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Indian Energy Exchange Ltd
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Ladies and gentlemen, good day, and welcome to Indian Energy Exchange Limited Q1 FY '23 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital Limited. Thank you. And over to you, Mr. Kishore.
Thank you, Michel. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q1 FY '23 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. SN Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Head Business Development; and Ms. Aparna Garg, Lead, Investor Relations. We will begin with the opening remarks with Mr. Goel, followed by an interactive Q&A session. Over to you, sir. Thank you.
Good afternoon, everyone, and welcome to the earnings call for quarter 1 FY '23. Joining me today are Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Rohit Bajaj, Head of the Business Development; Mr. Amit Kumar, Head Market Operation and New Product Development; Mr. Sangh Gautam, CTO; Mr. Samir Prakash, CHRO; Mr. Indranil Chatterjee; Ms. Aparna Garg; and Mr. Archit Gupta.
The pace of Indian economy activity continues to remain robust. India witnessed a strong start to the year, with the index of industrial production growth at 6.7% year-on-year in April '22, which further increased to 19.6% in May '22, highest since August '21. During first quarter '23, the manufacturing PMI increased to 54.7 in April '22 as compared to 54 in March '22, driven by faster expansion in both new orders and output. However, it is down to 53.9 in June '22. The services PMI increased to 57.9 in April '22 as compared to 53.6 in March '22 and further increased to 59.2 in June '22.
The energy market during the quarter faced crisis globally. The heatwave in various parts of the world and war -- and Ukraine war appended the global energy markets. The increase in demand coupled with rising input costs, led to high electricity prices in the market. For example, in Australia, wholesale prices rose 2.5x in the first half of 2022. Similarly, in North Pole market, average wholesale prices for the first half of 2022 were 2.7x than those in the year earlier.
And in Japan, average price of electricity doubled on a year-to-year basis. And this is all caused by increase in prices of imported coal by almost about 2.5x and increase in the LNG price by more than 2x. A similar situation prevailed in India, electricity consumption in quarter 1 of FY 2023 increased to 401 billion units, translating into 18% year-on-year growth, on account of increased industrial activity and heatwave across the country. However, there were supply side constraints from exchange rate from. Domestic coal was mainly supplied to PPA-based plants to meet demand.
Availability of e-auction coal reduced, increasing e-auction price by 400%. There were a significant increase in both imported coal and gas price. As a result of this, generation from imported coal-based plant and gas-based plant also reduced. The increase in electricity consumption and skyrocketing of input costs led to an increase in the pipes on the exchange platform. The average day ahead market price has increased to INR 7.7 per unit during the quarter. As on 30th June 2022, the total installed capacity of power generation in the country stood at 404 gigawatt, out of which, the renewable capacity is at 161 gigawatt, which contributes almost 40% of the installed capacity. The growing contribution of renewable energy is aligned to Indian's commitment of 400 gigawatt from renewable by 2030, made by our honorable minister in COP26 Summit held in November 21 at Glasglow.
On the regulatory and policy front, several developments have taken place. A few highlights are: ARP had issued Order on 7th of June 2022, approving the much-awaited long duration contracts for trading up to a period of 3 months. These contracts are called timeline market contracts. This will facilitate the discounts to cater the demand for long duration within the short-term markets and optimize the procurement costs, which will increase market share of exchanges in the overall power bucket.
CRP issued connectivity and general network access to the interstate transmission system regulation 2022 on 7th of June 2022. This will streamline transmission charges being paid by the market participants and simplify operating transmission access for carrying out transactions. G&A will rationalize transmission charges for exchange transactions and will further promote deepening of market. Subsequently, on 11th June 2022, CRP issued draft regulations for sharing of ISTS chargers and losses to ensure of avoidance of duplication of transmission chargers in collective exchange transactions.
On 6 June 2022, Ministry of Power issued electricity rules for promoting renewable energy through green energy open access. As per the rules, consumers with contracted demand of 100-kilowatt and above is eligible for green energy open access. [indiscernible] outside have been provided to the consumers. For green open access, there is no additional surcharge. And even the cross-subsidy surcharge, this has been capped to 50% for the year in which open access is granted for a period of 12 years.
This move will not only incentivize the consumers to go green, but also improve participation of these consumers in the sales market. On 3rd June 2022, MOP notified late payment surcharge and related matters rules 2022. The key highlights of this rules are, all distribution licensee to intimate their schedule for power draw on day ahead basis from the generating companies with whom they are the PPAs. And thereafter, the generating company will have the option to sell their underpositioned power in the power market. TAM has been captured by CRP in the draft grid code also. If the discounts doesn't establish payment security mechanism or continues to default for a period of 30 days from expiry of the notice, the GENCOs are -- can sell 100% of the power to the power market.
This regulations will help increase sell-side liquidity on the power exchange and will be highly useful for market development. On 9th of May 2022, CERC issued terms and conditions for trades of renewal energy certificates. This will create fungibility of RECs issued irrespective of type of renewable technology and will provide flexibility to the RE generators to sell their power in the green market or in the DAM market and take REC. These initiatives are aimed at creating an efficient power market and will lead to further deepening of the exchange market in the country.
The quarter began on a challenging note at IEX, and we witnessed a high input cost and capacity outages across the country due to shortage of coal. This led to a reduction in sell-side liquidity on IEX. In day ahead market, we witnessed purchase base of almost 25.877 BUs, while the sale bids were only 17.287 BUs, leading to an increased clearing price of INR 7.7 per unit during the quarter and reduction in clearing volume to 11.283 BU in the day ahead market. Despite these challenges, in Q1 of FY '23, the total volume at IEX stood at 23.352 BUs, a 10% year-on-year increase from 21.265 BU a year ago.
