Here's How Electricity-Rule Amendments Benefit Indian Energy Exchange

The Union government has amended the Electricity (Late Payment Surcharge and Related Matters) Rules of 2022 to ensure adequate supply of electricity in the country amid growing demand.

The amended policy stands to benefit Indian Energy Exchange Ltd., an automated trading platform for delivery of electricity, green energy and certificates. It has no direct comparative listed peer.

The energy marketplace has over 7,600 participants across the country, over 60 distribution utilities, 700 conventional generators and 1,900 renewable energy generators and obligated entities.

The IEX caters to commercial and industrial consumers from sectors like metal, food processing, textile, cement, chemicals, automobiles, IT, housing and real estate. It has also recently ventured into cross-border electricity trade.

The Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, was initially introduced to help generating companies, interstate transmission licensees and electricity-trading licensees to settle their outstanding dues, helping cash flows by ensuring timely payments from other entities in the power sector.

The latest amendments made significant changes to the Rule 7 of the existing rules and introduced stricter regulations on the access to the sale and purchase of electricity.

The Ministry of Power highlighted the problem of power generators withholding surplus power, leading to underutilised national capacity. In order to tackle this, the following amendments were made:

• Generators that do not offer surplus power will lose eligibility for capacity or fixed charges.

• Undisposed Re-Scheduled power, which is essentially surplus electricity generated by power plants but not contracted for by any specific buyer, are not mandated to be sold on power exchanges.

• Surplus power cannot be sold on the power exchange for more than 120% of energy charge plus applicable transmission cost.

• Increased Trading Volume: By mandating the sale of the URS power on the exchange, the government is essentially forcing generators to participate in the power market. This can lead to an increase in the total volume of electricity traded on the IEX platform. More sellers (generators with URS power) and potential buyers (distribution companies) will be active, boosting overall market activity.

• Enhanced Liquidity: "This will improve sell-side liquidity," The IEX said in an exchange filing on March 5. The IEX can be a more liquid market with the amendments. Liquidity refers to the ease with which buyers and sellers can find each other and transact.

• Improved Price Discovery: With more competition, the price of electricity on the exchange is likely to be determined more effectively by market forces. This can lead to a more transparent and efficient pricing mechanism for the URS power.

• Potential for Revenue Growth: As the trading volume and market activity increase, the IEX can potentially see a rise in revenue from transaction fees charged to participants.

The IEX's total volumes in February 2024 rose 15% year-on-year to 9,462 million units, it said.

The market clearing price in the day-ahead market during the month stood at Rs 4.93/unit, down approximately 26%. The fall was due to increased sell liquidity as it highlighted that its sell bids on the exchange (DAM and real-time market) during February rose 47%.

• DAM: Trades electricity for delivery 24 hours ahead, starting from the following midnight. The market is open to various participants, including generators, distribution companies and large industrial consumers.

• RTM: Deals with immediate electricity needs, with settlements occurring every five or 15 minutes. It primarily involves generators and the system operator, with limited participation from other entities.

• Day Ahead Contingencies: Focuses on contingency situations within the DAM timeframe (24 hours ahead). It primarily involves generators and distribution companies that need to adjust their DAM schedules due to contingencies.

• Term Ahead Market: Allows trading for longer durations, ranging from 15 minutes up to 11 days ahead. The market is open to various participants, including generators, distribution companies and large industrial consumers.

The IEX's green market, which comprises green day-ahead market and green term-ahead market, achieved overall volumes of 298 million units during February.

The G-DAM achieved 266 MU volume during the month, with a weighted average price of Rs 5.5 per unit. The segment saw participation from 214 market participants. The G-TAM achieved 32 MU volume in February, according to the exchange filling.

A total of 6.14 lakh renewable energy certificates, equivalent to 614 MU, were traded in the trading sessions held on Feb. 14 and Feb. 24 at a clearing price of Rs 360 per REC and Rs 347 per REC respectively. The next REC trading sessions at the IEX are scheduled on March 13 and 27, it said.