Let us start by understanding trading volumes on PXIL in recent years. How has been the overall growth?
PXIL’s trading volumes have been continuously increasing over the last three years. In FY21, total transaction done on PXIL was 5,705 MUs, which was a 122 per cent increase over the volumes transacted in FY20. The trading volume of 2,570 MUs in FY20 itself was 90.40 per cent higher than in FY19.
PXIL closed FY21 with the highest ever revenues in the company’s history. This has been a significant achievement for the company, especially in a year when REC trading has been stopped from July 2020 onwards.
PXIL also closed FY21 with more than 60 per cent market share in the Term Ahead Market where participants from across the country have traded actively on PXIL’s platform on a plethora of contracts that makes power transactions easy, efficient and most importantly, transparent.
What is the current participant profile on PXIL?
The market participants transacting at PXIL includes trading licensees, state discoms and power procurement corporations, IPPs and Open Access (OA) consumers. All these participants regularly transact on the PXIL platform on a bouquet of products.
The PXIL platform allows buyers such as discoms, OA consumers comprising of industrial and commercial consumers, etc; and sellers such as IPPs and CPPs to transact on ‘PRATYAY’ trading system that undertakes price discovery in a fair and transparent manner for delivery of electricity.
“Indian regulators and policymakers have recognized the benefit of market coupling.”
The Real Time Market (RTM) introduced by PXIL recently completed one year. How has been the performance? Incidentally, has the one-hour lead time for real-time transactions been shortened?
RTM has allowed participants to transact their power requirement an hour prior to delivery. The participants have preferred to transact in RTM based on their preference in Day Ahead Market (DAM).
The start of delivery is within an hour of the closure of the auction session for that delivery period. So yes, the lead time to delivery is very short and allows for a real time transaction to take place.
The collective transactions segment, which comprises of Day-Ahead Spot and the Real Time Market, operate on a blind double sided auction principle.
This blind auction principle has been derived from the Nordic Power market, where the power exchange is designed as a monopoly. This blind auction in the Indian context has therefore resulted in an unintended monopoly as well, which is seen in the collective segment.
The European power market, on understanding the adverse impact of such a design, has implemented a concept of market coupling that allows a single reference price to be developed and competitive power exchanges to flourish.
Indian regulators and policymakers have recognized the benefit of market coupling and have developed enabling provisions related to the same. We feel that a faster implementation of that would help all market participants benefit from the efficiency of competitive markets rather than be exposed to a monopoly.
“The benefits of competition are truly visible in the Term Ahead market.”
Around nine months ago, PXIL observed that it has been witnessing higher share in new market segments like the Term Ahead Market. Please discuss. Is this trend continuing?
PXIL continues to have major market share in the Term Ahead Market. In the bygone year, FY21, our market share was 63 per cent and this year, till May 2021, the market share has been 53 per cent.
In this segment, PXIL has been providing various innovations in transactions, including implementation of Dynamic and Static contracts along with a digital transaction platform that allows anywhere, anytime access that has led to participants transacting more and more on the PXIL platform.
The benefits of competition in terms of better services, innovation and efficiency are truly visible in the Term Ahead market in our country.
Tell us about recent trends on the Green Term Ahead Market (GTAM) platform, launched in March this year.
PXIL introduced the Green Term Ahead Market (GTAM) contracts on March 24, 2021 after receiving approval from the Hon’ble CERC. The GTAM contract provides an opportunity to participants to transact in renewable energy, both in the solar and non-solar type.
PXIL introduced Intra-Day and Any-Day Contracts in this segment wherein RE power can be transacted to meet current days requirement as well up to 11 days ahead. Purchase of power in GTAM helps buyers to meet their RPO requirements.
Most of the sale in the G-TAM market is from specific sellers, especially state utilities, which have higher RE purchase in their portfolio compared to their RPO requirement. With these state utilities beginning to use the PXIL platform as well, G-TAM transactions too are starting an upward trajectory on PXIL.
We are also continuously engaging with RE generators across the country to enhance the use of this platform for their surpluses as well.
“Implementation of the Marked-based Economic Dispatch (MBED) mechanism would surely have a positive impact of using the efficient power exchanges as the primary marketplace for transaction of electricity.”
A recent study has shown that the share of energy exchanges in India’s total electricity consumption is only around 6 per cent. How can this be improved given that much of India’s power generation is locked in long-term PPAs?