The commercial power market contributed 20.635 BU, consisting of DAM volume of 11.283 BU, which reduced by 21%, whereas the RTM market, the volume was 6.237 BU, which increased by 34.5% on a year-over-year basis. And the DAM market volume of 3.116 BU, which increased by 127%. Increase in volume was primarily driven by increase in electricity consumption in states like, Uttar Pradesh, Andhra Pradesh, Punjab, Haryana and Telangana.
The green markets segment contributed 1.52 billion units, and the REC market contributed 11.97 lakh certificates, which is equivalent to 1.197 BUs. I'm delighted to share that on 27th June 2022, we have successfully launched the much awaited long duration contact from the exchange rate form. We have introduced any day single-site contracts daily and monthly contracts up to 90 days. This will help us augment our presence in the short-term market.
Our customer centricity is at the core. At IEX, our endeavor has always been to advance and strengthen the exchange technology and introduce innovative products and services to provide the best-in-class experience to our customers. In this regard, during the quarter, we launched the web-based bidding platform to provide our customers anytime, anywhere easy and secure access to the trading system. Web-based financial reconciliation for our customers, enabling online and easy way of reconciliation of the exchange-based transactions. And application programming interface facilitating automated bidding in the integrated day ahead market, renewable markets and other segments.
I will now briefly touch upon development regarding the gas markets at IEX. In quarter 1 of FY '23, IGX stayed at 4.7 million MMBTu in volumes and recorded number of trades. This is despite a massive increase in gas price. On an average, during the quarter, [indiscernible] increased to $32.6 per MMBtu from $9.4 per MMBTU a year ago. Also, we added 4 new members into IGX, including OPAL, HPCL, SHELL and GSPC, taking the total number of registered members to 13, IGX has given a profit of INR 1.5 crore during the quarter as compared to a loss of INR 1.52 crore during quarter 1 of FY '22.
During the quarter, IGX received PNGRB approval to commence domestic gas trading. These approvals will lead to new opportunity for sale of domestic gas and price discovery through exchange market besides increasing the sell-side liquidity. It gives me immense pleasure to announce that, recently, IGX was conferred with the Best Energy Startup of the Year Award in the nonrenewable category at the IPPAI energy leadership award 2022.
I will now turn to the financial and business performance for the year -- for the quarter 1 FY '23. On a consolidated basis, revenue for quarter 1 FY '23 increased to INR 113.4 crores from INR 102.9 crores in the first quarter of the last year, witnessing a growth of 10%. The PAT grew from INR 62.1 crore to INR 69.1 crore, with a growth of 11% on a year-on-year basis.
The key highlights of quarter 1 of FY '23 included: IEX achieved 10% year-on-year volume growth across all segments. The conventional electricity market achieved 2% growth, with a total volume of 20.635 BU, out of which, day ahead market constituted 11.283 BU, term ahead market 3.116 BU and real-time market 6.236 BU. The green market achieved 62% year-on-year growth, with a total volume of 1.52 BU, of which the green term ahead market constituted at 0.445 BU, and the green day ahead market constituted at 1.075 BU. And we traded 11.97 lakhs RECs during the year, which is equivalent to 1.197 BU.
The quarter 1 has witnessed an unprecedented energy crisis. Going forward, we expect the energy crisis to ease with the initiatives taken by the government and regulators and increase in the coal production by CIL and softening of input costs. At IEX, we are now working to commence other market segment, such as ancillary market, capacity market, gross bidding contracts, and are optimistic about commencing them shortly. In quarter 1 of FY '23, we witnessed a significant 11% year-on-year growth in the overall electricity consumption in the country.
And if the growth continues like this, I'm sure we will be able to maintain the growth momentum what we have seen in the past. Our endeavor is to continue to innovate, strengthen technology and introduce new market segments and products to help the market participants meet their dynamic requirements. We are also continuously assessing our new opportunities to diversify.
With that, I shall conclude by thanking all of you. And we will commence with the question and answer session now. Thank you.
[Operator Instructions] The first question is from the line of Mr. Sumit Kishore from Axis Capital Limited.
Sir, my first question is that month-to-date electricity volumes on IEX in July are down over 10% year-on-year, HPX started with TAM volumes for 6th of July, and then PXIL has gained some market share compared to previous years in the first quarter of FY '23. Could you please speak about the competitive landscape, the likely impact of RPM and BAM launch by HPX in the coming days. .
Yes. HPX has started operation from 6th of July. And they have only started one segment, which is they had contingency market. Their contingency market is a place where you have continuous price matching. So -- in this market, volumes transacted are lower. If you see DSE market volume is hardly about 15%, 16% of the total volume. So out of that 15%, 16%, yes, they have been able to get almost about 17% of the volume. And PXIL also during the quarter, because there was very high price discovered on the exchange platform in the day ahead market. And even at INR 12 price cap, also many of the distribution companies were not able to get power because of the cap is priced at INR 12.
And to avoid that, many distribution companies started doing transactions in the TAM market, so that they have assurance of getting power on the weekly and daily basis -- day basis. So many transactions impending the day ahead market at this TAM market and in the TAM market, as you know, that it is not a price discovery, it is a price matching. So all exchanges are at par. And maybe some of the exchanges had given some promotional scheme they had introduced because of that they could get some volume. But I can tell you one thing that in the first quarter, our market share has been almost about 85%. And in the month of July, we are maintaining a market share of almost about 89%.
