Energy sector at the cusp of transformation

Indian Energy Exchange (IEX) is India’s prime energy exchange providing a nationwide, automated trading platform for physical delivery of electricity, renewable power, renewable energy certificates and energy saving certificates. In an interview with EPR, Rajesh Kumar Mediratta, Director – Strategy, Indian Energy Exchange said, “We firmly believe that the energy sector in India is at the cusp of a significant transformation and the foreseeable future will see energy markets playing a pivotal role.” He also considers that the CERC approval for introduction of the Real Time Market is one of the recent and big breakthroughs in the power sector.

What’s your take on the recent performance of energy sector in India?
India has a total installed power capacity of about 373 GW as of August 2020. The country has been able to reduce the energy deficit from 4.2 percent in FY14 to 0.7 percent in FY20 which has been a significant achievement. Moreover, there has also been an impetus on adding renewable energy capacity owing to India’s commitment to Paris Climate Agreement 2016. As a result, renewable energy including large hydro now constitutes around 24 percent of the total installed power capacity, as of August 2020, registering 8 percent YoY growth.

Having said that, power sector has been majorly impacted by the COVID-19 induced lockdown. During April 2020 the national peak power demand dropped 25 percent YoY as industrial and commercial activities were drastically reduced. In fact, all India energy consumption fell 16 percent YoY during the first quarter of FY21.Our robust business continuity planning, helped us to ensure availability of IEX platform on round the clock basis even during the lockdown days to facilitate the uninterrupted power supply to the distribution utilities. With ample liquidity on the sell side, the average price in the day-ahead market from 24 March until August 31 was mere Rs 2.45 per unit which was a 26 percent decline on YoY basis. The increased in procurement by the utilities at low prices also helped IEX. Despite drop in national demand in Q1, the electricity trade on IEX increased by 15 percent in Q1 FY21.

Since beginning of the second quarter, the sector has made an unparalleled recovery from the slump. The easing restrictions led to increase in peak demand and energy consumption returning to pre-COVID levels. In September’20, for the first time since the last 6 months, the country witnessed 2 percent YoY increase in national peak demand and 4.6 percent YoY increase in energy consumption. In fiscal year 2021, on year to date basis, the electricity market at IEX registered an increase of 17 per cent in electricity traded volume.

The liquidity status of discoms has worsened due to COVID-19, which has been noted by central government and right steps are being taken. The utilities have raised their voices against PPA and huge concerns are raised on high-cost PPAs done earlier without going into merit. Discoms are now raising concerns on PPAs with high variable cost since they are not getting priority in merit order despatch and their fixed charges are getting burdensome.

Going forward, as the sector grows out of the shadow of the pandemic, it requires greater resilience and flexibility, especially on the supply and operations aspect to grow and become viable. With the right regulatory and policy interventions and increased penetration of technology, automation and analytics, the sector will surely and rapidly transform towards competition, efficiency and sustainability.

What is the future of Indian energy trading sector in 2021?
Let me not just restrict to 2021 outlook. At IEX, we firmly believe that the energy sector in India is at the cusp of a significant transformation and the foreseeable future will see energy markets playing a pivotal role. The markets are critical not only from the energy security, efficiency and sustainable growth perspective but also from India’s industrial competitiveness and overall economic growth.

We have witnessed a glimpse of the contribution and impact markets can bring during the preventive lockdown in the first quarter of this financial year. The Exchanges could successfully support industries and the distribution utilities in accruing significant savings and managing their financial liquidity in a far better way by stepping up power procurement at lower and competitive prices. The open access consumers and utilities of several states like Andhra Pradesh, Maharashtra, Gujarat and Telangana leveraged low cost power available in the market to maximise their financial savings in a substantive manner. For the first time, we saw the utilities openly quoting savings achieved in power procurement through Exchange in the various media reports.

During the lockdown and even after easing of the restrictions, we worked round the clock to ensure commencement of trading in new market segments such as the real time market as well as the green market at IEX. Diversifying beyond electricity, we also launched the Indian Gas Exchange aligned with another strategic national objective of expanding the share of gas presently at 6 per cent to 15 per cent by 2030. We expect to continue seeing the momentum in expansion of the energy markets with introduction of more new products and market segments such as delivery based longer duration electricity contracts upto 365 days, power derivatives, new products in green market segment, cross border electricity trading, ancillary markets etc.

To sum up, the energy markets are already driving the power sector transformation. We can see the transition already happening and in the long-term as the energy markets mature further we will see a significant shift to the power market, as it has also happened in developed economies where exchanges have a share to the extent of 30-80 percent. India presently has about 5 percent of its electricity traded through the markets and thus the potential for growth is enormous.

What is that one recent breakthrough policy decision that will drive the growth of energy trading industry in India?
I am pleased to share that the CERC approval for introduction of the Real Time Market is one of the recent and big breakthroughs in the power sector.

The real time electricity market (RTM) commenced trading on 1 June 2020. It is successfully aiding the distribution utilities to manage power demand-supply variation and meet 24×7 power supply reliability conditions in the most flexible, efficient, and dynamic way. The new market segment is enabling trade power trading through half-hourly auctions with delivery at one-hour notice. Now buying power is as easy as ordering a meal on the Internet. Since the launch, the RTM market at the IEX platform has received a great response from all participants which has led to total trade of 2,865 MU in the first four months since its inception. Also, the market has been seeing continuous increase in the participation since it facilitates the utilities and industries in managing real-time power requirements in the most competitive and efficient manner. Until commencement of the RTM the already financially stressed utilities had to opt for deviation settlement mechanisms for balancing real-time requirements which resulted in huge financial penalties for them. But now they have access to market auctions throughout the day and thus can avoid paying the high deviation settlement charges, lowering the overall cost of procurement, encouraging financial liquidity and savings. Today under RTM we have more than 400 registered participants – 267 buyers and 172 sellers. IEX has around 99 per cent market share. Within such a short-span this market has emerged as a major game-changer driving the growth of energy trading in the country.

Another big ticket breakthrough possible is Gross bidding for plants under PPA. This will bring even plants under merit order based on national pool created through our day-ahead markets. An application has been filed by us with CERC for approval.

What will drive the growth of IEX’s business beyond 2020 and how is it turning the tide in its favour?
As India moves towards energy transition with increase in the share of renewable energy, we believe IEX, as a technology-led energy marketplace, will play a unique role in bringing about this change. The markets will help unleash efficiency, sustainability, and affordability in power supply. We are constantly investing in reshaping technology making it customer centric and futuristic as well as strengthening processes to ensure best in class customer centricity, enhance ease of trade, new functionalities and a faster evolving market for new products.

We have been a step ahead in introduction of industry-first new market segments along with expansion of existing market segments. During the month of June, we introduced real time electricity market. Then we diversified into a new energy segment, i.e. gas, with our wholly owned subsidiary Indian Gas Exchange (IGX) which is India’s first automated gas trading platform. The launch of green markets on IEX platform in August is a recent example which was introduced to cater to the renewable energy market requirements owing to the green energy sector growth. Going ahead, with the settlement of jurisdictional dispute on the delivery-based long-term contracts between CERC and SEBI, we can expect to commence trade in longer duration delivery contracts in this fiscal year itself.

All the new market products and segments will play a transformational role and deepen the play of energy markets ensuring growth and success for IEX. Further, we are also constantly exploring new opportunities that energy shift will unfold.

Diversifying beyond electricity, we also launched the Indian Gas Exchange aligned with another strategic national objective of expanding the share of gas presently at 6 per cent to 15 per cent by 2030.
Rajesh Kumar Mediratta, Director – Strategy, Indian Energy Exchange