IEX opposes CERC’s key proposal in power market reforms

IEX, the energy exchange, which has 95 per cent share of the market traded electricity, said it opposes a key proposal in the power market reforms that the federal electricity regulator, Central Electricity Regulatory Commission, is trying to bring in.

In the draft ‘Power Market Reforms 2020’ notification of July 18, the Commission has proposed to introduce a concept called ‘market coupling’, which means that all the buy and sell bids in all the power exchanges would be matched by a central ‘market coupling operator’ to arrive at a ‘uniform market clearing price’. Experts say would have an effect of denting IEX’s massive market share.

Rajesh Mediratta, Director – Strategy and Regulatory Affairs, told BusinessLine on Wednesday that IEX feels that now is not the time to bring in such a reform. At present, only 4 per cent of the total electricity consumption (of around 1.2 trillion kWhr) is traded on the exchanges. Mediratta said that measures such as ‘market coupling’ could be brought in at a time when the traded volumes increase to about 15-20 per cent.

India has two power exchanges, IEX and PXIL, and a third, Pranurja Solutions, set up by PTC, BSE and ICICI Bank, is likely to begin operations soon. Today, all the matching of buy and sell bids are matched at the exchange level, which means that both buyers and sellers will have to be in the same exchange — IEX or PXIL — for their orders to be matched. However, if market coupling becomes a reality, a buyer in PXIL can buy from a seller in IEX.

‘Competitive advantage’

IEX’s monopoly has been due to the depth and liquidity it provides the participants. The proposed market coupling will take away this advantage. “In one stroke, the ‘competitive advantage’ and the exact reason why IEX is a monopoly gets destroyed,” said Amey Kulkarni of Candor Investing, a portfolio advisory firm. IEX is listed on NSE and BSE.

“We don’t know why they (CERC) are bringing it (market coupling) now,” Mediratta said, adding that IEX would “strongly oppose” the move unless it is brough in conjunction with other measures that would increase the exchange-traded volumes.

He, however, expressed confidence that IEX would still be able to retain its market share - as it did when the two exchanges introduced ‘real time market’ at the same time, on June 1. Under RTM, power can be traded for delivery in the next one hour; in contrast, most of the trades today are in the ‘day-ahead market’, where the agreed quantum of electricity is delivered the day following the transaction.

IEX, Mediratta said, has almost 100 per cent of the RTM. (In June and July 515 and 785 million units respectively were traded on IEX—a level that “far exceeded” IEX’s own expectations.)

Market-based electricity dispatch

One other measure that would increase the volume traded on the exchanges is the ‘market-based electricity dispatch’, or MBED – which basically forces power generators (like NTPC) and buyers (such as large industries or discoms) to get on to the market even if they have bilateral contracts.

Asked if MBED would not provide more volumes to IEX, in a way compensating for the potential loss of market share due to ‘market coupling’, Mediratta noted that it would depend upon MBED the regulator would bring in.

The expectation is that such a measure as MBED would be brought in phases. For instance, in the first phase, CERC may require all inter-state generating stations of NTPC to go through the exchanges, Mediratta said.

Commenting on the draft power market reforms notification, Prabhajit Kumar Sarkar, Managing Director and CEO of PXIL, told BusinessLine that ‘market coupling’ would enhance transparency and depth of power markets. He observed that the CERC was bringing in the reforms to make Indian power markets “future-ready”, noting that market coupling was found to be very good in Europe.