Central Electricity Regulatory Commission (CERC), in a recent order, has permitted Indian Energy Exchange (IEX) to offer a wide range of long-duration contracts, ranging from over 11 days to up to 90 days.
Currently, long-duration contracts are bound by a period of up to 11 days.
In its order, CERC has permitted IEX to introduce monthly contracts and has allowed existing daily/weekly contracts with modified timelines for pre-specified time blocks notified to market participants well in advance. CERC’s permission is of course subject to a number of conditions, presented in the detailed order dated June 7, 2022 in response to Petition No.219/MP/2021.
On its part, the petitioner IEX had sought, among other things, the introduction of delivery-based monthly contracts to be available for calendar months or a combination thereof on rolling basis – monthly, quarterly, half-yearly and yearly – in both the conventional and renewable energy segments. The exchange had also sought any-day(s)/any-day(s) single-sided contracts to be available for user-defined days.
In a separate order, CERC has granted similar permission to Power Exchange of India (PXIL) as well.
The rationale
IEX had sought such long-duration contracts so as to provide discoms with another avenue to fulfill their short-term demand and to optimize their power purchase cost. Discoms would also be able to hedge their risk against volatility in spot prices and availability of transmission corridor. IEX said that such contracts would also provide an avenue for sellers to sell surplus power with robust payment security mechanism. Besides, small participants like OA (Open Access) consumers would also get an opportunity to buy power at competitive rates to meet their energy requirement for a longer period.
The SEBI-CERC imbroglio
The issue of long-duration contracts – those beyond T+11 days – on power exchanges was sub judice since 2011, due to a tussle between the two regulators CERC and SEBI. In October 2018, the Union power ministry constituted a committee to address this dichotomy and to recommend a regulatory framework. Based on the committee’s report, submitted in October 2018, SEBI and CERC arrived at an agreement that CERC will regulate all physical delivery-based forward contracts while financial derivatives will be regulated by SEBI (Securities & Exchanges Board of India).
Read more: CERC Grants Transmission Licence To Aligarh-Sikar Scheme
The significance of long-duration contracts
In its order, CERC said that the need for long duration contracts was manifested through details of power procurement on the DEEP (Discovery of Efficient Electricity Price) portal. CERC analyzed tenders on the said portal during the period January 1, 2020 to April 30, 2022. CERC found that out of the 660 tenders, 396 tenders (or around 60 per cent) were for monthly procurement of power. This corroborated well with the need for introducing longer duration contracts on power exchanges, CERC observed in its order.
