The power ministry has asked the Central Electricity Regulatory Commission (CERC) to initiate market coupling process of multiple electricity exchanges in an earnest attempt to make prices uniform across exchanges. Power trading exchange Indian Energy Exchange (IEX) has flagged concerns over over the need for consultation on market coupling in spot power trading.
IEX Chairman and Managing Director SN Goel, in an exclusive conversation with CNBC-TV18, speaks on the impact of market coupling, saying it can kill innovation and competition in the sector. Edited excerpts:
Could you in very simple terms tell us what does market coupling mean? Analysts are saying that this will take away pricing out of the hands of IEX.
When markets are operating in different geographies, you couple these to take advantage of diversity, demand and supply. Europe got this done to take advantage of different sources of power and demand variations. In India, we have one market in the country. So this coupling is like clubbing NSE and BSE, or Ola and Uber, and this will kill innovation and competition in the sector. I don't understand the interpretation of market coupling that is floating since last one day is the right one. In any case, the ministry (Power) has asked CERC to look into it, and it will decide whether there is need for market coupling or not in the present scenario.
Have you reached out to the ministry to understand what this could mean. You're saying that price discovery will still happen at the exchange?
Price discovery has to happen at the exchange only. The role of the exchange as per the CERC states that exchanges have to do the price discovery. There is no doubt about that. In any case, it has the regulatory function to regulate the market. I'm sure the regulator will look into these things. If required, they will initiate consultation if they want to implement this, and they will have to construct the design of the market. So it's a long drawn process.
The market perspective is that the moat of IEX will get disrupted and that's why the stock was under pressure. Could you tell us, with regard to implementation, what kind of a timeframe can we look at?
CERC will have to decide whether they would like to go ahead with this market design or not. They implemented it 15 years ago and licensed the exchanges. Now, it is only 6-7 percent of the power in India that is not operating through the exchanges. All buyers and sellers have different options available in the market. So, in this kind of a voluntary market whether market coupling is required or not, that CERC needs to decide.
There's no mention of Market Based Economic Dispatch (MBED) which was supposed to be the big trigger.
That is why I am saying that CERC will look into this, whether it is required or not. If they feel we should go ahead with this, then they will issue a consolidation paper and everybody will have an opportunity to give their submissions, including us.
Assuming the CERC goes ahead with this, what would the impact be on IEX? What kind of volume hit are we looking at?
If it is implemented then we will have to see what kind of a construct they are going ahead with. Is one of the exchanges going to do the price discovery, or they're going to have some third party do it and exchanges are only collecting the bits and doing the financial settlement. We'll have to see the construct of what they're going to do, only we will be able to assess the impact.
Have you ceded any market share to the other players in the recent past organically, and what is the market share currently?
Earlier, our market share used to be almost 94-95 percent, but in the last one year it has come to about 80-90 percent, as last year four exchanges came into operation, and with that the market share is slightly down.
Do you see your market share go up and are holding on the volume guidance?
As far as market share is concerned, CERC has already issued transmission charge sharing regulation. We'll get it implemented now and that should lead to shifting of volume in the market. And as far as the growth is concerned, I still hold the view of 18 percent growth because in the first two months of FY24 we have achieved about 8 percent kind of growth. With monsoon approaching, we will have large hydro-generation in the country. So, there is going to be improvement on the supply side.
The circular seems as if the ministry has made up its mind.
I have read this letter and ministry has given their view, but they have also requested CERC to initiate stakeholder consultation. For any changes the market design, they will initiate stakeholder consultation, that's the process.
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