Power exchange trade volumes to surge three times in next 3-5 years: IEX chief

Private equity-backed Indian Energy Exchange Ltd (IEX), the country’s first and largest exchange for trading of electricity and renewable energy certificates, expects trade volumes to triple in the next three to five years on the back of growing interest in spot market from state distribution companies (Discoms).

“I will not make any futuristic statement, but according to CRIS report the market potential is quite high,” Satyanarayan Goel, Managing Director and Chief Executive Officer, IEX, told BusinessLine on the sidelines of IEX’s upcoming IPO press conference . “The short-term market should increase from 10 per cent to 20 per cent in the next five years and exchange volumes should triple from today’s 40 billion units in next three-five years”.

Industry watchers point out that the power exchange, started almost a decade ago with an intention to make electricity markets more transparent, efficient and competitive is yet to make a significant impact in terms of traded volumes.

However, Goel says the volumes on IEX are set to grow as overall power demand in the country is growing driven by government policies and also because the Discoms have started opting for purchases in the spot market rather than signing long-term power purchase agreements (PPAs).

“They are able to get cheaper power and they don’t have to sign agreements; whenever they want to buy they can do it.. through the exchange platform they can manage their demand in a more efficient way,” he said.

In the last four years, the trade volume on IEX has grown at CAGR of 15 per cent in spite of many constraints, including tepid demand and increased transmission congestion caused by significant rise in generation capacity.

In August, the day-ahead power market witnessed the highest ever trade of about 172 MU, IEX’s latest report said. “With the increase in demand for power, primarily from Southern States, a total volume of 3982 MU was cleared, which is 8.5 per cent above 3669 MU traded in July 2017 and 15.5 per cent higher than August 2016,” it said. On a daily average basis, IEX traded around 128 MU in August.

IEX is one of the two power exchanges in India with the second being Power Exchange India Ltd promoted by National Stock Exchange and National Commodity & Derivatives Exchange Ltd. IEX currently offers opportunity to trade in electricity contracts, Renewable Energy Certificates (RECs) and ESCerts (Energy Saving Certificates) to over 5,000 participants.

Wind and solar energy could become another growth sector for IEX. While renewables are not currently traded on IEX, it will happen in the future as the rates of both solar and wind energy continue to fall.

“I am sure renewable energy will find the exchange clearing prices to be more favourable, particularly solar power,” Goel said. However forecasting remains the main challenge for trading renewable power on exchanges. “They (renewable power producers) must have forecasting tools so that they are able to do forecasting a day ahead,” he added.

Earlier in August, the Central Electricity Regulatory Commission dismissed IEX’s proposal to introduce spot trading of renewable energy on its platform on the grounds that the market is not yet ready for the product.