Discoms in India predominantly buy electricity from the wholesale power market under long-term (typically 25 years), medium-term (up to 5 years), and short-term (up to 1 year) contracts. Most of their daily power demand is met through long- and-medium-term PPAs, while the rest is met through bilateral transactions between discoms via power exchanges or traders. The purchase of power through power exchanges has reached 6 per cent of the total electricity consumption.
In the current mechanism, power generators supply power to discoms as per their PPAs. Discoms schedule power based on their demand estimate and the available capacity for each 15-minute time block for the day ahead, under ‘self-scheduling’.
The Ministry of Power (MoP) has issued a discussion paper on ‘Market-based Economic Dispatch of Electricity’ (MBED). The paper proposes a day-ahead market where discoms and generators are to submit their demand and supply orders on power exchange platform. The objective is to dispatch the power that costs the least, first, by giving discoms the ability to source power from cheap generators at exchange-discovered price, irrespective of the location of the generator, as long as grid security is maintained.
In the first phase proposed to be made operational by April 1, 2022, NTPC stations would be the sell-side participants in MBED that will later be extended to other generators, in a phased manner.
Implementation of this mechanism would surely have a positive impact of using the efficient power exchanges as the primary marketplace for transaction of electricity.
Further, the short-term energy market has a share of 9-11 per cent in total electricity consumption, and that power exchanges accounted for over half of this. How can exchanges have a higher share in India’s short-term energy market?
The vision of our policy-makers, as well as the intent of our regulators towards expanding the role of power markets in our country, is very clear. This has also been made evident in the draft National Electricity Policy which talks about expanding the power markets to 25 per cent by the year 2023-24.
With the various initiatives that are in the pipeline, the breadth and depth of markets is expected to increase manifold over the next few years.
The resolution of jurisdictional boundaries related to electricity between SEBI and CERC will enable new longer duration delivery-based contracts to be introduced on power exchanges along with the introduction of derivatives in electricity to be regulated by SEBI. This would allow exchanges to play a key role in providing other short-term transactions (with delivery duration greater than a week) through the power exchanges, leading to greater transparency and efficiency in the transaction of such contracts.
The market re-design developments would be initiated by implementation of MBED, wherein the spot market share is expected to increase from nearly 4 per cent to few multiples in a short span of time.
The Market coupling among power exchanges, Integrated Day Ahead Market, cross-border electricity transactions between india and neighboring countries, market-based ancillary services contracts, strengthening and deepening of REC mechanism, etc. are few initiatives leading the change in the power exchange market.
It has been quite some time since trading of RECs has been suspended on power exchanges. What is your reading of the situation?
Yes, trading in REC has been suspended since July 2020 based on directions issued by Hon’ble APTEL. We expect resumption in trading of RECs on the exchange platforms very soon.
“The multi-exchange model that we have in the power market in our country is a unique structure worldwide.”
CERC recently approved a new private energy exchange. How do you see competition arising from private players? At the end of the day, what is that a participant seeks in an energy exchange?
PXIL welcomes competition in the power exchange space. Competition will result in innovation and increase in service offerings of exchanges that will ultimately benefit market participants.
The multi-exchange model that we have in the power market in our country is a unique structure worldwide. For such a market model to translate into actual competition on the ground, it is important that the market structure be corrected to foster competition in the collective segment.
Some steps towards recognizing the benefit of structural corrections like market coupling have already been taken. It is critical that these are implemented urgently so that competition can truly thrive, and market participants and electricity consumers across the country are benefited.
PXIL has completed over 12 years of existence. How do the coming years look to you? Are there new products in the offing?
PXIL has completed more than 12 years of power exchange operations. It has renewed its focus to meet the requirements of market participants by innovating its technology offering and products.
New products that are awaiting approvals for introduction include the Integrated Day Ahead Market, Hydro Two-Day Ahead Contract for transacting in hydro generation two days prior to delivery, Hydro GTAM Contract for meeting existing days and power up to 11-day period, Weekly uniform price contract, Monthly Contract for meeting power requirements on 1, 2 and 3-Month ahead basis, ancillary services contract, longer tenure contracts in medium term open access and long term open access period, ESCERTs contract, etc. are new contracts that will be introduced for meeting transaction requirements of market participants.
As the short-term power market expands and the above contracts are introduced by PXIL, the business volume of the exchange would increase in a short period of time.
Further, as discoms are keen to purchase power through the exchange platform instead of solely depending on the costlier power contracted under long-term PPAs, the outlook for PXIL remains encouraging.