Okay. Just a follow-up on this point. We understand that HPX is also going to launch products equivalent to day ahead market or real-time market in the coming days and they can't -- among their shareholders, entities like Haryana, West Bengal, Manipur does that mean that although you have the dominant market share in DAM and RTM, is it possible that competition can chip away on market share?
Let them launch these products, I think, then only we can say anything because PXIL also has both these products. They had DAM and RTM, and they also have important market players as the shareholders. So in spite of that, we have been maintaining our market segments. So I would not like to comment anything until we see their performance in this segment. But as an exchange platform, what we have to do is do something to provide value to our customers, do innovation tools, add new products, provide a robust technology platform. And that is what we have been doing. I think in the last 2 years, the kind of new developments, new products and new customer-centric activities, which we have carried out. I think with all that, we should be able to retain our market share.
Fair point. My second question is, what is the pricing discipline that you're seeing by competition? We understand that PXIL has been offering incentives on INR 0.4 in term ahead market and REC and HPX too in the same? Or -- and if at all is IEX planning to follow suit? Or are you already providing incentives in RECs?
We have no such plan in the electricity market. .
Okay. Okay. Last question that there has been a launch of the long-duration contracts finally. So what is the initial experience and what is the expectation for the balance fiscal in terms of adoption of LDCs? Is the financial health of discoms going to be sort of a road block in getting them on board for contracts where they are in the habit of not paying up in the normal payment period? How would the working capital work out? .
See, we launch these long-duration contracts from 27th of June, and we are seeing a lot of interest in this market segment. We have done a couple of reverse auctions also. But the only problem is today in the market, coal availability in the auction space is very, very less. Last year, I think coal auction was about 28 million tonnes, whereas this year, it was only about 9 million tonnes. So that the price in the e-auction market was 400x so the rate, which is being ported by the generator in this long-duration contract segment is pretty high on the order of INR 6, INR 7, INR 8. And distribution companies are not willing to enter into a purchase agreement for 2, 3 months at this high price.
So because they have apprehensions maybe that the price may come down. So in the day ahead market, yes, I mean, since that is the last opportunity for them to buy power, they buy power at this stage. But in the term ahead market, they are not willing to get into a contract at this high rate. So -- no transactions have materialized, but we are getting interest. And as far as the payment is concerned, I don't see any issue. Although in 2008 when we started our day ahead market, at that time, also the health of the distribution companies while in fact worse than what it is today.
At that time, also, nobody was comfortable that distribution companies will make advance payments, but they did it because they found value in the day ahead market. They found value in the exchange transactions. So here also in the long duration contracts, if they find competitive price discovery happening, I'm sure payment will not be an issue.
The next question is from the line of Mohit Kumar from DAM Capital.
Congratulations on decent set of numbers. My first question is, does in your opinion delayed payments surcharge rules to schedule distribution companies by DAM? Is likely to be a very, very material event in medium term for our volumes? Yes.
Yes, yes. I can tell you one thing that this can be a big booster for the day ahead market because if you look at the power of this central generating companies, it's almost about 80,000 megawatt. And out of that, the power which is underpositioned, even if it is 2%, 3%, then also it can be almost about 20 billion units. That's a rough estimate which I made. And if that kind of power comes to the day ahead market, I think it can give a lot of -- provides lot of liquidity.
Understood, sir. Secondly, on this -- on the ancillary market, gross bidding capacity market, which are the things -- is there any time line which you can share with us where we think these all the 3 can be implemented? And I understand there is no regulation of capacity market as of now. Is that understanding correct?
Yes, yes. See, ancillary markets, CERC has already issued regulations, but that will be implemented after finalized of the grid code, which may take another 2, 3 months' time. Gross bidding, we have already filed our petition with CERC. CERC hearing has happened. They are wanted us to do the stakeholder consultation. We did that and filed our submissions with CERC on that. So the order is reserved. We are working with CERC for the approval of that. So I mean, we should get approval, I think, in the next 1 or 2 months. And third is capacity market. Capacity market is a new concept, I mean, for India and it is there in the European market. But in India, we are working with government also. We are working with regulator. And I understand the new electricity policy, which is under finalization and under approval is talking about this capacity concept. And this concept is being discussed to have adequate resource planning in the country. So I'm sure if you want to have deepening of short-term market, you need capacity market also in the country. So this is you can see at a concept stage, and it may take some time.
Sir, what is the revenue of IGX in Q1 FY '23, only revenue number?
Vineet?
IGX operating revenue was INR 3 -- also INR 4 crores, INR 3.9 crores.
INR 3.9 crores.
The next question is from the line of Maheshwari from Edelweiss.
Sir, my first question is, there was the CERC on your INR 0.2 transaction fees. They had asked you to justify the transaction fees. So where are we in terms of that? .
We have submitted our petition with CERC and hearing about health. So we are expecting that order should come in another one month's time.
Okay. So the order is reserved.
Yes. Order is not reserved. One of the party had requested time for making their submissions. And CERC allowed them to make submissions within the next 15 days or they have had the submission, so we have to now respond to their submissions. And after that, CERC may hold one more hearing, and then they will issue the order.
All right, sir. And sir, where are we in terms of gross bidding? You had launched that new product, which is more at the individual level. So how we are progressing on the gross bidding in Canada?
