Indian Energy Exchange (IEX)

Here are some of the interesting questions and answers from the IEX Q2 FY25 Earnings Conference Call:

Market Share and Transaction Fees

• Mohit Kumar (ICICI Securities Limited): What is your market share this quarter versus other exchanges?
  • Management: Our market share has been almost about 83% now.
• Mohit Kumar: On transaction fees, when we take the revenues and divide by the number of units, it seems like the transaction fee for this quarter is 3.7 per unit. Are we giving a discount?
  • Management: In the case of the REC market, the rates have come down. REC rates are now almost about 120–110 rupees, so we have reduced the transaction fees because of that.
• Bani (Aequitas Park): In your opinion, will the transaction fee for all the electricity products be changed in the future, especially given that we ourselves have decreased the transaction fee in REC products where prices have come down?
  • Rohit Bajaj (Joint Managing Director): In case of electricity, our transaction fee is continuing at two paise per unit on either side, right from 2011, when the electricity rates were almost about 2.5–3 rupees. Today, the electricity clearing price is almost in the range of 5 rupees. In spite of that, we have not increased the transaction fees. Even if you look at the trading activities happening in the sector, the regulator has allowed transaction fees up to 7 paise per unit.

Market Coupling

• Bani: Why should coupling RTM and SCED markets be considered?
  • Rohit Bajaj: The CERC, in their order issued in February, clearly mentioned that their simulations for 3 months did not show any merit in coupling only the RTM market or only the Day-Ahead Market of the three exchanges. They have asked Grid India to run simulations and see if there is merit in coupling the RTM and SCED. However, theoretically speaking, coupling these two different sets of generators (SCED with long-term PPAs and RTM with merchant generators) is undesirable.
• Vir Matani (Jupiter Financial): In case market coupling goes through, how will IEX be affected?
  • Management: I am very sure coupling is not going to happen, so let us not worry about that. In case coupling happens, we have ways and means to ensure that we are able to retain our market share and volumes when we come to that.
• DH Aaral (Systematix Securities): Does the power coming into the RTM market in any way bring down the benefit that could have possibly come out by coupling the SCED with the RTM market?
  • Rohit Bajaj: The optimization opportunity is definitely reduced because the volume in the SCED market is very less—less than 28 million units per day—while the RTM market volume is about 100 million units. With the new government rule on the sale of unrequisitioned surplus (URS) power, about 20 million units of this power is being sold through the RTM market itself. This further minimizes optimization opportunities by coupling the markets.

RECs and Transaction Fees

• Sumit Kishor (Axis Capital Limited): During the September quarter, the REC volumes kept coming off from July, which was a very good month, followed by a lower number in August and a further decline in September. What was the dynamic here?
  • Rohit Bajaj: Volumes were significantly higher in July because Bihar, a state with a large deficit, purchased a good amount of RECs to complete their RPO compliance that month. In August and September, their demand was not there, and because of that, the numbers have reduced.
• Vishal Periwal (Antique Stock Broking): On the REC transaction fee that we have revised, I just wanted to understand the rationale for it. When the volume for any product is going strong, what was the reason for reducing the fee that we charge?
  • Rohit Bajaj: We felt that transaction fees should also be reduced since the rates for RECs have come down substantially, from earlier about 1,000 rupees to almost 120 rupees.

Diversification and New Products

• Jira (Keynote Capitals): Which one of the diversification initiatives—coal exchange or EPR trading—has the largest potential in terms of becoming sizable, and which is the one that you think will be started first or will commence operations soon?
  • Rohit Bajaj: Both questions are difficult to answer because both initiatives are dependent on government decisions. Both will need some time, depending on government approval. For the coal exchange, it will take 6–8 months after the approval to start. Similarly, for EPR trading, we have to wait for the government to finalize regulations and appoint an agency.
• Ruchita Kadgi (IIFL Asset Management): What is the opportunity size in the REC segment in terms of volume?
  • Rohit Bajaj: The opportunity is very high because many states, distribution companies, and industries are not meeting the RPO compliance norms specified by the Government of India. Now inventory is also available, and the rates have come down. It is a big opportunity, but again, it depends on market participants and the enforcement by the state regulators.

Other Interesting Insights

• The management shared that IEX’s market share has been gradually decreasing over the last few years mainly due to the introduction of long-duration contracts, where the competition is more evenly spread.
• IEX is accredited to issue iRECs (International Renewable Energy Certificates) through its subsidiary, ICX. However, the management admitted that the opportunity size in this segment is currently very small.
• The management highlighted the significant reduction in battery storage rates, which makes it commercially viable and presents opportunities for market development.

These are just some of the interesting questions and answers from the IEX Q2 FY25 Earnings Conference Call. They provide insights into the company’s performance, the regulatory landscape, and the future outlook of the power trading sector in India.

Note: Its AI generated, transcript from audio. Pls let me know if there are any erroneous info/notes.

Disclaimer: Invested and Biased. Less than 4% of PF. No transactions in the last 30 days. Post purely for study purposes. Consult your advisor before any investment decisions.