They did simulations (like running a computer program with data) which were inconclusive and now they wanted to run a real Proof of concept with real-world experiments, in deciding on the potential benefits of coupling, so they are now going to have software(which Grid India will develop in next 2 months) and all exchanges will share data with Grid India and the experiment will be carried out.
As per my understanding, the CERC and GOI seem adamant about implementing Market coupling and nothing has been shelved, Unless the real-world experiments yield results that are absolutely garbage.
This is not a question of if but when
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Hi Sajal,
This statement from you suggests that you are pretty sure the real world experiments with market coupling will fail. May I know the basis of your conviction? Is it because >80% of the volumes happen on 1 platform today? Or something else?
Thanks!
If you read what IEX CMD said yesterday and what @Sajal_Singh shared above, it is evident that the simulation exercise carried out by CERC since last August did not give any desired results which can encourage them to implement coupling. They will continue to simulate more data for next 6 months or so to formulate their view on what to do going forward as far as coupling is concerned. However, we must keep one thing in mind is Power is a regulated sector and the govt agencies are not bound to follow what you me and other stakeholders think (more than 70% of respondents to their draft paper commented against coupling). Till the final decision is made IEX will remain in a tight grip irrespective of its business performance.
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Sorry for any confusion here. What I meant was that CERC and GOI believe they need more data to confirm the benefits of market coupling. That’s why they are conducting this experiment-based analysis, or shadow Exchange with market coupling. Regarding my comment about the results, I was alluding to the possibility that if the experiments fail miserably, meaning CERC and GRID India find no benefits at all in the experiments of Market coupling, they may consider coming up with a different plan.
Now, the certainty comes from the way the stakeholders (GOI and CERC) are communicating. They are adamant that the monopolistic nature is not good for the market and customers, which makes sense. CERC believes coupling is one of the ways to address this issue.
On a different note, recalling Mark Twain’s words “History does not repeat itself, but it rhymes”, I began to search for similar instances. Although it’s a bit of an apples-to-oranges comparison, reading about the NSE, BSE monopoly versus the regional exchanges and the regulator’s efforts to correct it in the early '00s was interesting. You can read more about it here: https://www.bseindia.com/downloads/regionalstockexchanges.pdf
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Thanks for the details @Sajal_Singh .
I have another point to understand, the simulations carried did not give desired results.
And lets say, the results of real world situation is also a failure. But the Govt as adamant as it can be, still goes ahead and implement market coupling.
What would be the impact on the business of IEX. What I understand as of experiments till now, the business may not get impacted.
What is your thought.
PS : Invested & Holding
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Thanks for the detailed reply Mr Sajal.
About CERC’s and GoI’s obsession with the monopolistic stature of IEX, again I have a doubt.
The problem with monopolistic businesses is they attain undeterred pricing power and charge exorbitantly high from their customers. However, IEX case may be different. It is regulated by CERC. Considering the sensitive nature of power sector, it is unlikely that CERC or GoI would allow pricing power to IEX. Then how is it ever a threat if it enjoys the heavy volume on it’s platform by virtue of innovation and first mover advantage? The power transactions have to happen at some platform. Why not IEX as long as price is controlled by the regulator. I understand it is a risk because of hypothetical scenarios like what if the single exchange gets hacked or crashes. But how is it a threat in the absence of pricing power !?
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Good Analysis.
https://twitter.com/SmartSyncServ/status/1755216057961242877?t=paaCHeq-1frBkvssx67Hqw&s=19
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I would suggest you read, this thread shared by @Sid_Mathew by SmartSyncServerices on Twitter, it was very close to the way I think about the market coupling, its impact, and IEX business in general. Indian Energy Exchange (IEX) - #1027 by Sid_Mathew
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https://x.com/zeebusiness/status/1763812936991055988?s=46
पावर एक्सचेंज, DISCOMs के लिए खबर - सरकार ने क्यों बदला इलेक्ट्रिसिटी रूल?
भुगतान न होने से DISCOMs को नहीं मिलती थी बिजली
DISCOMs का 2022 में कुल बकाया बिल ₹ 1.4 Lk Cr था
- फरवरी 2023 तक बकाया घटकर ₹48000 Cr हुआ
जानिए पूरी डिटेल्स इस वीडियो में…
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The Central Electricity Regulatory Commission has directed Grid-India to implement, on a shadow pilot basis, three key initiatives. Firstly, the coupling of the Real-Time Market of the three power exchanges. Secondly, the separate coupling of the Real-Time Market at the three power exchanges along with SCED. Thirdly, the coupling of the Day-Ahead Market (DAM) of the three power exchanges.
In their order, they specified that Grid-India must develop the necessary software required for running the shadow pilot within two months from the date of the Order i.e 6th February 2024.
As for the current status of software development by Grid India, it’s uncertain. If anyone has information regarding whether Grid India has completed the development of the software, it would be valuable. Once the software is developed, the next step would be to implement the shadow pilot for a period of four months.
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Any thoughts about IEX to enter now around 140-150 price range.
IGX has launched another new contract type, Small-Scale Liquefied Natural Gas (ssLNG) , on its platform. Volumes may not be that high in near future, but a good addition, nevertheless. More details here. As the article says, “The introduction of ssLNG contracts on IGX aims to address the growing gas demand from industries and CGD (City Gas Distribution) companies that do not have access to pipeline networks”.
I guess this will make sense only when there is a reasonable differential between LNG prices and crude prices given that cost of transportation of LNG via trucks is likely to be high. Thoughts?
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The answer to your question is quite subjective. Sharing my view here (nothing new really. most of it is covered in the thread).
IEX has the overhang of market coupling. Till it is decided one way or the other, uncertainty exists. While it was oversold as a platform story in 2021, it still has advantages of network effect, provided market coupling is not implemented.
My view is that - there will be gradual shift in volumes to exchanges (which is already happening). Power consumption in India will go up at a steady phase and with renewables increasing in the mix, exchanges have a greater role to play. What will happen to stock price in short term is anyone’s guess, in long term - this is an asset light business, no debt, high free cash flow generating, good amount of continued innovation and first mover advantage that IEX has, would support this to be a compounder (subject to uncertainty of market coupling and pricing risk by regulator).
disc - invested from lower levels.
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