For any new product, there are many ifs and buts, so we filed with the regulator. Regulator is also analyzing all aspects of it. And they trusted us to do stakeholder consultation. We discussed with the stakeholders also. They understand that yes, they can get some value out of it. But looking at what distribution companies are, I mean, I think only when we implement this product maybe we'll get some response from them. Otherwise, they are quite positive about this product. So we have filed our submissions with CERC, and let's see when we will get the approval. It's a new concept, so it will take some time. .
All right. Can we expect that in FY '23, sir? .
Yes, yes. We are ready to launch this.
Okay, okay, okay. Sir, in terms of financial question, we have seen there is a sharp increase in other expenses in this quarter. So any one-offs over there?
Yes. Mr. Vineet Harlalka, CFO, will...
Mainly, there are 2 factors. If you look at the considered number on year-on-year basis, the increase is around INR 2.7 crores. This is mainly because of the CSR because the CSR expenses increased almost INR 2.5 crores because this is our statutory obligation. Last time, it was spread over the 2, 3 quarters and this time because we incurred the expense of this order book. And secondly, if you can recall during the quarter 1 of financial year '22, because of the COVID second wave, so no activities were being taken over so like traveling, business development and other activities. So now it's fully function. So these 2 are the major impact. I think the CSR was a major impact on the increase in the cost during this quarter.
Okay. Sir, my last question, if you just look at your cash and cash equivalents, including the liquid investments, it's almost up 80%. It's almost about INR 1250-odd crores. And that's kind of a drag on the ROE as well. I'm pretty sure that there are some security deposits included in that. Even if you were to adjust, that's a very significant amount of your balance sheet size now, how do we plan to deploy this? I mean, are we just going to sit on cash? Or is there some plan over there? .
It is basically, if you look into the amount of INR 300 crores, these are the -- basically the deposit amount of float, which we received for the payout obligation -- because of the sudden increase in the paying because of the higher prices, so this is float we have to maintain because we have the payout obligation. So it's not an amount which we are aligned -- whatever the amount surplus here, which is already invested. So amount which are aligned we substantially are put into the FDs and other things. So we are looking and taking care of all the investments which are there...
So we have almost about INR 670 crore of shareholders' money. And out of that, we are going to pay dividend, which will be about INR 90 crore. So that will leave almost about INR 570 crore with us. So that is the money for which we can look for, I mean, investment options. We are working on a few -- I mean, opportunities, new options, new diversification initiatives. So as and when that's materialized, maybe we'll need some money for that. And even otherwise, also, I think we need maybe INR 150 crore to INR 200 crore for the IEX day-to-day operations also.
The next question is from the line of Nikhil Nigania from Alliance Bernstein.
My first question is regarding power supply. So as you mentioned, supply has been less than the demand in exchange in the first quarter. And going forward, if you see most of the power plants coming up are either on the thermal side, they are either NTPC state government plants or on the private side, they are renewable power plants, which are typically locked in PPAs. So given that, how do you see the exchange sustaining strong volume growth going forward given the supply being locked in PPAs future supply, sir?
Yes. See, on exchange platform, there are 2 type of sellers. One is distribution complete conceptional power because they have surplus on real-time basis depending on the demand and supply position. And there are cases when they have TPL capacities for in excess of their demand. And if the exchange clearing price is reasonable, they sell power in exchange platform. In fact, last year, the sell buy distribution company was more than 50%.
And then we are generating companies which sell power. So on the generating side also, we have almost about 10,000 kind of megawatt capacity, which is still in the merchant route available. And earlier, even the imported coal-based power plants were also participating because imported coal prices were lower. So that is another 10,000 megawatt capacity. So capacity-wise, I don't see any challenge. Only problem is now e-auction rates have increased and imported to coal prices have increased. So that is why generating companies selling power at high price and prices -- clearing prices are high. And that is why the clearing volume is also slightly lower.
Got, sir. My second question is on the competition landscape -- competitive landscape. This question came up earlier regarding transaction charges on the exchange from the competition. So on this, there was one trialing by the Hindustan Power Exchange to CERC requesting for permission to give volume-linked discounts in transaction charges. And please excuse my understanding, what I could see is even IEX had filed request for liberty to charge anything up to INR 0.2 on the platform. So how do you see this evolving? And moving forward, if PTC were to give volume-linked discount to its customers?
You said the PTC starts giving volume discount? .
PTC's exchange, Hindustan Power Exchange, yes.
PTC exchange. Okay. That is the Hindustan Power Exchange. I think you should correct that, that is not PTC exchange. That is exchange, which is promoted by BSE, PTC and ICICI. And PTC is not trading there because PTC can't trade there as per the regulations. Anyhow, so coming back to your question. They are in new exchange. They are giving promotional discounts. I don't know how long they will continue. As per the market reports, I understand they have -- they intend to give that for first 21 days. And after that, for 3 months, maybe some further discount. We don't want to get into this. We'll continue to maintain our traction fees what we have been charging. And I think the values which we provide to the participants. We'll continue to work on that. And I'm sure that will help us in retaining our market share.
The next question is from the line of Ankush Agarwal from Surge Capital.
Sir, firstly, can you talk about the derivative segment? Like when should we expect that? Would it be once we get substantial volume on long division contracts or we will begin it without that.
Derivative contracts will be launched by the commodity exchanges.
Yes, yes. But since we have partners, so we would have some expectation as to when it would be launched, right?
