More than two years since the government started exploring the introduction of market coupling in power exchanges, the Central Electricity Regulatory Commission (CERC), in a late-night order on July 23, approved the move.
Market coupling in the spot market is expected to lead to an overall decrease in the cost of power, primarily by increasing market efficiency and liquidity, and promoting price convergence, government officials told Moneycontrol.
After the CERC's order, shares of Indian Energy Exchange Ltd (IEX) crashed 10 percent, hitting its lower circuit, on July 24. The stock dropped on worries that it may lose market share. Of the three power exchanges in India - IEX, Power Exchange India Limited (PXIL) and Hindustan Power Exchange Limited (HPX) - IEX enjoys an almost 90 percent share of the trading volumes.
The CERC, in its order, has approved introducing market coupling in a phased manner. It will be first introduced in the day-ahead-market (DAM) of the power exchanges from January 2026. The central regulator said it will take a call on the introduction of market coupling in the real-time-market (RTM) and term-ahead-market (TAM) at a later stage, after further examinations and testing.
Also read: Electricity futures can bring down the price of power in the spot market, says NSE
"Since market coupling is based on the aggregate of buy bids and sell bids across the three power bourses, we expect power prices to come down to some extent. Further, now we also have electricity futures, which have just started in MCX, and is going to begin in NSE as well. All of these combined is bound to lower the per unit cost of power, benefiting the end-consumer, who, in the long run, may enjoy lower electricity tariffs. It will provide a level-playing field to all three exchanges," said a senior official in the power ministry.
What is market coupling?
Market coupling is a model in which the buying and selling of electricity from all power exchanges in the country are aggregated and matched to discover a uniform market clearing price (MCP). Generation companies sell electricity to distribution companies.
Currently, each of the three power exchanges collect buy and sell bids on their own and, thus, come up with their own MCPs. In simple terms, currently, each power exchange has a different cost of electricity, even though it usually differs from each other only by a few paisa.
Implementation of market coupling would mean there will be only one price for electricity traded at any point of time through the exchanges. Power exchanges may then act just as a platform where buy and sell bids will be received and power is dispatched to buyers.
With market coupling ensuring price uniformity, the exchanges will have to fight for volumes by offering better services and discounts on trading margins. This could be a win-win situation for generation companies that sell electricity and distribution companies or industrial consumers, which buy power.
How will it be implemented?
Market coupling will be introduced in the day-ahead-market (DAM) of power exchanges from January 2026. The DAM is a market segment in Indian power exchanges where electricity is traded for delivery on the following day. Trading in this segment occurs in 15-minute time blocks for the next day's 24 hours.
The CERC said all the three exchanges will act as Market Coupling Operator (MCO) on a rotational basis, with Grid-India being the fourth MCO for backup and audit purposes. "This arrangement would facilitate an efficient functioning of the power exchanges and also help instill faith of the market participants in the power exchange operations," read the CERC's order.
The central power regulator also directed all the power exchanges to share the necessary data
and other information as required by its staff as well as Grid-India to analyse various operational and procedural aspects for implementing the coupling of DAM.
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