Indian Energy Exchange Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Volumes declined 11% YoY, but the tone is recovery-focused: Supply-side coal disruptions pushed exchange prices to uneconomic levels, compressing volumes. Management expects a stronger H2 as coal availability improves and prices correct.
• Price, not demand, was the villain: Average Day-Ahead Market price hit Rs 5.40/unit, up from Rs 4.14, driven by a 293% YoY surge in e-auction coal prices. This killed the cost-optimization incentive for discoms and industrial buyers.
• New products are the structural growth story: Longer-duration contracts, RTM, and Green markets now constitute nearly 40% of total electricity volumes, diversifying IEX beyond the legacy DAM franchise.
• IGX delivered a breakout quarter: Gas exchange volumes grew 501% YoY and PAT rose 111% QoQ to Rs 2.42 Cr, even as LNG prices spiked, signaling early traction in a market with a 6%-to-15% government ambition.
• What to watch next quarter: Whether the GNA regulations go live on 1st January as expected, eliminating the DAC arbitrage and shifting volumes back to DAM; and whether e-auction coal prices fall enough to bring exchange clearing prices into the Rs 3.25–3.50/unit demand-recovery zone.

The Price-Driven Volume Squeeze

• Coal costs broke the market: E-auction coal prices rose 293% YoY, imported coal 145%, and gas 168%, while e-auction coal quantity dropped 63% to 17MT. This forced some generators to shut temporarily and made exchange power uncompetitive versus PPA-based supply.
• Discoms had no optimization incentive: Around 65% of sell-side volumes came from discoms selling surplus PPA power, but on the buy-side, discoms and industrial consumers found exchange prices above their breakeven rates, so they stopped buying for cost optimization.
• The clearing price itself signals market stress: Management stated plainly that high clearing prices mean the market is not doing well, because the exchange's value proposition to buyers is cheaper power than alternatives.
• Coal supply is already turning: Domestic coal production rose 10% YoY and dispatch to the energy sector grew 11% YoY. Government redirected e-auction coal to Gencos with long-term PPAs, and H2 typically accounts for ~60% of annual coal production, so e-auction availability and pricing should improve.
• October prices confirm the correction: Exchange electricity prices fell from Rs 5.40/unit during the quarter to Rs 3.85/unit in the first 10 days of October, validating the direction management expects.

Satyanarayan Goel: "For any market when the prices are higher means market is not doing well. And the same is the condition with us."

New Products & Market Structure Shifts

• New products now 40% of electricity volumes: The RTM market, Green market, and longer-duration contracts have scaled materially, reducing reliance on the legacy Day-Ahead Market.
• RTM is growing on renewable variability: Higher renewable generation share creates intra-day supply fluctuations, pushing participants toward real-time trading. Some DAM volume also cannibalizes into RTM when price-sensitive bids go uncleared in DAM and shift closer to delivery.
• RTM prices structurally lower than DAM: Sellers who fail to clear in DAM place bids at marginal cost in RTM because they have no alternative nearer to delivery. Management calls this a natural phenomenon as the market gets closer to real-time.
• DAC captured an arbitrage that GNA will close: The Day-Ahead Contingency market grew because only one side pays transmission charges there, versus both sides in DAM, creating a 30–40 paisa arbitrage. Under GNA regulations, expected 1st January 2023, only buyers will pay transmission charges, removing the distortion entirely.
• Longer-duration contracts launched, waiting on coal: Contracts for delivery up to three months are seeing strong buy-side interest, but sellers are quoting higher prices because of coal availability uncertainty. Management expects reverse-auction transactions to improve when coal prices soften.

Satyanarayan Goel: "100%, this will go."