I mean there is a joint working group. The joint working group have to approve that contract because we have a spot market in electricity, so that contract would not have any adverse impact on the spot market. And particularly during this kind of turbulent condition, I think for the time being, that product has not been approved so far, but then maybe in the next 2, 3 months, we may see approval of that. So we may see derivatives in the electricity market. And that should help also some volume in the long duration contracts. That will provide some visibility to the market participants. .
Right. Sir, secondly, on the overall pricing thing, would it be possible for you to share what kind of transaction fee Hindustan Power Exchange is charging currently?
On - for what?
Mr. Agarwal, can you please repeat your question? .
My question was, will it be possible for you to share what kind of transaction fee -- the lower transaction fee that Hindustan Power Exchange is charging currently? .
I understand they have issued a circular. And my colleague, Mr. Rohit Bajaj, will respond to this.
So their transaction fee is same. They have approval to charge INR 0.2 on either side but they have come out with a promotional scheme wherein they are saying for first 21 days, they are giving complete waiver. This is going to...
Yes, 21 days, which is complete waiver. And then for next 1 or 2 months, we are giving some 10%, 20% sort of a discount on the transaction fees. This is what we understand.
Okay. So for the first 21 days, there is no transaction fee. And then for next 1, 2 months, you are giving 20% discount.
Something like that, 10%, 20% of discount over transmission fees, yes.
Sir, historically, based on PXIL was there. So what kind of effect we have seen this play out lower transaction fee? Does that attract volumes like historically based on PXIL would have given such kind of discount historically. Have you seen that attracting volumes?
No. So we have -- in fact, other exchange has also adopted these practices in the past. And they have restarted their day ahead market times, but we have been maintaining very good, very decent market share. And we hope that the kind of value that we are providing to our customers, the kind of liquidity we have, kind of participant base we have, kind of robust pricing that we have competitive pricing. I think these are the elements which are more important than this small discounts that other exchanges are considering. In the past also, they could not succeed because of this. And going forward also, we are hopeful that we would be able to maintain our market share, and we won't have to cut down on the transaction fee.
The next question is from the line of Bharani Vijayakumar from Spark Capital.
So this is Bharani Vijayakumar. So my first question is on the market share you had mentioned, 85% in the first quarter and 89% in the month of July. So I presume it is in the DAM market. Am I right, sir? .
No. Our share is almost about 85% in the first quarter. It is for all products taken together. We have electricity market consisting of DAM, GDAM, RTM, TAM, GTAM, everything together -- market, and you can't talk about one particular product.
Okay. Sure. And in TAM, you had mentioned the new entrant had garnered around 17%. .
Yes. That is on the DAC. In TAM also, there are notable products like intraday, day ahead contingency, daily contracts, weekly contracts. But they have only launched, day ahead contingency market. And in that, we have 17% market share.
Okay. Okay. Coming to our sell bids in 1Q FY '23. Can you share the proportion of sell bids from discoms and gencos separately for this quarter and the same quarter last year?
Yes. For discoms, the sell bid is also -- from discounts, the sell bids are about 55%. And from generator, it is about -- from this discoms, 56% and from generator of about 44%. This was last year. Okay. This year, from discoms, it is 46%, and from generators, it's 54% because there was a high demand on with discoms. .
Yes. Obviously, the supply situation was tight, so discoms did not have surplus power. Okay. And on the buy side, what is the percentage of open access, sir?
Open access volumes have reduced significantly. Open access volume is just about 4% now, 4% which is the industrial consumers and then another 6% by the captive industries like with Vedanta, [ Sesa Sterlite ], BALCO like that. So you can say total about 10%.
Okay. This obviously because the prices have increased, so...
Yes, yes, yes.
[Operator Instructions] The next question is from the line of Ankur Agrawal from PhillipCapital.
Just wanted to check about the sell-side liquidity issues that you mentioned during the quarter. If you can share some developments compared to the previous quarters? And what was the situation during this quarter? And how do we see it evolving? Because I understand when coal availability issues were there also earlier, and now probably going forward, we could probably see a continued availability issues there. So how do you see the situation over the next couple of quarters panning out?
Situation is continuing. Only thing is the clearing price have reduced slightly. Because of monsoon, the demand has reduced. So clearing price has come down. But on sell side, still the price being quoted by the generators is high because the purchase cost for the coal is quite high. So when the buying volatility of some price, the variable cost is itself about INR 5 plus for that. And that is why on the sell side, we are seeing still balance.
So these are mostly the imported coal-based plants or?
No, no, no. These are all domestic coal-based plants. Imported coal-based plants, variable cost is INR 8 plus site.
Okay. And over the next quarter, we do see some volume impact, I mean because...
See the production of coal has improved. It has increased. So coal stock position also has improved now. So maybe most of the states and generating companies are keeping coal to meet the demand of the month of September, October, 2 critical months. But thereafter, I'm 100% sure that the supply situation will improve and you will see good liquidity on exchange platform also.
Okay. And sir, second question was on the employee expenses. On a sequential basis, we saw a significant decline. Is there any particular reason for that? Or is there any dynamic that you would like to share on that?
Because if you look at comparison to the June 30, 2022, financial year '22 versus financial year '23 on a year-on-year basis, there are 2 factors which are declining. One is because the last year numbers included by IGX numbers, because now IGX numbers are not consolidated on the balance sheet basis being an associate company. So around INR 1.5 crore impact is that only.
