Indian Energy Exchange (IEX)

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This year growth plans for IEX.
One key area to highlight is cross border trading. Our PM wants to encourage cross border solar energy trading and has laid the foundation for International Solar Alliance.

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Thanks , I read your blog some time back but still has some questions. Please bare with me for the long question.

The way it works in the west is ( I am talking as a consumer trying to understand 360 degrees of the energy sector / eco system that includes IEX and participants on the exchange to trade )

In UK, all the houses are connected to national power grid network , I think it is owned by UK power networks , so every house in UK all the utility connections and this infra is owned by respective companies

For example

Water
Gas
Electricity
Telephone / Broadband
Fiber Optic Broadband (This is a new thing where new players are laying their own cable instead of sharing the same infra, technically like India for a given house you can two broadband connections with two different companies )

in UK except Broadband all the house have these standard connections, and you can choose your supplier for each of these services.

Let us take example

I have moved into a house and and the existing supplier is Shell but I can switch to a provider who supplies little cheap (unit cost is cheap) and gives me two years contract, say the new supplier name is Bulb (founded by an Indian and they are doing good :slight_smile: )

Now my question is this Bulb neither own any power infra , neither generate any electricity.

So how this Bulb is supplying me energy ?

After my consent to switch from Shell to Bulb, bulb will take over the account (virtual ) from Shell . Whoever is supplying me the energy have to pay fixed cost for the actual physical infra. (wired connection to my home) owner.

Here is the grey for me.

This bulb ( let us assume this is Tata Power in Delhi) company go to power exchange (IEX) and buy the power in a long term contract from someone who is a producer (Say British Gas , has lot of windmills , solar plants and they produce electricity ). I am curious to know how exactly it works here on the exchange, once the supplier buys the long term contract how exactly that will be used to track the consumption by the customers Bulb company etc…

Apologies if I am not clear in conveying.

So if a big corporate like Asian Paints can go and buy for their mega factory on IEX ? If yes how the entire transaction works ?

Thanks

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So your questions are if I buy something on the exchange:

  1. Can I? (Yes you/Asian Paints can. This is the price sensitive segment that the management calls “Open Access”. Your option is DISCOM vs exchange)

  1. What happens next?

  2. How do I track it?

Q2 What happens next:
It’s pretty simple. You/Bulb buys electricity on the exchange (this works via bidding. So the nature of bidding is a double blind auction. (this video will help you visualize it https://youtu.be/OxWXRGs_Gec?t=506

Note: His videos are really good! You may want to go through them to understand the full ecosystem))

When this is done, power is “scheduled” on the grid via the respective authorities (Nodal Regional Load Dispatch Center). Here’s the relevant part on IEX’s site.

There’s a slightly dated note, but it gives you and understanding of what happens (procedure notes/documents are underrated) :

Q3. You go to market snapshot in the data section for any product (select monthly). You get something known as “Final Scheduled Volumes”. From a macro perspective, that can help you track how much of the transaction on the exchange is “real”. I don’t know how Asian Paints tracks it on their end (not talking about the meter but the entire system), but I’m sure they have some mechanism/IT system.

Now in all this, there seems to be an underlying layer of how does Bulb know how much electricity I need and purchase that amount. There’s some forecasting stuff that goes on. IEX helps some of their clients (suppliers mostly) also with it. I think they helped the initial independent solar producers develop forecasting models. I don’t think it’s that hard when you really think about it (it definitely will be more complicated while actually doing it) > Relatively permanent set up (fridge, etc.) + Daily variables (lights in the evening, etc.) + Seasonal variables (heater/ac). I don’t know if there is some data sharing network of something. (I know smart grids have that in the west).

I hope this answers your questions.

Glad to answer any other questions/get you more confused :slight_smile:

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IEX to bring down Equity in IGX to 25% within 5 years. Mr Rajesh Kumar answers to a series of relevant questions.

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Entire railway become electrified further electricity demand will go up … my assumption 5-10% electricity may go through IEX … could be benefited…

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http://www.cercind.gov.in/2021/regulation/161-reg.pdf

In Its new notification dated 15th February, 2021 - CERC has enabled the creation of a market coupling operator.

