Energy Exchange

Abstract

Currently, the Indian Energy Exchange and Power Exchange of India Ltd., two energy exchanges in India,
operate under the direction of the CERC. Surprisingly, Section 66 of the Indian Electrical Act, 2003 states
that regulators are in charge of developing the electricity market. This research paper seeks to focus on
economic viability of power exchanges in India.

Introduction

The idea of trading through an exchange enables traders to choose the finest buyer or seller for a trade
as well as the appropriate market pricing. In order to improve competition and transparency in such
markets, power exchanges or platforms for trading energy were established. It follows that power
exchanges improve market transparency and lower counterparty credit risk. Currently, there are about
36 power exchanges in operation.

Electricity trading is now a separate and independent activity in India as a result of the ratification of the
Indian Electricity Act 2003 (Act). Power market players can sell or buy electricity from these specific
energy exchanges or from power traders who are registered with the Central Electricity Regulatory
Commission through over-the-counter transactions (CERC). The Indian Energy Exchange (EX) and Power
Exchange of India Ltd. are the two energy exchanges operating in India at the moment under the
direction of the CERC (PXI). Interestingly, the regulators are in charge of developing the power market in
India under Section 66 of the Indian Electricity Act, 2003.

The International Energy Agency published its initial India Energy Outlook report in 2015. (IEA). The
organisation published the India-specific energy outlook report in February 2021, six years after it was
first published.

Body

A country-specific counterpart of the IEA's World Energy Outlook is the India Energy Outlook. To
emphasise, the report stated that by 2030, India will surpass the European Union as the third-largest
energy consumer in the world.

Briefly stated, the research highlighted two trends that are good for India's energy system:

a)India has succeeded in bringing energy to millions of its residents through household electrification.

b) India has seen growth in the solar energy industry in particular.

Several key ideas from the IEA's India Energy Outlook 2021 include:

a)By 2030, India would have the third-highest energy consumption.

b)By 2040, industrialization in India is expected to play a significant role in driving the country's
contribution to global growth in industrial value-added and industrial final energy consumption,
particularly in the steelmaking sector.

c)By 2030, India's oil import expenditure may double.

d)By 2040, there will be a tripled and higher demand for natural gas.

e)Coal currently makes up the majority of India's energy mix, and by 2040, consumption is expected to
increase from 590 MT to 772 MT.

The first and biggest power and electricity exchange in India is called the Indian Energy Exchange (EX).
With more than 6300 participants, it has a market share of almost 98 percent of the power traded
volume. By offering an automated trading platform for the actual supply of electricity, the trading of
energy contracts, Renewable Energy Certificates (RECs), and ES Certs, IEX fosters efficient price discovery
and enables participants (Energy Saving Certificates). The exchange platform enhances the accessibility
and openness of the Indian power market as well as the speed and effectiveness of trade execution.
Since its start on June 27, 2008, IEX has been sanctioned and governed by the CERC.

It is important to emphasise that PXI, our nation's first power exchange with institutional support, offers
creative and unique ideas to enhance the Indian power markets. PXL is a partnership between the
National Commodity and Derivatives Exchange Limited (NCDEL) and the National Stock Exchange of
India Limited (NSE). Gujarat Urja Vikas Nigam Limited, West Bengal State Electricity Distribution
Company Limited. Madhya Pradesh Power Trading Company Limited, Power Finance Corporation
Limited. The other partners include JSW Energy Limited, GMR Energy Limited, and Tata Power Trading
Company Limited. As a result of PXI's unique blend of local knowledge and global context, its
stakeholders are better able to make business and investment decisions, as well as better regulate the
power markets and create initiatives and regulations that will help to create new industries.

PXI's unique blend of regional knowledge and global perspective aids its stakeholders in ensuring that
business and investment decisions are well-informed. It also helps to improve the regulation of power
markets and shape projects and policies, thereby assisting in the development of the power market that
India deserves.