And second, because there are some structural change into the CTC structure, some impact was there in the June quarter last year. And overall, this is because of the few attrition, so the cost was lower. So we have an impact on year-on-year basis. And if you look at the quarter-to-quarter basis, the decline because there is a onetime expenses because of the variable pay adjustment because of the significant higher volume during the last year. So that time, onetime cost was booked in the March quarter.
The next question is from the line of Lavanya from UBS.
Sir, I just wanted to know your opinion on implementation of market coupling and MBED. Do you see any potential implementation of market coupling without MBED happening?
I haven't heard this topic in the market from the last 7, 8 months, I think. The story is over. Nobody is talking about it now.
Both MBED and market coupling, right? .
You see market coupling makes sense only when MBED is implemented. And that is how the discussion paper of the government of India, which was issued to CERC also mentioned that the first phase of MBED where the generic stations of the CPSUs were over, that was without market coupling. And based on the experience of phase 1 implementation, if they want to extend it to the states also, then maybe market coupling can be considered. But even phase 1 itself is difficult to implement. Under the kind of situation, which took place in the month of March, April, May, world over energy markets are under review.
Australia, they suspended the energy market operations for 2 weeks. U.K., they are looking at the market design now -- relooking at the market design now. So in India, our situation was much better mainly because we had almost about 85% of the demand to the PBL. So there was no abnormal increase in the cost. So I think our market model is, from that point of view, working very well. So we have to slowly increase the liquidity in the short-term market so that market participants also get used to that.
Got it. Got it. So one more thing on long-duration contracts. So there is a difference in price discovery of long-duration contracts. So can you just help me understand how is it different from our traditional previous term ahead price discovery?
In the term ahead, we had matching contracts also and open auction also. Now in the term ahead market, the matching auction has been discontinued by CERC. So it is going to be only open auction. And another concept is now a reverse auction. Reverse auction, the way the price is discovered on the deep platform. The same mechanism is also now being approved for exchange transactions for long-duration contracts.
Okay. If I may squeeze in last question, what is the open access users contribution -- I mean, volume contribution previously? And how is it -- now it is around 4% is what you highlighted. How was it before when situations were...
I think it was about 11% last year during the first quarter -- 12%.
Okay. And captive?
Captive is around 4%, 5% -- you see captive come to the market because if they are not getting coal, then they come to the market. Last year, the coal supply situation was not bad, so captive contribution was less.
The next question is from the line of Sri Karthik from Investec.
Quick question. Can you tell us our market share in the DAM and RTM segment for the quarter? .
See in the RTM segment, we have practically 100% market share -- in the RTM. And in the DAM, you can say it is 99%. Yes, 99% of it, DAM.
Also, sir, can I take one. On the stakeholders stand from MBED, if you could help us understand where does NTPC, the government of India and CERC stand with respect to how they're thinking about the implementation?
I told you from last one year, I have not been hearing anything about MBED. There are many issues involved in implementation of MBED. And first thing is that consent of the states. And what I understand that most of the states are not in favor of MBED. As you know, at present, it is the state who has to enhance supply of power to the consumers of the state. Under the MBED, it becomes a central dispatch system. So states will have no control. Under this kind of situations, there will be many states who are -- who have supplied power, but under MBED, maybe they will not be able to supply that kind of level of power. Their share will be taken by somebody else. As of now, there is no discussion going on MBED. And I don't think it will get implemented.
The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund.
Sir, on the slide 35, you have mentioned about the late payment surcharge rules where before 10 AM -- by 10 AM, they have to schedule. So what's holding it back? I mean the rules are already notified. So what steps are required for this to get implemented now?
Yes. After -- the scheduling of power happens as per the CERC regulations only. So the rules issued by Government of India have been considered by CERC. And in the draft grid code, they have included this provision that generating companies -- distribution companies are give their draw schedule by 9:00. .
Okay. So once the draft code is confirmed, only then these rules will be enforceable.
Yes, yes. You are right.
Okay. Got it. Got it. And sir, okay. So any sense -- this is in the draft stage right now. So after that, there's the public hearing and then the final regulations will come. Is that?
Yes.
Okay. And sir, the second question is on the LDC market design. So you mentioned currently, I believe, for TAM market, you're following the open auction mechanism. And you are also planning to implement the reverse auction as per CERC. And sir, currently, the DAM market is what design?
For the TAM market, we have already implemented the reverse auction. And we have also carried out a couple of reverse auctions. For the DAM market, it is a double-sided closed auction.
Okay. But sir, isn't the regulator allowing a double-sided closed auction in LDC market?
Double sided closed auction is effective in a market where there is a very high liquidity. So in case of our DAM market, we have almost about 700, 800 participants participating where you have more than 200 generator sell-side participants and 600 buy-side participants. So there is effective price discovery, which can take place. If you adopt this kind of a model in a long-durian contracts that the participants are 2, 3, then price discovery will not happen. So that is why open auction is normally adopted for that kind of situation -- reverse auction.
The next question is from the line of S. Ramesh from Nirmal Bang Equities.
Can you share some thoughts on how your gas exchange is performing? And how you see the gas trading volumes pick up, especially given that gas prices have gone up sharply compared to last year? So how do you see that impacting volumes? And how do you see the prospects for the volumes here over the next 2, 3 years?