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The para of pricing is interesting mainly the OTC market
Hope it good for IEX

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CERC has issued new Power Market Regulation 2021 on 15.02.2021. These Regulations to be come into force on the date to be notified separately. Salient features of the new regulations are as under:

Definitions:
New Definitions/modified definition : ‘Associate’, ‘Bid’, ‘Bid Type’, ‘ Capacity Contract’, ‘Circular Trading’, ‘Contingency Contract”, “Insider”, Insider Trading”, “Intraday Contract’, “Managing Director’, “Market Coupling”, “Market Coupling Operator", Market Manipulation”, “Market Participants", Over the Counter (OTC) Contracts, Over the Counter (OTC) Market, “Over the Counter (OTC) Platform, “Persons acting in concert”, “Power Exchange”, “Shareholder Director, “Term Ahead Contract, “Term Ahead market, “Transaction fee” and “unpublished price sensitive information”.
Deleted Definitions: Annual Turnover, “Clearing Corporation”, “Credit risk", Derivative Contract”, “Exchange”, “Member of Clearing Corporation”, “Member Service Charge”, “Open position”, “Operational risk”, “Other Exchanges”, “Position", “Price risk”, “Reserves”, “Short term market” and “Spot Market”.
Applicability :
Entities:(1) Power Exchange; (2) Market Participants other than Power Exchange; and (3)OTC Market.
Contracts:
i. Power Exchange: Day Ahead Contracts; Real-time Contract, Intraday Contracts, Contingency Contracts, Term Ahead Contracts; and Any other contracts, including Capacity Contracts and Ancillary Services Contracts, as may be approved by the Commission; Renewable Energy Certificates; Energy Saving Certificates; and Any other contracts, as may be approved.

                                                          ii.      Contracts in the OTC Market – Delivery based.

Contracts:
DAM & RTM : Price Discovery shall be done by Power Exchanges or by Market Coupling Operator as and when notified by the Commission.
Intra-Day, Contingency, TAM: To be proposed by Power Exchange and approved by Commission.
In the event of forced outage, Generators are eligible to buy from DAM,RTM,INTRA-DAY, Contingency and TAM market.
OTC Market: The settlement of contracts transacted in the OTC Market shall be only by physical delivery of electricity.
Objectives of Power Exchange: Following objectives proposed for PX:
To design electricity contracts and facilitate transactions of such contracts;
To ensure fair, neutral, efficient and robust price discovery, till such time the responsibilities are transferred to the Market Coupling Operator in respect of Day Ahead Contracts or Real-time Contracts or any other contracts as notified by the Commission;
To facilitate extensive, quick and efficient price discovery and dissemination.
Provisions for Forward Contracts:
Definition of ‘Term Ahead contracts’ is contracts for delivery on T+2 or more. No restriction on the time period upto which LDC contracts may be launched, however delivery will be as per short term open access regulations.
Term Ahead Contracts shall be settled only by physical delivery of electricity without netting.
Circular trading is not allowed in TAM.
Market Coupling: Introduced in the regulations.
Definition: “Market Coupling” means the process whereby collected bids from all the Power Exchanges are matched, after taking into account all bid types, to discover the uniform market clearing price for the Day Ahead Market or Real-time Market or any other market as notified by the Commission, subject to market splitting;
Objectives:
i. Discovery of uniform market clearing price for the Day Ahead Market or Real-time Market or any other market as notified by the Commission;

                                                          ii.      Optimal use of transmission infrastructure;

                                                         iii.      Maximization of economic surplus, after taking into account all bid types and thereby creating simultaneous buyer-seller surplus.

The provisions with regard to market coupling and Market Coupling Operator in these regulations shall come into effect as and when decided by the Commission in accordance with the regulations to be specified separately.
Transaction Fee: The Transaction Fee of PX has been capped at 2 paisa/unit on either side in Electricity segment. Power Exchanges are required to seek approval of the Commission for transaction fee based on type/quantum/duration of contract within 6 months.
Service Fee of Professional/Facilitator Member – Capped @ 2paisa/unit including for sub-ordinate service provider (Presently 0.75% of transaction value).
Prudential Norms for Power Exchange:
Minimum Net worth of Rs. 50 crores (currently it is Rs. 25 Cr.). 6 months period post notification of the regulations to comply with this requirement for existing Power Exchange. However, commission may relax such period as it deems fit.
Shareholding norms directly or indirectly:
i. Max 25% of shareholding of an entity other than Member or Client. (Client is added).

                                                          ii.      Max 5% of shareholding of a Member or Client (Client added).

                                                         iii.      Max 49% of shareholding of Members and Clients in PX (Client added).

                                                         iv.      Existing PX to comply with above provisions within 1 year of notification of regulations.