The Act is the main piece of legislation in India that regulates the production, transmission, distribution,
exchange, and consumption of electricity. Additionally, it creates a complicated network of
organisations to oversee Act-related operations. The following are the main goals of the Electricity Act:
a)as a strategy for encouraging competition - To safeguard the interests of customers who participate in
the trade of electricity. ensuring the availability of electricity in all places and reducing prices.

b) Offering transparent policies in the sake of efficiency -According to the Act, it is the Pegulators'
responsibility to build up an electrical market. Accordingly. The CERC, which is in charge of regulating
central generating station rates as well as all interstate generation, transmission, and energy delivery, is
established by Section 76 of the Act. Additionally, there are a number of State Electricity Regulation
Commissions that are responsible for regulating intrastate transmission activities between states as well
as determining the bulk and retail prices to be charged to customers.

The CERC released the Electricity Market Regulations in 2010 to control transactions involving power
trading on the IEX and PXI. Gujarat Urja Vikas Nigam Limited, West Bengal State Electricity Distribution
Company Limited. Madhya Pradesh Power Trading Company Limited, Power Finance Corporation
Limited. The other partners include JSW Energy Limited, GMR Energy Limited, and Tata Power Trading
Company Limited. PXI's unique blend of regional knowledge and global perspective aids its stakeholders
in ensuring that business and investment decisions are well-informed. It also helps to improve the
regulation of power markets and shape projects and policies, thereby assisting in the development of
the power market that India deserves.

The Act is the main piece of legislation in India that regulates the production, transmission, distribution,
exchange, and consumption of electricity. Additionally, it creates a complicated network of
organisations to oversee Act-related operations.

Gujarat Urja Vikas Nigam Limited, West Bengal State Electricity Distribution Company Limited. Madhya
Pradesh Power Trading Company Limited, Power Finance Corporation Limited. The other partners
include JSW Energy Limited, GMR Energy Limited, and Tata Power Trading Company Limited. PXI's
unique blend of regional knowledge and global perspective aids its stakeholders in ensuring that
business and investment decisions are well-informed. It also helps to improve the regulation of power
markets and shape projects and policies, thereby assisting in the development of the power market that
India deserves.

Present Market Conditions-

The Day-Ahead-Market is a physical power trading market for delivery starting at midnight for
any/some/all of the twenty-four hours. The pricing and amount of power to be traded are set via a
mutually closed auction bidding mechanism. The transactions are carried out in accordance with the
CERC (Open Access in Inter-State Transmission) Regulations, 2008's CERC (Procedure for Scheduling of
Collective Transactions) of the Central Transmission Utility (PGCIL) (CERC 2008 Regulations).

A variety of products are available on the Term-Ahead-Market (TAM), which enables participants to buy
and sell electricity on a term basis up to eleven days in advance. The transactions are carried out in
accordance with the "Procedures for Scheduling of Bilateral Transactions" that the PGCIL released as
part of the CERC 2008 Regulations.

The Green Day Ahead Market offers a double-sided, closed collective auction for green energy that is
anonymous. For the majority of exchanges, clearing happens sequentially, starting with the renewable
section, which is required to run due to the availability of a transmission corridor, and then moving on to
the conventional segment,following approval by the CERC.

The Green-Term Ahead Market (G-TAM) was created as a new market niche for trading renewable
energy. Contracts like Green-Intraday are included in this new market category. Green-Weekly, Green-
Daily, and Green-Day-ahead Contingency. Green-Intraday. While Green-Weekly contracts are exchanged
through a double-sided open auction process, Green-DAC, Green-Daily, and other contracts are traded
continuously/spot. The operations are governed by the CERC Power Market Regulations, 2010, CERC
2008 Regulations, and CERC Indian Electricity Grid Code Regulations, 2010.