See under these difficult conditions, gas exchange, I would say that has done very well. The volume during the last year has increased every quarter. And they did almost about 1 crore 20 lakhs MMBtu. And we did a turnaround in the first year of operations itself. So that was a wonderful thing, I must say. And now also, and you know the gas market conditions. So in spite of very high price of $30, $35 in spite of the fact that LNG import is not happening in that big way. Still, they are doing decent volume. And in the first quarter, we have made a profit of INR 1.15 crore after meeting all the expenses. So -- and then July month is also so far, they have done good volume. I'm sure there is a good opportunity in the gas exchange. And I personally believe that if the gas prices come down to $6, $7, which used to remain earlier, and then the opportunity for the gas exchange is as big as what we are doing in the electricity exchange.
That's very interesting. So if you were to extend this through the energy saving certificates and just progress towards green transition, how do you see your power exchange and the gas exchange together playing active role in terms of helping both the generators as well as the users of energy? You're trading to meet their renewable energy requirements also develop an offset mechanism where they are falling short in terms of reducing the carbon emission objectives. So is there any thought process on that? Can you give us some thoughts on that? .
Can you repeat your question and tell me what exactly you want to know about that?
Yes. So in terms of your own perspective on any of the role Indian Energy Exchange can play, both in the power trading as well as gas trading, as we move towards green transition, you're talking about energy sales certificates in one of your slides. So in terms of the longer-term role you can play the country's transition towards green energy, how do you...
Okay, okay. #1, Government of India has now, I think, a target of almost about adding 500 gigawatt renewable energy by 2030. And a lot of work is happening for in that area. We are also interacting with many IPPs, many developers for setting up renewable generating capacities through the market mechanism, and we are getting a very good response from them. So that is one area. Second area is that even this carbon market is also getting a lot of traction and renewable energy certificates and energy saving certificates, which are now being traded government is thinking of stopping transactions of RECs and ESCerts, and then they will create a carbon market where these certificates will be converted into carbon credits and there is going to be a mandatory carbon market for that. In fact, Europe Energy efficiency is working on that. And we are closely in discussion with BWA on these issues. So as and when the opportunities there to launch the carbon market, we will -- we are working on that too, and we will launch that. We will be the first to start that market.
The next question is from the line of Mohit Kumar from DAM Capital.
Sir, one clarification, sir. Do you think in carbon markets, IEX or exchanges will have exclusive role to play? Or do you think it will open to the OTC markets also?
Can't say. I mean, it depends on what kind of market design is government adopting. So it all depends on that.
Okay, Sir. When do you think the clarity will emerge on this carbon trading market, and why in your opinion? .
By this financial year-end, something should happen because government is working on formulating rule of the game. And BWA also has appointed a consultant now to work out the market design. .
The next question is from the line of Ravi Naredi from Naredi Investments.
Sir, when exchange will have new MD or Chairman has bought post held by same person, new actions are coming so aggressive role of MD now need. That is my question. And I have total regard of MD at present.
I don't get your question.
Sir, the exchange held CMB, one person only. So I would like to know when the Chairman or MD will be separate as new actions are coming and new adviser is need in the exchange of IDX?
Okay. I mean your suggestion is that we should separate the Chairman and Managing Director position?
Yes. Previously, it was separate only. Then the MD resigned, you have taken over the Chairman-cum-MD. That is my point.
Yes, yes. See. I'm sure you are aware why it happened, because after my first term of MD, I was continuing as a non-executive Chairman of the company. And [indiscernible] suddenly, so to ensure continuity of the business, I took over as the CMD of the company. We are working on the succession planning, and company has a plan for the new MD also.
Okay, yes. And this new exchange is coming, what strategy we are making to compete with them?
See, as I told you, as an exchange, we have to provide value to our customers. We have to incubate, we have to launch new products, we have to understand the requirement of the customers and design the products to meet their requirements. We have to continuously interact with them, understand their problems, suggest them, tell them how exchange can provide benefit to them. And that is something which we are doing. If you look at the developments which have taken place in the last 2 years, the kind of new products which we have launched on the exchange market, our customer-centric initiatives, which we have done in the last 2 years. Technology platform, the new developments, which we have done on this platform, I'm sure my colleague, Mr. Amit, is here, and I'll request him to brief about some of the initiatives which we have taken.
Okay. Okay.
Yes. Thank you. So we have launched multiple initiatives to improve the experience that customers get from our platform. Some the key ones have been automated bidding through application programming interface. Then web-based platform, financial reconciliation through web-based systems. Auto carryforward of bids from one segment to another, so that could eliminate the -- reduces the manual effort to transfer bids from one segment to another. So these are some of the important customer centric initiatives that we implemented and many more we are working upon to ensure that customer experience with our platform continuously improves and they get best-in-class experience with our platform.
The next question is from the line of Ankush Agrawal from Surge Capital.
Sir, can you talk little bit about in terms of the pricing that we're looking for prospecting contracts? You've always maintained that there will be some discounts we will be offering. So can you talk a little bit about that? And also, with this discounted pricing that we will do in the gross bidding, do you think that will open up situations wherein the end clients of IEX would be looking for the same kind of pricing in the other segments as well?
Yes. So yes, we are -- in fact, we have mentioned in the past that when the gross bidding thing will be reduced, we might have a different pricing for that. We have not yet decided because it is still a little away from implementation. Approval is awaited from regulator. Once we have that approval, we will do. Just to answer your second question where you have raised, if you are going to give discounting price in gross bidding, then in the real electricity segment also, there could be pressure on the pricing. I don't think that will happen because when we are asking anybody, in fact, when we are convincing any distribution company to go for gross bidding, we are asking him to put buy as well as sell on our platform. Today, what we are doing is they are placing their bid on net basis. So how much deficit they have or how much surplus they have, they place bid only for that. When we are requesting them for cross-bidding then they are placing their sell also and corresponding buy also they are placing at our platform. So we cannot treat both the things on the -- at the same level. We have to differentiate, and we don't think that it can cause any impact on our pricing or the regular pricing on the different electricity segments where we are trading now.