Governance structure of Power Exchange:
The Board of Directors of the Power Exchange shall have the following categories of Directors:-
i. Shareholder Director;

The names of persons to be appointed as Shareholder Directors shall be approved by the Board of Directors of the Power Exchange, followed by shareholders’ approval and thereafter shall be submitted to the Commission for information.
ii. Independent Director; -

Required Approval of CERC. Minimum 2 names to be proposed.
Number of Independent Directors shall not be less than the number of Shareholder Directors.
MD would be considered as shareholder director for this purpose.
Persons who are likely to have interested positions in commercial contracts and financial affairs of the Power Exchange, shall be excluded;
Persons who are directors in the board of the promoter entity of the Power Exchange, shall be excluded;
Persons who are in any fiduciary relationship with any member of Power Exchange, shall be excluded.
iii. Managing Director.

No member of Power Exchange or their client shall be on the Board of Directors of any Power Exchange.
Existing PX to comply with above provisions within 1 year of notification of regulations.
Flexibility to Power Exchanges:
Commission may through a separate order waive requirement of approval of amendment of certain provisions of the bye-laws, rules and business rules;
In such case, amendments can be carried out by approval of the Board of PX.
Power Exchanges may introduce new bid types or modify existing bid types, after consultation with stakeholders and National Load Despatch Centre, under intimation to the Commission.
Clearing and Settlement:
The Power Exchange to carry out the Clearing and Settlement of any transaction of electricity in accordance with the provisions of the Payment and Settlement Systems Act, 2007 within 1 year or other period as may be approved by the Commission.
Till such time PX to follow PMR.
Information Technology Infrastructure:
The Power Exchange shall get the algorithm audited before commencement of operations and thereafter, once in every two years and submit the findings of the audit to the Commission.
Power Exchange shall also carry out periodic IT system audit for data security, data integrity and operational efficiency for every financial year and submit its reports to the Commission by 30th June following the end of the financial year.
Information dissemination by PX:
The Power Exchange to publish on its website, data tables with aggregate demand and supply curves for each type of contract involving collective transactions.
Power Exchange to create and maintain a document on its website providing detailed description of the algorithm used for price discovery for all type of contracts within 3 months from the notification of the regulation.
Grievance Redressal of Members and Clients
The Power Exchange shall constitute a Grievance Redressal Forum, headed by an Independent Director.
Power Exchanges shall disclose, on their website, the details of complaints lodged by members against Power Exchange and by clients against its members and status of resolution of the grievance.
Power Exchanges shall also disclose, on their website, the conflict resolution mechanism followed and the result of grievance resolution.
The Commission may call for information on redressal of any specific grievance by the Power Exchange.
OTC Platform:
New entity – Required registration/approval of Commission in accordance with the guidelines to be notified. Registration for 5 years.
Objectives – Providing electronic platform for information of potential buyer and seller, analytics etc.
Eligibility Criteria – Networth of Rs 1 Cr and A Power Exchange or Trading Licensee or any of their Associates or grid connected entities shall not be permitted to set up, operate, or have any shareholding in an OTC Platform.
Eligible participants – Discom, OA consumer, generator and trader or any person acting on their behalf.
Obligations:
i. The OTC Platform shall not engage in the negotiation, execution, clearance or settlement of the contracts.

                                                          ii.      The OTC Platform shall maintain neutrality without influencing the decision making of the Market Participants in any manner.
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Any idea how the recent news about bringing GAs under gst will benefit the company
I believe that the gas prices may comedown resulting in higher demand ultimately benefiting the company.
Pls correct me if I am wrong

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CEA has issued FINAL PROCEDURE FOR APPROVAL AND FACILITATING IMPORT/EXPORT (CROSS BORDER) OF ELECTRICITY BY THE DESIGNATED AUTHORITY (DA) on 26.02.2021. Salient features of the procedure are as under:

Background: Ministry of Power, Govt. of India (MoP) had issued the guidelines on Cross Border Trade of Electricity (the Guidelines) on 18.12.2018 and under these guidelines, MoP notified Member (Power System), CEA as the Designated Authority (DA) on 24.12.2018. The DA was to frame its own procedure for facilitating the process of approval for Cross Border Trade of Electricity between India and neighbouring countries and other related matters. Accordingly, DA has framed these procedures.
Objective: To facilitate grant of approval to eligible entities to participate in Import/Export (Cross Border) of Electricity, approval of transmission links with the neighbouring country and approval to Generating company to supply to neighboring country through dedicated transmission line.
Approval of Cross Border Transmission link: Planning based on the decision in Joint Steering Committee(JSC)/ Joint Working Group (JWG) or proposals received by the DA including authority of neighbouring country.
Approval of DA to participate in Import/Export (Cross Border) of Electricity:
All Import/ Export of electricity shall take place only after approval of the Government of India.
Approval of DA not required where the import/ export is taking place under the Inter Government Agreement signed by India and neighbouring country for specific project(s).
The applicant to apply at least 30 days prior to transaction.
The DA will advise the concerned entities/NLDC to facilitate scheduling of such cross-border transaction.
Import of electricity by Indian Entities:
i. Indian entity nominated by GoI to import electricity.

                                                         ii.      Allowed from the generation projects located in neighbouring country(ies) directly or through Government or a Government Company or a licensed trader of that country.

                                                       iii.      The generation project(s) of the neighbouring country should have the permission to export power to India from the respective Government of the neighbouring country.

                                                       iv.      Generating company should not be owned directly or indirectly by any person whose effective control or source of funds or residence of beneficial owner, is situated in/ citizen of a third country with whom India shares land border and that third country does not have a bilateral agreement on power sector cooperation with India. For any relaxation in this provision, the Designated Authority will consult Ministry of Power and Ministry of External Affairs.

                                                         v.      The Applicant shall submit a copy of Power Purchase Agreement (PPA)/ or of Letter of Intent (LOI) from generator of neighbouring country, for import of such power.

Export of electricity by Indian Entities:
i. Generating Companies/ Distribution Companies of India may export electricity generated by coal or gas or renewable energy or hydropower directly or through trading licensee(s) of India.

                                                         ii.      In case of export of electricity generated from coal/gas based generating plants, allowed only where such electricity is generated utilizing imported coal/gas or spot e-auction coal or coal obtained from commercial mining. A declaration is required to be submitted.

                                                       iii.      The Applicant to submit a copy of Power Purchase Agreement (PPA)/ or of Letter of Intent (LOI) from entity of neighbouring country.

Trading in Indian Power Exchange(s):
i. Indian Entity(ies) trading in Day Ahead Market (DAM) in Power Exchanges will not require any approval from DA.

                                                         ii.      Indian Entity intends to trade in other than DAM of Power Exchange, where establishment of one to one transaction is possible, the Entity shall require approval from Designated Authority, up to specified quantum (MW) and duration.

                                                       iii.      Indian Power Exchange to ensure that the buyer from neighbouring country is able to buy only from approved exporters of India.

                                                       iv.      Entities of neighboring Country can trade on Power Exchange only through Indian trading licensee.

                                                         v.      DA approval to be sought by Indian trading licensee on behalf of entity of neighboring country.

                                                       vi.      Applicant to indicate maximum quantum and period in days for which approval is required.

Process for Grant of Approval:
i. After receipt of the application, the proposal will be examined from technical, strategic, national and economic point of view, including the generation capacity (as available) and the demand. Imports may normally be permitted only when the demand exceeds generation capacity (as available) in the country; and Exports may normally be permitted in case of generation capacity (as available) being in excess of the demand.

                                                         ii.      In case of trading in Indian power exchanges, maximum time period of one year will allowed.

                                                       iii.      Designated Authority will obtain concurrence from Govt. of India, within 60 days from the date of receipt of the final application complete in all respects.

                                                       iv.      The approval or otherwise of DA shall be communicated to the Applicant within 15 days from final communication received from GoI.

                                                         v.      The Participating Entity granted approval by DA for a period of more than one year shall need to apply for LTA/MTOA within six(6) months of approval by DA.

                                                       vi.      The Participating Entity granted approval by DA for a period of less than or equal to one year shall need to apply for MTOA/STOA within three (3) months of such approval by DA.

