Indian Energy Exchange Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Volume surge on flat demand: Electricity volumes grew 23% YoY against all-India demand growth of just 0.5%, driven by improved fuel availability, lower costs, and higher sell-side liquidity.
• Market share erosion continues but volumes rise: Share fell from 84% in FY24 to 83% as long-duration contracts (beyond 11 days) drew volume to competing exchanges, yet absolute volumes are increasing year over year.
• Diversification bets are early and government-dependent: Coal exchange, EPR trading, and carbon certificates are all in regulatory or policy limbo; management declined to rank them by potential or timeline.
• Margins defended on fee stability: Transaction fees have stayed at 2 paise per side since 2011 despite clearing prices doubling, and management argues this is fair because REC fees were cut when REC prices collapsed.
• What to watch next quarter: Whether the CERC order on the 11-month contract arrives, whether IGX gas volumes recover as winter sets in, and any concrete government decision on the coal exchange.

Volume Performance & Drivers

• Electricity volumes: Q2 volumes rose 23% YoY, with H1 FY25 sell liquidity up 41% over H1 FY24. The exchange cleared about 1.5-2 crore units daily of un-requisitioned surplus power from central generating stations after the LPSC amendment directed all generators with long-term PPAs to offer URS power on exchanges.
• Fuel backdrop: Coal available through e-auction at a nominal 10-20% premium over administered price, coal inventory at roughly 14 days, imported coal at a competitive \$52/ton, and gas stable at \$12/MMBtu in H1. These conditions supported generator participation and kept clearing prices attractive.
• RTM segment: Real-time market share rose to roughly 30% of the product mix, driven by Discoms and open-access consumers managing short-term needs efficiently. Month-on-month, October RTM volumes dipped 20-25 MUs daily because September agricultural demand was high and has since eased while generation availability remains ample.
• Green market: Volumes grew 246% to approximately 260 crore units, aided by the sharp decline in battery storage rates from ~₹10 lakh per MW per month a year ago to ~₹2.37 lakh per MW per month under the VGF scheme, making BESS commercially viable on exchange arbitrage.
• REC volumes: July saw a spike as Bihar purchased for RPO compliance, but August and September declined when Bihar and DVC were absent. REC rates have fallen from ₹1,000 to about ₹120, and management expects the upward trend versus last year to continue as lower rates attract more obligated entities.
• IGX gas volumes: Traded volume fell to 1.18 crore MMBtu from 1.95 crore MMBtu in Q2 last fiscal. Gas prices have been stable for two quarters, and management expects volumes to pick up as winter approaches.
• Open access limited by state charges: Industrial open-access participation depends on state-level cross-subsidy surcharges, additional surcharges, and wheeling charges. With exchange clearing prices around ₹4-₹4.5, viability exists only in states where those add-on charges are low.

Market Structure & Competitive Position

• Market share trajectory: Share fell from 94% in FY22 to 88.4% in FY23 to 84% in FY24 to 83% currently. The shift began when long-duration contracts for delivery beyond 11 days were introduced in July 2022, and significant volumes started transacting in those products, where all three exchanges hold reasonable share.
• Customer coverage: Nearly all thermal generators and most renewable capacities are registered on the sell side, and 100% of distribution companies on the buy side. Open-access industrial customers remain a continuous business development effort.
• URS power expansion: About 10 crore units of URS power from central generating stations now reach the exchange daily, with 1.5-2 crore units cleared. State generating stations are expected to begin offering URS power soon, which would further increase sell-side liquidity.
• TAM market design reform: CERC has proposed changes to standardize term-ahead market products across exchanges and improve liquidity. Management views this as a positive initiative and expects IEX to be a larger beneficiary given its existing liquidity pool.
• Market coupling stance: Management stated flatly that coupling is unlikely to happen, calling the incremental benefit from coupling RTM and SCED "very very low." Grid-India has yet to submit its pilot study report, and management said it is not aware whether the pilot has even started.

Goel: "I'm very sure coupling is not going to happen. So let us not worry about that. And in case coupling happens, we have ways and means to ensure that we are able to retain our market share."