The third question that I had over here is that this -- on the gross bidding, it is basically volume based discount. Someone who is taking much more volumes in liquid so we'll be providing discount. So the thought over here is in the regular market, is there some clients or something like NTPC who might have a very large volumes, something like PTC, who brings very decent volumes to our exchange. So in that case, maybe they might also be of the thought since we are also bringing a lot of volume, shouldn't we also quality for some kind of discount?
We are not talking about anything volume based discount. To give you an example, today, if a state has 25,000 megawatt PPAs, and the demand is 20,000 megawatt. And out of the 25,000 megawatts, maybe the 22,000 megawatts capacity is available. What we are saying is if your base load demand is 18,000-megawatt, for the rest of the 4,000 megawatts sell you put on the exchange platform and 2,000 megawatt buy also you put on the exchange platform. Exchange will do the optimization for you. And out of that in a particular time log, sold -- here sold 3,000 megawatt and bought 2,000 megawatts, that means on a net basis, you have sold 1,000 megawatt. So this 2,000 megawatts, which have been sold by him and bought by him, the price will be different. But for this 1,000 megawatt, which has been sold by him, the price will be normal price, which we are telling. So it will be basically based on this concept, I don't think this has any linkage with the volume -- volume basis.
The next question is from the line of Ankur Agrawal from PhillipCapital. .
I just wanted to come back to the sell-side liquidity issue. I mean, right now, we are seeing some structural increase in the electricity demand in India in terms of the peak capacity, peak demand that we have seen jumping over 211, 210 gigawatt. So do you see any -- I mean, there's no new thermal capacity going to come online -- I mean, limited thermal capacity going to come online over the next say, 5, 10 years, and we are focusing more on renewable. So are you seeing any structural issues with the sell-side liquidity that will be -- that we see -- foresee going into the future? And how do you see that panning out? I mean with emitted thermal capacity getting installed so...
Yes. This year, there were few challenges, partly because of nonavailability of coal and very high price of imported coal. But it has that whatever coal-based capacity we have, maybe that may not be enough to meet the peak load demand going forward. So what I understand that some of the new projects are being taken up now. Very recently, I read in the newspaper NTPC has awarded 1320 megawatt new plants, and they are working on a couple of more plants.
Just add here. See, the PLF that we have recorded in the first quarter is about 59%. And this is the 10 years high PLF. We have never seen this kind of PLF in the past. This was -- last year, this number was only 54%. So still a lot of capacity which is available, which will be utilized going forward as the demand will increase. And if you refer to any of the system operator report, NLDC report, you will find that I think even date, more than 50,000 megawatt capacity is nonoperational. It is not available because of various reasons. So we feel that there is some capacity still available. There is a lot more capacity, which is going to come. More than 30,000 megawatt capacity will get commissioned. More than 10,000 megawatts is merchant capacity, which is available in the country where the utilization level is very, very low. These plants are not operating because the price is most of the time are not conducive.
So what we feel that as price pressure will be there, prices will start to rise, more and more and more of this capacity utilization will start and it will increase. Yes, going forward, 3, 4 years down the line, 2, 3 years down the line, we might see some shortfall depending on how our demand will increase. But in the near term -- near to medium term, we really do not see any major shortfall in the demand. We have sufficient capacity available. The present crisis that we have seen, it is mostly because of coal. So the coal prices were high, imported coal prices were high. Many of them were not buying -- not able to buy at that price. And second thing was certainty is also not there. Because when you import coal, it takes about one month by the time you start getting coal. And you are not very sure whether after one month, also the same price would continue. So I think these are some of the factors which were -- which has caused this disruption. At the government measures where the coal production has increased now, the supply to the IPPs have also increased now. We are hopeful that in times to come, the situation would be much better and supply side constraints will be eased out.
Yes, sir, you're absolutely right about the supply side constraints. But the demand side also, we have seen a structural shift. I mean because earlier used to be having a peak demand of somewhere around 180, 185 gigawatts, and now that has jumped to over 200 gigawatts. Of course, I mean, the summer heating -- heatwave has to do -- had something to do with that. But we are also seeing some increase in the demand -- so peak demand. So I think the systems lag that might be available could be going down. Is that a fair way to look at it also?
So when the demand was 211 gigawatts, even at that time also, we had some capacity which was not operating. So I don't -- as of now, for the next couple of years. I don't see any challenge in that. And as Mr. Rohit mentioned, that there is already some capacity which is under construction, which will get commissioned. And maybe some new capacity will be taken up. So government and CERC, they are all working on all these things.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sumit Kishore from Axis Capital Limited for closing comments. .
Thanks a lot to Goel sir and management team at IEX for patiently answering all questions. Sir, if you have any closing remarks at this point?
I would like to thank each one of you for being part of today's call. During the quarter, we have seen a lot of initiatives announced by the government and regulators towards creating a favorable policy and regulatory environment and to transform the energy market. We remain committed in doing our bit for building a sustainable and efficient energy future in India. Thank you, friends. And I look forward to our next interaction with you. Till then, wish you all good health, and thank you.
On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.