New Delhi: There is an interesting powerplay in India’s power exchanges where Hindustan Power Exchange (HPX), a new entrant, has triggered the proverbial hare and tortoise race.
And experts are liking the competition and perhaps, the government also wants some zing in power trades.
HPX has crossed 2.5 billion units of trade volumes across all segments. What is important is that HPX crossed 1BUs mark in 171 days and took just 67 days for the next 1.5 BUs. This is an interesting trend, unheard of in the Indian power exchanges where the dominant Indian Energy Exchange enjoys a virtual monopoly in trading of electricity with over near 90 percent share.
But what is interesting is that in the last eight months, IEX has been facing a serious challenge from HPX, the exchange promoted by BSE, ICICI Bank and PTC.
Competition is mounting steadily in the power exchanges, IEX has been seeing a decline in its volumes. The total trade volume at IEX declined seven percent to 8,200 million units in February on an annual basis, claims a report from BSE India. (https://www.bseindia.com/xml-
In the Term-Ahead Market (TAM), comprising intra-day, contingency, daily & weekly contracts, and contracts up to 3 months – where all three 3 power exchanges are present (IEX, HPX and NSE-promoted PXIL) – the average market share for January and February this year has been 45% for IEX, 25% for HPX and 30% for PXIL. In fact, there have been a few days, where the volume on HPX on the TAM segment has exceeded the other two exchanges.
With competition intensifying, IEX has lined up a bevy of incentives to not only retain market share but grow if possible. Sources say some of these measures include free membership, waiver of renewal fee and discount per transaction.*
For HPX, eastern entities have contributed about 51% in this amount since commencement of operations of the exchange. And then, the participation from southern entities has increased in the last two months and they contributed 41% in the month of December. An additional advantage of HPX is that all southern states are registered on the exchange and the potential of these states based on their past record would be very high. And it works to the advantage of HPX.
What is working for HPX? Backed by the latest technology and a series of innovative features, HPX – the fastest growing power exchange of India – promises to offer speed, transparency, and better price discovery in the execution of trades. HPX is presently trading in Contingency contracts, Green Contingency contracts, Term Ahead Market (TAM), Renewable Energy Certificates (REC), Day Ahead Market (DAM), Green Day Ahead Market (G-DAM) & Real Time Market (RTM).
It is steadily increasing its product portfolio and is set to provide a wide range of contracts to address the demand of different segments of the electricity market. With roughly 500 market participants now onboard HPX, the exchange has covered almost all the major players across the country and is looking well prepared for increased market presence in the coming months.
This is the fastest increase in volume for the initial few months of the existence of any of the power exchanges operating in the country. A large part of this volume is attributed to the LDCs which were introduced on the HPX platform in the month of February. HPX successfully executed the very first Electronic Reverse Auction (e-RA)contract for the Indian Railways, which saw encouraging participation from generators.
Energy experts say planned electricity reforms could cause trouble for IEX despite the exchange commanding a near 90 percent share of the over-the-counter power market.
Consider this one. Recently, IEX stock hit a 52-week low after a top television channel reported that Dalmia Bharat Group – the oldest and largest investor in the exchange with a near 15 percent stake – is contemplating offloading its entire stake in IEX. Market cognoscenti said the group was trying to exit non-core business and focus on their core assets like cement.( https://www.timesnownews.com/
A top business portal, Morning Context, said in a report that “the IEX stock has been on a downward trajectory for a while; the shares have lost close to 40% of their value in the last one year. The reports on the group’s exit plans only served to hasten the slide in share prices.” The move, claimed the portal, was contrary to the exchange’s near 300 percent growth in a year (October 2020 and October 2021).
There are a few serious reasons for the jolts IEX has experienced in recent times. First, the Indian government is pushing new reforms in the power sector through the Market-based Economic Dispatch (MBED) policy. MBED is being created, claim power ministry officials, to handle scheduling and dispatch of power. As of now, the system is run through long-term agreements and it is all tied to the mother platform. Now, power that is traded between generating companies and Discoms is called a power agreement that extends over two decades. Now, the Indian government wants to hike the share of power traded through exchanges. The government – claimed Morning Context – wants to “set up a market coupling operator, which would collect all the buy and sell orders from the power exchanges to arrive at a single clearing price”.
That’s not good news for IEX and for the competitive advantage it currently enjoys.
There is another crisis zone emanating from the coal shortage triggered by the Ukraine-Russia war. On top of it, severe heat waves across India have pushed demand for power to an all-time high. Bulk of the power is picked up by the government. There is very little to trade on the exchanges.
So IEX’s year-on-year growth in trading volumes fell from 27 per cent in March 2022 to 8 per cent in June. And then, it declined 10 per cent and 11 per cent in September and December respectively.
With the entry of HPX, the proverbial hare and tortoise race is truly on in the power exchanges. Once there was one, now there are three. One needs to wait and watch to see who is what and who, eventually, crosses the final line.