Additionally, IEX was a pioneer in cross-border electricity trade when trade with Nepal was started on its
day-ahead electricity market on April 17, 2021. (CBET). In an effort to develop an integrated South Asian
power market, the Indian power industry is being expanded. To begin with, grid-connected south Asian
nations including Bangladesh, Nepal, and Bhutan will have access to IEX's Day ahead Market and Term
ahead Market. The market will develop much further as more southern nations gain grid connectivity.
The integration of the south as a power market has many benefits, including increased energy
accessibility and security. The integrated power market, which is transparent and effective at
maximising resources, and competitive electricity prices.

The Central Electricity Regulatory Commission's 2019 Cross Border Trade of Electricity Regulations
govern the activities of cross-border electricity trading.To make it simpler for state utilities and required
organisations to buy renewable energy, the Central Electricity Regulatory Commission devised the
Renewable Energy Certificate (REC) framework. particularly those who reside in states with little
renewable energy sources. The REC framework intends to create a national market for producers of
renewable energy so they can recoup their expenditures. One megawatt-hour of electricity produced
from renewable sources is equal to one REC.

IEX’s monopoly in Energy Exchange Market-

The "order matching" and "price discovery" procedures that take place at the exchange level are
currently completely controlled by IEX. This means that both the buyer and the seller must be using the
same platform in order for their orders to be matched and fulfilled (IEX or PXI). The fact that all
electricity sellers trade on the IEX rather than the PXI is known to electricity buyers. Even if buyers are
willing to pay more for power, they won't be able to do so on PXI because there aren't enough sellers for
them to choose from.
The vendors are also aware that the majority of buyers try to buy electricity on the IEX. The vendors
might not be able to sell even if they want to on PXI. Even if the price is cheaper than on IEX, the sellers
may not be able to sell the complete quantity they want if they choose to sell on PXI.

In order to remedy this, the CERC introduced market coupling, which will be carried out by a separate
Market Coupling Authority and involve "order matching" and "price discovery." Simply put, this suggests
that there will be more transparency between the exchanges regarding prices and output. A competitive
marketplace can flourish on a strong foundation of an enabling market structure like market coupling,
fair rules that allow competition to thrive, and ensure ease of participation on various marketplaces,
according to the MD of PXI, who also commented on the matter and welcomed the move. But it remains
to be seen if the introduction. But it has to be seen whether the Market Coupling Authority will lessen
the significance and role of IEX in this market.

Conclusion

It is important to note that IEX has a 98 percent market share in terms of the volume of electricity
exchanged and has a broad base of more than 6300 registered participants. Despite the ongoing Covid-
19 lockdowns and cyclonic disturbances that affected the nation's overall power demand, IEX traded
6,540 million units of power in May 2021, reaching 9% year-over-year growth. Its presence is hence
more potent than PXI's. Given that the regulator is tasked by the Act with fostering competition in this
market, the size and significance of IEX over PXI stand out as significant and merit consideration. The
introduction of market coupling and over-the-counter trading under the 2021 Regulations may
significantly boost the transparency of energy trade on these platforms.

It's interesting to note that the CERC has approved the registration of Pranurja Solution Ltd., led by ICICI
Bank, PTC, and BSE, in order to open the nation's third power exchange. It is hoped that the introduction
of a third exchange supported by reputable companies will pave the way for a more competitive market
for power exchanges in India, resulting in increased transparency and efficient power use.

It's interesting to note that the CERC has approved the registration of Pranurja Solution Ltd., led by ICICI
Bank, PTC, and BSE, in order to open the nation's third power exchange. It is hoped that the introduction
of a third exchange supported by reputable companies will pave the way for a more competitive market
for power exchanges in India, resulting in increased transparency and efficient power use.

According to the Central Electricity Authority's most recent Lead Generation Bilance Report, India is
likely to have an energy surplus of 6.4 percent and a peak surplus of 9.1 percent for the years 2021–
2022, so this is a welcome step to ensure the best utilisation of the energy generated in India in the
most open and competitive way possible.