The Participating Entity shall submit a copy of PPA to DA, within 15 days of its of signing.
The Regulations framed by CERC & CEA shall be binding on all the Participating entities.
Approval for building dedicated transmission line for connecting to the transmission system of neighboring country:
A LoI / PPA should have been signed between the Applicant and importing entity of neighbouring country.
The generating station of the Applicant from which the Dedicated Transmission Line is proposed to be built, should not be connected to any part of intra-state or inter-state grid of India.
The DA will send the proposal for concurrence of Govt. of India, within 45 days from the date of receipt of the final application complete in all respects for building dedicated transmission line.
The approval or otherwise of DA shall be communicated to the Applicant within 15 days from final communication received from GoI.
Transaction of electricity through Indian Grid under tripartite agreement:
Such transactions can be allowed provided that the Entity seeking such transactions has obtained either STOA/MTOA/LTA from appropriate agencies in India as per CERC regulations.
The Indian trading licensees may apply to DA for such transactions.
The DA will send the proposal for concurrence of Govt. of India, within 45 days from the date of receipt of the final application complete in all respects.
The approval or otherwise of DA shall be communicated to the Applicant within 15 days from final communication received from GoI.
The grant of such transmission access shall be governed by relevant regulations of CERC.

A copy of procedure is attached for reference.

Note: Now a procedure to be formulated by NLDC for scheduling of cross border transactions and bid areas to enable CBT on Exchanges.

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IEX Monthly Update – March 2021

IEX Highlights

  • Estimated revenue from transactions is up 27.1% for the FY till February end as compared to the same period last FY. Revenue has been supported by DAM, TAM and RTM volumes.
  • DAM - On a cumulative basis, FY21 volume and estimated revenue till February end are 19.3% greater than revenue in FY20 for the same period.
  • TAM – On a cumulative basis, FY21 volume and estimated revenue till February end are down 33.2% compared to revenue and volume in FY20 for the same period. The uptick in volumes has helped reduce the figure from 36.9% reported in last month’s update.
  • There have been no REC transactions since June 2020.
  • RTM – RTM continues to be a strong revenue generator. RTM volumes dropped by 9.3% MoM.
  • G-TAM – After having dropped 45% MoM in December and picked up 6% MoM.from there in Jan, volumes have been flat with 1% growth MoM.
  • FY21 estimated revenue contribution break up:
    • DAM – 81.7% (-)
    • TAM – 4.6% (+)
    • REC – 0.4% (-)
    • RTM – 12.2% (+)
    • GTAM-1.1% (+)

CERC Short term market update (December 2020 reports):

  • The short-term market witnessed a 33.1% rise in December compared to the same period last year while the long-term market witnessed a marginal uptick in volumes of 1.6% in the period. The overall market growth rate was 5.0%.
  • IEX’s DAM market share has recovered to above 99.8% in December.
  • While IEX’s TAM market share has been under pressure from 90% in March 2020 to less than 20% in September, the steady recovery since then has continued and reached above 30% in December.
  • No REC transactions have taken place.
  • IEX has a 100% market share in RTM for the fifth consecutive month.
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As per IEX intimation to the exchanges:
NSE got 1,92,07,500 equity shares of IGX for Rs 73,87,50,000. ONGC got 36,93,750 equity shares of IGX for Rs 73,87,50,000. Isn’t it weird that NSE got more than 5x equity shares than ONGC for the same amount??

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Might be very basic question

All this money IEX is getting , what will they do with it ?

Since it’s a technology platform they don’t need huge physical assets

Eager to hear from experts

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boss IGX paid-up share capital is INR 73,87,50,000.
kind of Mcap at face value 10.
I think both got at face value NSE and ONGC.

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NSE Investments paid 19.2 Cr, ONGC paid 3.69 Cr, seems both paid Rs.10/share. Both amounts are mentioned in the IEX intimation link you shared.

The Rs73.87 Cr you mentioned is total share capital of IGX.

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Most likely will be disbursed as a special dividend to shareholders. They already hold 451 cr cash reserves on the balance sheet.

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IEX reinvestment rate likely very less compare to other platform business. But its a growth face for both iex and Igx … iex has just 5% of market share in power industry huge runway ahead and igx not yet started … also huge market size …

Dis invested enter at reasonable price😊

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Yes, some of the triggers happening recently are helping in longevity of business and making it stronger:

  • By having NSE, GAIL, Adani etc. as stakeholders, it has virtually got government backing and very low chance of govt now creating any competitive entity
  • Also, once Gas exchange is getting traction, it opens up doors for any other forms of utility to be traded on the same exchange
  • Any incremental reforms in electricity space would make IEX direct/indirect beneficiary
  • Also, it’s probably best proxy play of EV

Discl: Views are personal; Only for educational purpose.

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4th edition of quarterly publication Innovations@ IEX

In this issue, read about:

  • Tech Developments @IEX
  • Feature story on 'Achieving India’s Renewable Aspirations: The CfD Model.
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Hi Vivek,
Can you please elaborate how is IEX a proxy play for EV.

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