Exclusive: Indian Energy Exchange (IEX) to extend long-duration contracts to 11 months

IEX is India’s leading energy exchange that aims to provide automated trading platform for physical delivery of electricity.

The Indian Energy Exchange (IEX), one of the three power exchanges in the country, plans to offer long-duration contracts (LDCs) of up to 11 months instead of the current three months from next year, Rohit Bajaj, head of regulatory affairs and business development, told Moneycontrol.

As per the plan, IEX intends to launch LDCs of up to 11 months by January next year, subject to approval from the Central Electricity Regulatory Commission (CERC). IEX’s proposal is based on a provision in CERC’s General Network Access (GNA) rules of October 1, enabling power procurement up to 11 months in advance.

“IEX is in the process of applying to seek approval from the CERC to extend the duration from the existing three months to 11 months in advance. This extension will enable discoms (distribution companies) to plan their procurement efficiently and well in advance to meet their seasonal demand,” Bajaj said on November 16.

Energy exchanges are electronic platforms where electricity is traded to meet energy needs. Long-duration contracts (LDCs) are part of the short-term market – periods of up to one year are considered short-term, as per CERC standards. Before the GNA rules, such contracts were allowed up to 90 days, which restricts power procurement from the short-term market for longer periods. As a result, power exchanges currently have a window of 90 days only for LDCs.

Sluggish start

IEX successfully launched the 90-day contracts on June 27, 2022. Eventually, the two other newer exchanges – Hindustan Power Exchange and Power Exchange India Ltd – also began to offer similar contracts. However, the contracts failed to garner volumes due to high coal prices.

Also, similar contracts, known as bilateral contracts, were available on the government’s DEEP (Discovery of Efficient Electricity Price) portal, a platform for procurement of short-term power by discoms. Contracts for about 50 billion units (BUs) are traded on the DEEP portal, posing stiff competition to the LDCs offered by the three exchanges.

However, with India’s power demand rising at an unprecedented 10 percent every month, even in the typically cooler months of September and October, demand for long-duration contracts on the exchanges increased sharply.

Data from IEX, which has a market share of 85 percent among the three exchanges, showed that in the first six months of FY 24 (April to September), the delivered long-duration contract volumes was 3.6 billion units (BUs), which is 157 percent higher than the volume of 1.4 BUs delivered in the entire nine months of FY 23 since its launch in June 2022.

In September, the delivered volume on IEX was 1 BU and in October the same increased by 70 percent sequentially to 1.7 BUs.

Yet, the exchanges have a long way to go to catch up with the DEEP portal. Asked why the discoms would opt for long-duration contracts and the reasons for the increase in demand this year, Bajaj said power procurement from the exchanges is hassle-free and the surge in power demand pushed states to plan their short-term resource adequacy measures in advance.

“To be sure, traded volumes of bilateral contracts through the DEEP portal have also increased by about 25 percent in the second quarter of FY24. But long-duration contracts also have seen significant growth. It is happening due to robust power demand,” he said.

Bajaj added that demand for long-duration contracts on the exchanges has increased over the past two to three months vis-à-vis the DEEP portal because of faster execution.

“On the DEEP portal, it takes time. However, on the exchanges, margins are already maintained so one does not have to prepare the letter of credit, bank guarantees and so on. Everything is readily available. A discom can decide to go for it even now in the exchanges, it will be launched within one hour and within 24 hours the execution is done,” he said.