Indian Energy Exchange Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Volume up 15% YoY, but market share slipped: total volume reached 2,650 crore units, yet the Day-Ahead Market lost share as DISCOMs shifted to bilateral contracts when high demand pushed clearing prices near the ₹10 ceiling.
• IGX delivered a breakout quarter: gas volumes surged 262% YoY to 1.95 crore MMBTU, driving a 224% jump in IGX profitability to ₹7.85 crores, as domestic gas availability improved and prices fell relative to spot.
• GNA is live and already reshaping flows: implemented October 1, the regulation initially reduced DAC volume, but a mid-October demand spike at ₹10/unit temporarily reversed the shift; management expects the structural benefit to build in coming months.
• Market coupling is a distant, uncertain threat: management believes coupling will not be implemented, but if it is, the regulatory process plus software build-out could take one and a half to two years, and IEX is already building customer stickiness through APIs and analytics as a mitigation.
• What to watch next quarter: whether the seasonal demand dip from November pulls bilateral volumes down and exchange market share back up, the CERC decision on 11-month term-ahead contracts, and any progress on the carbon exchange launch timeline.

Volume & Market Share Dynamics

• DAM lost ground to bilaterals in a tight market: when demand surged and clearing prices hit ₹10/unit through mid-October, DISCOMs prioritized assured supply via bilateral contracts (up ~25% YoY) over exchange purchases, compressing DAM market share even as overall electricity volumes grew 17%.
• The price signal drove the shift: average DAM price rose to ₹5.88/unit from ₹5.4 last year, a 9% sequential increase, as an unexpected demand surge absorbed the improving supply; management noted DISCOMs sometimes buy high in bilaterals and sell low on the exchange, a dynamic they call undesirable.
• Supply-side fundamentals are strengthening: coal production up 16.2% YoY, e-auction premiums halved to ~100%, imported coal prices down 35% YoY, and coal inventory at 13 days versus 11 last year, all improving sell-side liquidity.
• Liquidity is now ample: sell-side bids exceed 300 MU against demand of 200-225 MU, a situation management expects to persist for the next three to four months, with 9,000 MW of capacity additions projected over five to six months.
• Seasonal relief ahead: demand has already cooled from 520 crore units per day to 4,300-4,400, with clearing prices down to ~₹5/unit; management expects bilateral transactions to decline through November-February, pulling volume back to the exchange.

Goel: "The DAC volume had reduced but subsequently in the month of October you can say right from 5th of October to 15th of October the demand was very high in the country and exchange clearing price was almost Rs.10 throughout the day. And when you have this kind of price, then buyers they try to get into bilateral market to ensure availability of power, so they contract in the bilateral market or DAC market."

GNA Implementation & Early Impact

• GNA went live October 1 with immediate, mixed effects: the first two to three days saw DAC volume reduce as intended, but the October 5-15 demand spike at ₹10/unit pushed buyers back to bilaterals and DAC; once prices declined and supply improved, good volume returned to DAM, with overall October electricity volume growth of ~20% attributed to GNA.
• Structural shifts are now unlocked: generators with long-term PPAs can sell surplus power on DAM without buyer consent, and the government directed generators to offer URS power on DAM from September 5, 2023; transmission charges and losses now fall only on buyers, and transmission planning philosophy has changed to enable adequate capacity addition.
• Gross Bidding is effectively live without a separate approval: under the new GNA regulations, DISCOMs can already optimize procurement cost by submitting both buy and sell bids without extra transmission charges or losses; states like Punjab, MP, Haryana, and Maharashtra are already doing so, though the concept is less relevant at current ₹5/unit prices than it would be at ₹3.5-4.
• DAC volumes are expected to structurally decline: with GNA removing the transmission charge asymmetry that favored bilateral transactions, management expects DAC volumes to go down, improving overall exchange market share from the current 85%-86%.

IGX & the Gas Opportunity

• IGX volumes exploded on domestic gas availability: 1.94 crore MMBTU traded, up 262% YoY, driven by increased domestic gas volume and gas prices that declined relative to spot, making exchange-based procurement more attractive.
• Profitability followed volume: IGX profit jumped 224% to ₹7.85 crores from ₹2.42 crores, demonstrating operating leverage as the platform scales.
• The gas system operator concept remains stalled: while the government has mentioned creating one, nothing material has happened, leaving the market structure incomplete.

Regulatory Landscape & Market Coupling

• Market coupling is a live but slow-moving process: CERC released a staff paper in August and is currently compiling comments; management reads the paper as neutral, noting it lists advantages but that "the disadvantages and the challenges in implementation of coupling are more."
• The timeline, if it happens, is long: finalizing regulations alone may take one year, and implementation (software, customization for Indian conditions, clearing and settlement mechanism) could take another one and a half to two years after that.
• Management is skeptical it will happen at all: based on interactions, management does not think coupling will be implemented, and is already working on mitigation through strong customer connect, API integration, and value-added data analytics services to maintain market share if it does.
• Other regulatory tailwinds are accumulating: cross-border trade is now permitted through the real-time market; Resource Adequacy guidelines create a basis for capacity contracts; RE procurement guidelines allow developers to supply up to 5% of contracted power by purchasing from the exchange; and dispatchable RE guidelines allow excess power sales to the exchange without buyer NOC.

Goel: "First of all implementation of coupling itself is doubtful, no view has been taken by the CERC so far. And we do not think based on our interactions that coupling is going to get implemented."

Product & Platform Expansion

• Long-duration contracts are the next big unlock: IEX will file a petition with CERC in the next 10-15 days to extend term-ahead contracts from 90 days to up to 11 months; management expects approval by end of December and a January 1 launch, which could pull a large part of bilateral volume onto the exchange.
• LDC is scaling fast: H1 volume reached 360 crore units versus 1.4 crore units last year, with over 300 reverse auctions organized; contract tenures are extending from one month into the second and third months, and IEX holds a 60% share of the ~700 crore unit LDC market.
• HP-TAM launched in October: the High Price Term-Ahead Market facilitates imported coal-based and gas-based plants to offer high-cost power for up to 90 days, and provides a sell avenue for battery energy storage systems.
• Green market remains small but policy groundwork is advancing: combined annual volumes are only 8-9 BU; CFD contracts are at the final stage of approval with only the funding gap issue unresolved, and virtual PPAs are gaining popularity.
• ICX launch is delayed by regulatory uncertainty: only development activities are underway with no revenue beyond small treasury income; the government's forthcoming Carbon Credit Trading Scheme will define the compliance market (which IEX will operate as a CERC-regulated market), but there is no clarity on whether the voluntary market will be regulated, and IEX intends ICX for the voluntary segment.

Goel: "I do not think you can add new products every two months. There is a limit to that."

Guidance & Commitments

Key Metrics