Market coupling possible only by Dec 2027, says JM Financial

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Domestic brokerage firm JM Financial has said the Central Electricity Regulatory Commission’s (CERC) target to implement market coupling by January 2026 is “very ambitious”, and added that its implementation will not be possible before December, 2027.

"Implementation of power market coupling will require a number of structural changes including upgrading and integration of software, modification in infrastructure for compatibility, formation of data sharing protocol, consensus on a financial settlement mechanism and changes in relevant regulations," the company said in a press note issued on July 30.

It added that anticipated benefits of market coupling in terms of price, volume and transmission are not explicitly evident in the Indian context.

Commenting on CERC’s decision to implement market coupling in the Day Ahead Market segment where Indian Energy Exchange (IEX) commands a nearly 99 percent share, JM Financial said that driven by a strong base of employee capabilities, the customer centricity and technology capability of IEX is far superior to the other two rival exchanges, Power Exchange India Limited (PXIL) and Hindustan Power Exchange (HPX).

Also read: HPX, PXIL say market coupling a vital step towards ‘One Nation, One Grid, One Price’ vision.

Market coupling is a model in which the buying and selling of electricity from all power exchanges are aggregated and matched to discover a uniform market clearing price (MCP). In the day-ahead-market (DAM) 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.

“Theoretically, it can be deduced that its market share will decline to 33.33 percent in due course of time…IEX has around 170 employees, nearly 2x of each in PXIL and HPX. Given the challenges in swift implementation of coupling and strong capabilities of IEX, the market share of the company will gradually taper from 75 percent in FY28 to 60 percent in FY30 in a business as usual scenario,” the note said.

Recommending a hold on IEX with price target of Rs 149, the brokerage said that a slew of policy initiatives leading to new trading mechanisms like derivatives, peer-to-peer trading, virtual power purchase agreements (PPAs) and India Energy Stack (IES) will see power exchanges playing a vital role in the near future. These measures are also expected to add a new volume stream for the power exchanges.

“The new trading mechanism will start maturing by FY28, adding a new volume stream to the power markets. So, the share of short-term power traded on the exchange as a percentage of total generation will increase from 7.65 percent in FY25 to 10 percent in FY30 which has significant upside potential,” JM Financial said.

Also read: Central electricity regulator's nod to market coupling could lower power prices in spot market.

It further said that for now, both HPX and PXIL will have to build strong capabilities to gain market share. The report noted that IEX has the best market outreach with more than 8,500 registered participants. “Further, it is a member of advisory committees of 13 state regulatory commissions, which is a testimony to the capabilities it has built up over the years," it said.