What are the distinct advantages that HPX brings to the table, vis-à-vis the energy exchanges already in operation?
HPX’s introduction is backed by state-of-the-art technology and a series of innovative features which are served with a promise of speed, transparency, and better price discovery in power trading.
HPX is based on the technology which makes BSE the fastest exchange in the world. The initiation of HPX will give headway to spot trading electricity which will provide the flexibility to sector participants to take advantage of market conditions at different times.
Adding to this, the backing up of BSE and PTC India will act as a differentiator in the Indian power market by providing cutting-edge technology solutions, an efficient price mechanism, and the quality of service at HPX. Further, other power sector entities—generators and distribution companies—currently hold around 35 per cent in HPX which is expected to be another advantage for the exchange.
“HPX has visioned to enhance market efficiency through advanced tech solutions.”
BSE is a co-promoter of HPX. What advantage does this provide to HPX in terms of technology platform?
Supported by the technology from BSE Tech, HPX will serve as a seamless platform for power trading which will help the buyers and sellers with optimized price discovery and better efficiency in power purchase. HPX has visioned to enhance market efficiency through advanced tech solutions. Technology provided by BSE Tech is considered to be one of the key points of differentiation.
It has been around four months since HPX started formal operations. Give us an idea of the volume traded and the number of participants registered so far.
HPX initiated trading on its platform on July 6, 2022, and wants to create its own space in Power Exchange business by providing the market participants a world class user experience.
As of September 1, 2022, the company had a cumulative trade of 500 MUs in the contingency market, taking its share up to 20 per cent in the contingency market. A diverse range of players, including state-owned commercial utilities, IPPs, power traders, Open Access customers, and consultants, are already trading at the new exchange.
We understand that HPX is gaining market share in the “contingency” market. Tell us more.
As indicated, Hindustan Power Exchange has increased its market position in contingency segment with a cumulative trade of 500 MUs the overall contingency market share accounts for 20 per cent as on September 1, 2022.
The exchange anticipates its volume to grow on other segments as well such as on daily & weekly contracts, renewable energy certificate, Day-Ahead Market (DAM), Green Day Ahead Market (G-DAM) and Real-Time Market (RTM).
In the coming days, HPX looks forward to rope in more market participants who can meet their energy requirement in efficient manner. HPX aims to target their exchange price to become the reference price for trade in power which will happen once the company will achieve the 20-30 per cent market share in other segments as well.
“In medium term, HPX intends to offer its participants long duration contracts which currently are subjected to approval of CERC.”
What are the various platforms currently available on HPX, and what new ones are likely to be introduced in the medium term?
Initially, HPX has initiated its offering in contingency contracts, products that stretch beyond DAM timeline, but the company doesn’t see a full-stop here. Over the course of time, HPX has launched DAM, RTM, G-DAM, REC, Daily & Weekly contracts.
HPX is expecting its volumes on other platforms of ‘day ahead market’, ‘green day ahead market’, ‘real time market’, ‘daily& weekly market’, and ‘renewable energy certificate market’.
In medium term, HPX intends to offer its participants long duration contracts which currently are subjected to approval of CERC.
How optimistic are you about trading in RECs that was recently revived by CERC after a rather long ban?
With the advent of CERC (Terms and Conditions for Renewable Energy Certificates for Renewable Energy Generation) Regulations, 2022, the bottlenecks of REC trading are expected to get resolved. Further, with conducive government policies towards development of renewables, trading in REC will continue to improve and it is quite evident from the past REC trading sessions witnessed in the market. Alongside, many other entities in India are trading in I-REC (International REC’s) which are voluntary, in turn implying that the entities are consciously trying to use more green power attributes and want to have the environmental benefits of it.
“REC trading is expected to get further boost because of ESG commitments made by non-obligated entities.”
Do you feel that enforcement of RPO norms can improve trading in RECs, as far as state owned discoms are concerned?
Enforcing RPO norms will certainly act as a driving factor to improve trading. The regulatory commissions need to ensure enforcement of RPO norms.
Besides this, we should also factor in that any power generating plant is installed for operations over a period of 25 years. Duration of debt provided to the plants also vary from 10-15 years. RPO trajectories are however presently specified for 3-5 years. Thus, providing long-term visibility on RPO obligation is also likely to improve trading in REC.
REC trading is expected to get further boost because of ESG commitments made by non-obligated entities.
In a general sense, do you feel that energy exchanges can improve India’s short term electricity market? What, in your view, could be new trading platforms that could boost trading on energy exchanges?
Nearly 90 per cent of India’s electricity is traded through long-term agreements that last 20 years or longer. Participants in the sector do not have the flexibility afforded by these contracts to take advantage of changing market conditions. Power exchanges give market players a platform with numerous options for buying and selling power, helping them to efficiently manage their power portfolios. The new power trading platforms coming up are giving opportunities for a fair and transparent way for trading, having an edge over the traditional bilateral approach. More power exchanges in India will deepen the market and promote electricity spot trading.
The government has also envisaged in the draft National Electricity Policy that 25 per cent of the power generated in the country should be traded through power exchanges. Currently, only 6 per cent of the country’s electricity is traded through spot agreements, but with increase in power exchanges, more volume of electricity is expected to increase through spot deals, which might lead to ground-breaking outcomes. The introduction of HPX will give a definite push to the development and progress of spot trading in electricity.
Thus, one can say, in order to facilitate the buying and selling of electricity and foster a more competitive and liberalized market, power exchanges have become the most popular institutions today.
“The approval granted by CERC on long-duration contracts beyond T+11 days is a welcome step in the power market.”
In around June this year, CERC permitted long-duration contracts beyond (T+11 days) on energy exchanges. What impact do you see of this on exchanges, in general, and on HPX in particular?
The approval granted by CERC on long-duration contracts beyond T+11 days is a welcome step in the power market.
Before implementation of LDC contracts, for the period extending beyond 11 days the participants had to opt for bilateral contracts for trade. But these contracts did not offer efficient services such as robust price discovery, power scheduling, clearing and settlement. Also, these bilateral contracts have no risk sharing mechanisms as it does not come under a market platform. As a result, leading to high overall transaction cost.
Now as LDC contracts have come into play with the extension of trade timelines in Daily, Weekly, Monthly contracts, the participants will get more benefit from end-to-end services that Power Exchanges provide on their platform.
Moreover, for a participant, getting a long-term window to trade beyond T + 11 is expected to mark a significant rise in electricity transactions at power exchange. The approval of LDC contracts is an added advantage for HPX and it will facilitate participants to meet their long-term energy requirement.
“The HPX platform will be playing a crucial role in bridging the supply and demand gap and in offering trading at a cost-effective rate.”
Given the sharp focus that India has on renewable energy, how do you see the prospects for HPX in the years to come? What would the principal growth drivers for HPX?
The Indian power sector is on the verge of a significant energy transition, with a continuously increasing proportion of renewable energy in the country’s mix of power generation. Additionally, more variable power output from wind and solar power facilities is expected to encourage short-term energy trading, providing buyers and sellers with more options. The HPX platform will be playing a crucial role in bridging the supply and demand gap and in offering trading at a cost-effective rate. With HPX looking forward, to bring Green Day Ahead Market platform in tandem with Green Term Ahead and Renewable Energy Certificate, the markets will mark a significant movement for the company as many corporates now have taken pledge to buy green energy only.