IGX: The Gas Exchange Breakout

• Volumes surged 501% YoY to 59.38 lakh MMBtu: This happened despite LNG prices rising from $13.6 to $36.5, indicating underlying demand for a transparent gas trading platform.
• PAT grew 111% QoQ to Rs 2.42 Cr: The gas exchange is now contributing meaningfully to consolidated profitability, albeit from a small base.
• Stakeholder coverage is complete: All important participants in the gas sector are now clients or members of IGX, positioning it for the government's target of increasing gas share in the energy basket from 6% to 15% by 2030.
• The structural opportunity is large: India's gas market remains under-penetrated by exchange trading, and IGX is the incumbent platform as policy pushes gas to a larger role.

Regulatory & Policy Tailwinds

• GNA regulations are the nearest catalyst: CERC notified GNA during the quarter, with implementation expected 1st January 2023. NLDC is working on software changes to the National Open Access Registry, and CERC is monitoring progress. Management is reasonably confident on the timeline.
• HP-DAM segment to capture high-cost generation: The Ministry of Power issued a proposal for a High Price Day-Ahead Market segment for generators with variable cost exceeding Rs 12/unit. Launch is expected by early next month, potentially bringing new sell-side liquidity.
• Late Payment Surcharge Rules 2022: Generating companies are now free to sell un-requisitioned power through exchanges without consent, which could increase sell-side volumes from PPA-linked generators with surplus.
• Electricity (Amendment) Bill, 2022: Proposes multiple discoms in a supply area to promote private participation, which could over time create more market-oriented buyers.
• Carbon market taking shape: The Energy Conservation Act Amendment Bill 2022, passed in Lok Sabha, aims to establish a carbon market. IEX has appointed a consultant to study feasibility and is exploring both the mandatory market (expected in 2–3 years per BEE) and a voluntary carbon market.
• Ancillary and derivatives markets on the horizon: Ancillary market regulations are issued but await GNA and Grid Code implementation. Derivatives will be regulated by SEBI and launched on SEBI-regulated exchanges; IEX is actively working with them, with a joint CERC-SEBI working group progressing.

Competition & Market Structure

• Two competitors are now operational: One exchange has been operating for 14 years; the third exchange has now completed four months of operation.
• Management dismisses competitive impact: When asked directly about market share and negativity around competition, management stated it has seen no impact on its business and declined to discuss competitor volumes, saying the numbers speak for themselves.
• FII selling and share-price concerns were deflected: Management declined to comment on FII activity or share-price movements, stating it can only talk about the business.
• The consolidation-year framing: Management acknowledged that the extraordinary volume growth of the last two years cannot repeat every year, and that consolidation years happen in between. This was offered as context for H1's flat volumes, not as a revision to long-term growth expectations.

Satyanarayan Goel: "I don't think it has made any impact on our business."

Volume Recovery & Demand Outlook

• H2 volume recovery is the base case: Management expects to at least match H2 last year's volumes or do better, driven by improving coal availability, falling e-auction prices, and the resulting correction in exchange clearing prices.
• The demand-recovery price zone is Rs 3.25–3.50/unit: At this level, distribution companies shut down high-cost plants and buy from the market, open-access consumer breakeven is around this range, and industrial consumers find exchange power viable.
• October volumes are lower YoY, but the comparison is distorted: Last October saw desperate buying during a high-demand period. This year, discoms have good coal inventory and PPA power availability, so exchange buying is for cost optimization or evening peak, not desperation.
• REC market should see a Q4 rush: Distribution companies typically comply with Renewable Purchase Obligations in the last quarter, and management expects much better participation then.
• Next-year growth could be 20%: If generation and demand growth run at 7–8%, management expects exchange volumes to grow at least 20%, supported by IPPs setting up merchant capacity (20–25% of new plants) attracted by DAM prices above Rs 3.50/unit during solar hours.
• PPA-exit thesis is intact but unquantified: When asked whether the 4–5x volume growth expectation from PPA exits still holds, management acknowledged consolidation years happen but did not directly reaffirm or revise the target.

Satyanarayan Goel: "It will be difficult to say anything about the numbers because numbers are dependent on the demand growth and participation of distribution companies, but looking at our first half year performance, I'm sure we should be able to at least achieve the numbers which we achieved in the second half of the last year or better than that even."

Guidance & Commitments

Key Metrics