The past couple of years have been very eventful for Indian Energy Exchange (IEX), India’s most active energy exchange. In this exclusive interview, we have Rohit Bajaj, Senior Vice President and Head – Business Development, Indian Energy Exchange Ltd, taking us through the key developments like green energy trading, real-time market, cross-border electricity trade, resumption in REC trading, etc. Bajaj exudes confidence that IEX is currently on a growth wave, and that IEX will strive to innovate its technology, products and services, so as to help market participants meet their energy requirement in the most efficient manner.
Let us start by learning about the overall volume of electricity trade on IEX in FY22 so far, and how it compares with FY21.
We continue to perform exceedingly well in terms of traded volume and are very optimistic about the volumes and growth momentum on the Exchange. In FY21 we had achieved an all-time high trade volume of 73.94 billion units (BU), whereas in this fiscal year till third quarter (Q3-FY22), we have registered a cumulative trade volume of 74.9 BU including certificates which is 43 per cent increase year on year. In FY22, we aspire to achieve 100 BU in terms of traded volume and set a new record.
Trading in renewable energy has been a significant development for IEX. Tell us about the traded volume since the launch of green market on IEX in August 2020.
In August 2020, IEX commenced trading in delivery based solar and non-solar energy on the Exchange under contracts such as Intra-Day, Day-Ahead Contingency, Daily and Weekly which paved the way for establishing first-of-its-kind Green Term Ahead Market (GTAM) in the country. A total volume of around 4.3 BU has been traded in the market since inception. In a bid to further provide competitive renewable price discovery and facilitate market development, the Green Day Ahead Market (GDAM) was introduced as part of Integrated Day ahead market in October 2021. The conventional day-ahead power market (DAM) and the GDAM now operate in an integrated manner. Within three months of operations, GDAM has achieved 500 million units of electricity. Cumulatively both the GTAM and GDAM together have traded around 4.8 billion units in terms of volume since August’20. We are optimistic about the growth potential of the green market given the fact that India aspires to build a sustainable and efficient energy future driven by renewable energy. In this decade, we aspire to achieve 350 GW green capacity addition to achieve 500 GW capacity target by 2030. This implies a capacity addition of almost 35GW on a yearly average basis through the decade. This target is almost 2.5 times of our annual renewable capacity addition pace in the recent past.
Waiver of ISTS charges is a positive development
How favourably will the ISTS-charge waiver help the green market?
This is a really a positive development for green market which will increase the viability of renewable trading. The notification once implemented will play an instrumental role in deeper penetration of renewable energy market in the country.
The power ministry last year allowed discoms to exit PPAs that have completed their tenure. Will this lead to more electricity available on power exchanges, and that too at a competitive price? Please discuss.
Over the last 13 years, the Exchange-based power market has played a critical role in supporting the industries and distribution utilities in making transparent, competitive and flexible power procurement. The competitive power price discovery has made the Power Exchanges emerge as a critical avenue for power procurement optimization, fostering effective utilization of generation resources and contributing to operational and financial savings for the industries and utilities.
Discoms want to exit costlier PPAs that have completed their tenure as they are aware of availability of surplus power in the market.
Discoms want to exit costlier PPAs that have completed their tenure as they are aware of availability of surplus power in the market. Discoms have been utilizing different market segments on the Exchange such as real-time, day-ahead, term – ahead market, green market to efficiently procure power to meet deficit and also to replace costlier power while accruing millions in savings. The Dicoms that are exiting the PPA will increase their participation in the market which will add to the buy side liquidity on the platform. Similarly, the supply from these old generating plants will also come to the market. This will be a win-win proposition since the virtues such as liquidity, security of payment, competitive prices and flexibility in procurement offered by the market is unparallel. In fact, the market participants are becoming increasingly comfortable to limit procurement under PPA and step up procurement through the market platform to strengthen their operational and financial efficiency. In the last 4-5 years, we hardly know of any distribution entity who have entered long term PPA to meet their power requirements.
How has the performance of the Real Time Market (RTM) been over the past 18 months or so, of its launch? Do you feel that RTM will eventually be the biggest market on IEX, and on power exchanges in general?
The Real Time Electricity Market since commencement of its operation in June 2020 has performed exceptionally well and has cumulatively traded over 25 BU of volume. The Real Time Market on the Exchange is helping the distribution utilities balance their demand-supply variation in the most competitive and efficient manner. The market continues to grow leaps and bounds as with vibrant and liquid RTM segment, the utilities now have access to 48 market auction sessions throughout the day, where the price is discovered transparently, liquidity is robust, and flexibility of procurement in 15-minute time blocks is available. With increasing share of RE power in the system, we expect this market to grow even further as this helps participants to balance their portfolios close to real time.
The power transfer potential of CBET is estimated to increase to 100 billion units by 2030
IEX has newly commenced cross-border electricity trading. What potential does this market hold?
The Cross-border electricity trading (CBET) is aimed at expanding power markets beyond the Indian geography. Last year in April, IEX commenced trade in the market segment with Nepal as the first participant. On 1 Jan’22, Bhutan also came on onboard through Druk Green Power Corporation. Besides Nepal and Bhutan, IEX has been working with stakeholders in Bangladesh to facilitate its participation towards building an integrated South-Asian regional power market. At present, India’s electricity trade with the neighboring South-Asian countries stands at about 18 billion units (~3500 MW) conducted through medium to long-term bilateral contracts. As per the energy think tank IRADe, the power transfer potential of CBET is estimated to increase to 100 billion units by 2030. The Exchange thus, has an immense opportunity in this market space. We endeavor to build an integrated South Asian regional power market.
