market on the exchange, but that will be very difficult.
I think they will have some formulation wherein a part of the long-term market will be coming in phases. Suppose they say, ‘only inter-State generating stations owned by NTPC will come through the market’, then there will be smaller volumes.
Later, they may say, ‘okay, independent power producers will also be a part of it’.
Could it be said that MBED would be favourable to IEX?
Yes, it will be favourable to IEX.
Regarding the introduction of derivatives in the energy markets, what is the current status?
The final judgement from the Supreme Court is pending. The Bombay High Court had said that the two ministries (the Ministry of Power and the Ministry of Finance) will work together to regulate forward contracts in electricity.
So, a committee was formed with members from the ministries of power, finance, consumer affairs, and CERC and exchanges.
The committee gave recommendations in February that SEBI can regulate cash-settled futures and CERC can regulate delivery-based forward contracts.
These recommendations were submitted to the Supreme Court and the court’s approval is pending. Meanwhile, CERC may make preparations (for bringing in derivatives in energy markets).
Again, when derivatives are introduced, how will IEX benefit?
Today, about 20 billion units are traded through bilateral long-term contracts. This can become a part of our market.
We can’t say all of it will come to the markets, but 20 billion is the potential that exists.
The term-ahead market could go up from 11 days (allowed now) to monthly and quarterly contracts.
You introduced RTM in June. How would you review the experience in the last couple of months? Have the volumes been in line with your expectations?
It has exceeded our expectations. We thought we would have 100-200 million units. But in the first month, we did 515 million units, and in the following month, it went to up to 750 million units.
The market has been liquid from day one and there is a lot of interest from distribution companies, open-access customers.
NTPC and NLC are coming in in a big way because central-generating stations can now sell their un-requisitioned power on the market. On an average, we are doing 1,000 mw round-the-clock; on some days, our volumes have touched 32 million units.
But who would want to buy power at such short notice?
There are many buyers, like discoms which face a sudden increase in demand and generators which face a sudden loss of generation.
How is your gas exchange doing?
The volumes were not very high in the first month — only ‘warm-up volumes’. Though we have many willing buyers, we are facing some challenges in terms of sellers.
We have more than 500 registered clients, most of them are buyers. We have some sellers also, but they are taking a bit longer to place sell volumes.
Their volumes are tied up in long-term contracts. The gas market is a sellers’ market because there is a shortage of gas relative to demand; so, whatever volumes are available, they are selling under long-term contracts.
We are working with a few international gas traders to bring in some spot gas into the system.
We are also talking to ONGC and Reliance for getting them to sell their free market gas through the exchanges — the gas that is not under APM (Administered Pricing Mechanism). Also, the Dabhol terminal was closed for monsoon months. But it will open soon.