The price of Indian Energy Exchange (IEX) share slid ₹12.67 (8.47 per cent) on Thursday on the NSE to close at ₹136.10, as news of a June 2 directive of the Ministry of Power asking the Central Electricity Regulatory Commission (CERC) to initiate the process of ‘market coupling’ oozed out. However, industry insiders see little impact on IEX because ‘market coupling’, if it ever happens, is a very long way off. 

But what is ‘market coupling’? There are three energy exchanges in India, on which electricity is traded — the market leader IEX, Power Exchange of India and the newly-set-up Hindustan Power Exchange of India. IEX has around 90 per cent share of the market overall, and 100 per cent share in key segments such as Day-ahead market (DAM) and Real-time market (RTM). Today, sellers and buyers of electricity bid on any of these exchanges and therefore, the price discovery on each of the three is different. 

Under ‘market coupling’, there will be one single market-cleared price common to all the three exchanges. This means that the three exchanges will merely collect bids and submit the bids to whosoever is appointed as the agency to determine the common price. This is like some agency determining a common price for Uber, Ola, Blusmart, etc. Essentially, this means that the dominant exchange (IEX) will lose its mojo, because unlike now, under market coupling there would be no particular reason for a bidder to choose IEX over the other two exchanges.  

That is why the stock market reacted negatively on IEX. 

However, experts that businessline spoke to said that ‘market coupling’ is not less than three years away, given the long and tedious process that CERC would need to follow — put out a draft paper, hold stakeholder consultations, public hearing, evolve policy and perhaps deal with any legal challenges along the line. There are also ticklish issues to be settled, such as who will do the clearing and who will settle the prices.

One expert, who requested not to be named, indeed said that ‘market coupling’ is unlikely to happen ever.  He cited the example of a similar directive of the Ministry of Power in October 2021 asking the CERC to usher in ‘market-based economic dispatch’ — a system under which all energy transactions, including the bilateral transactions under long- and short-term power purchase agreements (PPA), would be routed through the exchanges, and any difference between the PPA tariff and the market price would be settled offline between the parties. CERC was to make this effective from April 1, 2022, but the matter died a quiet death.