Stock Fundamentals

World has moved to exchanges to source power, says Rajiv Srivastava of IEX

Vivek Ananth | Updated on March 15, 2020 Published on March 15, 2020

Conventional power capacity is no longer getting added, says IEX Managing Director

The Indian power industry is going through many changes. Coal-fired power plants are finding it difficult to seal long-term power purchase agreements (PPAs), while on the other hand fuel supply issues remain. Many State power distribution companies are moving to reduce the price they pay for sourcing electricity. Amid all this, Indian Energy Exchange (IEX), which operates a platform for real-time power exchange for buyers and sellers, has been doing well. IEX’s Managing Director and CEO Rajiv Srivastava spoke to BusinessLine on the future of power sector in India and the company’s prospects. Excerpts:

There have been fluctuations in electricity trading on your platform in the past few months. What are the reasons?

We have two strong customer basess — industrial and customer sector, and agriculture. During September, October, November, and August (2019) as well, the manufacturing activity in the country was extremely subdued.

There was also a contraction in consumer demand across both consumables and non-consumables. Also, the monsoon last year was extremely good.

That takes away demand from the agricultural sector for electricity. This manifests in the volume of electricity traded on the exchange.

But volumes started to bounce back in December as the weather phenomenon went away.

There’s no more hydro generation when there is intense cold in many northern States. So, the requirement of electricity goes up. Industrial activity, after a huge dip, did plateau out.

In January, the electricity requirement went up.

What’s your prognosis for the power market and the power sector, considering that the share of renewable power is going to increase in the future?

Out of the 380 GW installed capacity, 80 GW is renewable and the rest is conventional power, including nuclear power. This mix will shift towards renewables.

It will become 175 GW by 2022. Nearly 100 GW of new renewable capacity will get created by 2022-end. That has an implication on coal because no more conventional capacity is getting added, nor is conventional capacity coming into the long-term power purchase agreements.

Our long-term prognosis is that the electricity demand in the country will continue to go up. The government will continue to add more capacity, largely through the renewable route.

Globally, the short-term power market is bigger than what it is in India. Where do you see India in that curve?

There are a few countries in the western world where around 30 per cent of electricity consumption is being sourced through exchanges. But in most countries, it is in the range of 50-80 per cent.

They have moved on from long-term PPAs, and most transactions happen through the exchange because power is available whenever the consumers want it. It gets you the best price through a transparent mechanism. We in India have long-term structural challenges because of long-term PPAs.

The good thing is that the government is not doing any more of them. Any new capacity that is coming up will not have certainty for delivery of power through a PPA.

When the PPAs end, what will happen to the power from those projects? Also, what will the increasing share of renewables do for IEX as a platform?

As the PPAs expire, the power generated from those power plants has to find a way to the consumers somehow.

Our belief is, most of it will find a way to the consumers through power exchanges. So, the liquidity in the exchange should go up and drive prices lower. The government is also making a move to bring renewables on the exchange.

As the mix of renewable and non-renewable energy changes, and renewable power consumption increases to 25-30 per cent, the government will have to grapple with a hybrid mix of renewable and non-renewable.

This is a challenge because the price points are different for renewable and non-renewable.

The only place where you can find the price points between the two is through the exchange. You will see more and more renewables and hybrid power trading on the exchange.

How long do you think this shift will take?

Every year, when the PPAs are going away, all the power generated from those projects will start to shift to this hybrid model. You’ll find that happening in the next 10-12 years.

What’s the current share of the total power demand in India that’s traded on IEX and what are the future long-term contracts you are planning to offer?

The total short-term market is around 11 per cent of the total power demand, and right now, we are addressing around 3.8 per cent of the power market.

Would this relate to power for delivery up to 11 days?

Yes. The rest is taken up by some bilateral transactions.

The long-duration contracts, which were under a dispute between SEBI and CERC, has been agreed to and resolved.

They have given a letter in the Supreme Court to withdraw their petitions in the case. If all goes well, we will be in a position to launch long-duration contracts to be delivered for up to a one-year period.

What’s been the response of discoms and other power consumers to the prospect of long-duration contracts on IEX?

Some will shift. Right now, we don’t have a product, but the market in long-duration power trade is still taking place. In that, one-year contract is still getting done.

When we get the product, we will start approaching the stakeholders to shift their buying to the exchange.

Those with contractual agreements will continue with their commitments, and the new ones will come on the exchange.

What’s the scope of business that can come through for IEX, whenever this shift happens?

So far, our products played only 3.8 per cent of the power market. With the new long-term products, we can play all the way up to 11 per cent of the market.

It will not happen immediately, but our addressable market share will go up by nearly three-fold for the first time in our history.

You recently incorporated a gas exchange subsidiary. What are the business prospects and when are you planning to launch its operations?

The opportunity for a gas exchange is as big as an electricity exchange. India’s current gas consumption is 150 mmscmd (million metric standard cubic feet per day), which is expected to grow at 8-9.5 per cent.

The board of directors approved the incorporation of a subsidiary to develop a gas exchange in September 2019 with an initial investment of ₹10 crore. We are going to launch the company soon, but can’t comment on a date and will announce more details at an appropriate time.

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Published on March 15, 2020
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