Regulatory & Product Pipeline

• 11-month contract: IEX filed a petition with CERC for approval of an 11-month contract; the hearing is completed and the order is reserved. Management offered no timeline for the order, noting only that it may arrive when CERC finalizes the broader TAM market design order.
• Green RTM segment: A petition has been filed with CERC for approval of a Green RTM segment. No timeline was provided.
• Deviation Settlement Mechanism 2024: Deviation charges are again linked to grid frequency and the permissible deviation band for solar and wind generators has been narrowed to 10%, tightening the penalty framework.
• Cross-border electricity: CEA now allows generating stations selling cross-border power through dedicated transmission lines to sell power within India in case of sustained non-scheduling or default by the foreign buyer.
• Section 11 directive extended: The Ministry of Power extended the directive requiring imported coal-based plants to operate through 31 December 2024.
• Gujarat REC compliance: Gujarat Electricity Regulatory Commission introduced stringent compliance norms with penalties up to ₹3.72 per unit for shortfalls in renewable energy consumption targets.

Diversification Initiatives

• Coal exchange: The Honorable Minister of Coal announced India's first coal exchange would be set up under the Coal Controller Organization. IEX has been working with stakeholders to explore the opportunity. The initiative depends on a government decision; once taken, IEX would need regulatory approval and then roughly 6-8 months to launch. The 100-day agenda window has passed without a decision.
• EPR trading platform: Draft guidelines for an EPR trading and settlement platform for plastic packaging were issued by the Central Pollution Control Board in August, with expected extension to e-waste, battery waste, tire waste, and used oil waste. Regulations are being finalized after public comments; an agency will then be appointed. Management said IEX has good chances but the opportunity is open to all.
• International Carbon Exchange (ICX): The wholly-owned subsidiary has been accredited as India's first I-REC issuer. Activities have started but management described the opportunity as "very small."
• Capital allocation stance: Management sees no reason to change the 65-70% dividend payout policy. Current surplus is about ₹900 crores, retained for gas exchange, coal exchange, EPR trading, carbon exchange, and as counterparty buffer for payment delays in the power exchange. A special dividend could be considered in future if surplus exceeds needs.

Goel: "We are giving 65%-70% kind of profit in the form of dividend and that's a good dividend payout. We are also working on other initiatives... Gas exchange is doing well. We are also working on coal exchange... And there are EPR trading, discussions going around. Carbon exchange is another opportunity. So I think for all these things, money will be required, so we are keeping that money for that purpose."

Transaction Fees & Revenue Model

• Electricity fee unchanged since 2011: Transaction fees have stayed at 2 paise per side while clearing prices have roughly doubled from ₹2.5-₹3 to around ₹5. Management argues this demonstrates restraint and that no increase has been imposed despite the price rise.
• REC fee cut: Transaction fees on RECs were halved from ₹20 to ₹10 per certificate on either side, effective 12 August 2024, because REC rates had collapsed from ₹1,000 to about ₹120. Management framed this as passing benefit to distribution companies.
• CERC discussion paper on fees: A CERC discussion paper on global best practices for transaction fees is outstanding, but the April 2023 order specified no timeline. Management said nothing has happened and nothing is happening on that front, and did not directly address whether fees could change in future.

Goel: "In case of REC since the rate has reduced, we reduced the transaction fee. But in case of electricity, our transaction fees is continuing at two-paise on either-side right from 2011 when the electricity rates were almost about 2.5, 3 rupees. Today, electricity clearing price is almost in the range of INR5. In spite of that, we have not increased the transaction fees."

Power Demand & Capacity Outlook

• Demand growth trajectory: With GDP growing at roughly 7%, management expects power demand to increase at about 7% for the next 7-8 years, adding roughly 13,000 crore units of incremental demand annually, a good portion of which is expected to flow to the exchange market.
• Peak demand forecast: CEA projects peak power demand of 458 GW by 2032.
• Thermal capacity: 28 GW is under construction; 15 GW is expected to be commissioned this fiscal year, with the balance 13 GW in the next two years. An additional 58 GW is in various planning stages over the next 6-7 years.
• Renewable capacity: 40-50 GW of renewable capacity is expected to be added every year until 2030, and the government plans to add 39 GW of pumped storage by 2030. The MNRE VGF scheme for 1 GW of offshore wind includes a provision allowing un-requisitioned power to be sold on exchanges, which would increase sell-side liquidity.
• Q2 demand anomaly: Monsoon was 8% above the long-term average, suppressing power demand to just +0.5% YoY with a peak of 227 GW. H1 FY25 demand was higher by 5.6%.

Guidance & Commitments

Key Metrics