Also read: RTM Emerges As Fastest Growing Market On IEX
What are the early trends on trading in energy saving certificates on IEX? Please discuss the overall market size of ESCerts in India, and the benefits of their trading on exchanges.
IEX commenced trade in the Energy Saving Certificates (ESCerts) under Perform, Achieve & Trade (PAT) Cycle-II on 26 October’21. During November’21, the Exchange registered trade in 242,733 ESCerts. The trade has been paused temporarily since then as per the directions dated 25 November 2021 issued by the Ministry of Power.
The ESCerts are playing a key role in building an efficient industry. Under PAT-II cycle, the market size includes 11 industry segments with 621 designated industrial consumers. In its second cycle, from 2016 to 2019, PAT aims at achieving an overall energy consumption reduction of 8.869 MTOE and monetary savings to the tune of Rs.13,445 crore.
The REC market has been a vital market-based instrument for obligated entities such as distribution utilities, open access consumers, and captive power plants
What is your overall assessment of resumption of trading of RECs on power exchanges, and on IEX in particular?
IEX pioneered trade in REC market in the year 2010. The Exchange has cumulatively traded over 390 lakh renewable energy certificates since commencement of the market in the year 2010 and has been playing a significant role in supporting the transition to a sustainable energy economy. In November 2021 we resumed trade in REC Market after a pause of almost 16 months. In the first three months of trade, we have registered total trade of 49.6 lakh RECs. The REC market has been a vital market-based instrument for obligated entities such as distribution utilities, open access consumers, and captive power plants for meeting their renewable purchase obligations (RPOs) and even voluntary requirements in the most competitive and efficient manner.
In general, how do you see IEX promoting the cause of green energy in India, through its various markets like GTAM, GDAM, REC trading, etc?
Until August 2020, Exchange-based power markets were only offering renewable energy as green attributes through renewable energy certificates (RECs). Entities on the demand side were procuring renewable energy through either long-term contracts or short-term RECs to fulfil their renewable purchase obligations (RPOs). This changed after August 2020, when the CERC approved trading in renewable energy with term-ahead contracts on the power exchanges, paving the way for the establishment of a first-of-its-kind Green Term Ahead Market (GTAM) in India.
Later on in October 2021, the Green-Day Ahead Market (G-DAM) was also introduced on the Exchange. The conventional power and GDAM now operate in an integrated manner. Both the GTAM and GDAM segments have received excellent response from the participants since their inception as more and more utilities and C&I consumers are now participating in the green market to meet their energy, and RPO requirements in an integrated and competitive manner. Cumulatively since their operations on the Exchange, both the GTAM and GDAM together have traded around 4.8 billion units in terms of volume.
The green markets and RECs today complement each other and serve the requirements of the constituents in their own unique ways. For integrated energy and RPO, the green market is appropriate, and the REC market is suitable when it comes to meeting RPOs in a standalone way. As a signatory to the Paris Climate Agree¬ment and as per the recent commitments made at COP26, India has voluntarily committed to installing 500 GW of renewable energy capacity by 2030 and meeting 50 per cent of total electricity consumed through renewable energy. The pan-India green market offers immense benefits to the market participants and could play a catalyst role in achieving India’s ambitious RE targets. The market will also encourage green generators to adopt part-market and part-power purchase agreement model.
IEX expects to garner a large share of electricity demand for trade through its market platform
Energy exchanges have tremendous potential in boosting the rather nascent short term electricity market in India. Please discuss.
The Government of India strives to deepen the power markets in the country towards supporting the national aspiration to build a sustainable energy economy. The draft National Electricity Policy 2021 envisions 25 per cent share of the power market by year 2024, implying a 4X growth from the present 6 per cent share of energy markets. This when realized can give significant growth opportunities for the Exchange market. We are working pro-actively in collaboration with all the stakeholders to expand our market segments and products, advancing and strengthening the Exchange and Enterprise technology, further evolving our eco-system of 6900+ participants, and continuing to innovate and automate our systems and enhancing the customer centricity. With robust projections on the economic growth, the demand for electricity is expected to increase at 7-8 per cent for couple of years and IEX expects to garner a large share of electricity demand for trade through its market platform.
Please take us through the new initiatives that IEX is planning to launch in the medium term.
We are now gearing for the launch of the much-awaited Longer Duration Delivery Contracts in both electricity and renewables. We are also working on other new segments such as Exchange based Ancillary Markets, Capacity Markets as well as Gross Bidding contracts. There are several initiatives that are underway on to strengthen as well as advance the enterprise and exchange technology to make it even more customer centric towards web and mobile based user interface with increased use of analytics and completed automated processes. The RTM segment already offers API based bidding and the same is also being attempted for all other market segments on the Exchange. The power sector is undergoing a significant shift redefining the industry outlook. There is a greater thrust on sustainability like never. The demand for electricity is also expected to continue to grow. In this backdrop, IEX endeavors to continuously innovate its technology, market segments, products and services to help the market participants meet their requirements in efficient manner in the fast and dynamically changing scenario.
