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Indian Energy Exchange Ltd
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Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q3 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, sir.
Thank you, gentleman. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q3 FY '23 Earnings Conference Call. We have with us the management team of IEX, which has been presented by Mr. S.N. Goel, Chairman and Managing Director; Mr. Vineet Harlalka, CFO; Mr. Rohit Bajaj, Head of Business Development; Ms. Aparna Garg, Head of Investor Relations and Corporate Communications.
We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.
Good afternoon, friends, and welcome to the earnings call for quarter 3 of financial year 2023. Let me begin by wishing all of you a Happy New Year. With me today on this call are Mr. Rohit Bajaj, Head of Business Development; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations and Product Development; Mr. Sangh Gautam, CTO; Mr. Samir Prakash, CHRO; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali.
At the outset, India's commencement of the G20 presidency on December 1 marked a significant milestone towards undertaking a leadership role on the global space. It also brings an opportunity for India to showcase this sustainability road map.
On the economic front, India's post-COVID economic recovery continued with a strong H1 '22, '23. The countries -- the country registered a broad-based economic expansion of 9.7% during this period and was placed amongst the fastest-growing economies of the world. Recently, India's Manufacturing Purchasing Managers' Index, PMI, rose to 57.8 in December 2022 from 55.7 in the previous month, the highest it has been since October 2020. Similarly, the Services sector in India did better than it has in the last 6 months with a service of PMI rising to 58.5 in December from 56.4 in November.
With increased economic activity, within the country, electricity consumption in India for quarter 3 FY '23 stood at 343 billion units, which is a year-on-year growth of 6.8%. Key contributors to this demand were increase -- increasing consumption by the state Rajasthan, 16.4% year-on-year; Karnataka, 12.5%; Gujarat, 8.1%; Telangana, 7.6%; and Andhra Pradesh ,6.9%.
Installed capacity in India achieved 410 gigawatts as on 31st December 2022, in line with the country's commitment to us arresting climate change and evolving into a net-zero emitter by 2070, the installed capacity of renewable grew to 168 gigawatt. The growth of Green Energy is expected to help India attain its vision of achieving 50% of its entire energy consumption from non-fossil fuel sources by 2030.
In the quarter ended December 2022, the price of e-auction coal continues to be high, while the quarterly average price premium declined from 293% in quarter 2 to 242% in quarter 3 of this year. It was considerably higher as compared to 35% for the special forward e-auction coal in FY '22 -- FY 2022. As a result of this, input cost for Gencos continued to be high. Continuing high spot e-auction coal price led to average clearing price in the Day-ahead market at INR 4.56 in quarter 3, while lower from INR 5.4 in the previous quarter, but still high to provide optimization potential for Discoms and Open Access consumers.
During the quarter, coal production increased by 8.7% on a year-on-year basis to 225 million tonnes, while coal dispatch to the power sector remained almost similar at 184 million tonnes compared with the same period of FY '22. Inventories at power plant now stand at 13 days. It's improving coal inventory and further reduction in e-auction coal prices is expected to result in a decline in power price on the exchange platform and provide further cost optimization opportunities to Discoms and Open Access consumers. This will result in a higher volume on the exchange platform.
On the regulatory and policy front, several developments took place, a few highlights are, in early December, the new ERC regulation -- the new REC regulations for RE generators was implemented. The new REC mechanism of no floor price and fungibility between REC is likely to increase liquidity in the market. The trading of ESCert is expected to start in this month. Recently, CERC made amendment to define a floor price for trading energy saving certificates which is fixed at 10% -- 10% of the price of 1 metric tonne oil equivalent of energy consumed just notified by Central Government.
The GNA regulations were notified in October 2022 and were partially implemented at the grid as a grid [ code is in the top sales. ] The regulations are expected to be implemented before the end of FY '23. Implementation of GNA will remove regulatory arbitrage which led to temporary shift of volume from DAM market to DAC market and will be more conducive to us further market development within the country. Further, CERC issued deviation settlement mechanism and related matter of regulations 2022, linking the DSM charges for the time block wise, price discovered on the exchange. This will discourage discount to overdraft under DSM and willing to increase in volume in the RTM market. All these initiatives will help further deepen our market in the country.
Coming to IEX updates. During quarter 3 FY '23, electricity volume at 23 BU grew by 9% on a quarter-on-quarter basis. However, electricity volumes declined 2% on year-on-year basis as compared to Q3 of FY '22. Volumes were impacted largely due to supply side constraints led by high prices of e-auction coal. REC volumes at 1.2 BU during quarter 3 FY '23 witnessed a degrowth of 68% on a year-on-year basis as compared to quarter 3 of FY '22. As in quarter 3 FY '22 had exceptionally high REC volume of INR 38.3 lakhs to fulfill the pent-up demand caused by a stay on REC trading by APTEL for almost a period of 6 months -- 16 months.
Overall volumes at 24.2 BU recorded a 5% quarter-on-quarter growth across all market segments. However, on a year-on-year basis, overall volumes declined by 12% because of power supply constraints. High price is covered during quarter 3 2023 and high REC trader volume in quarter 3 of FY '22.
In November 2022, IEX filed a petition for introducing the high price day-ahead market segments to enable generators, which have high variable costs more than INR 12 to participate in this market. We are expecting to start this market by February 2023.
We continue to sustainability transition India's energy markets through efficient and asset-light business. In quarter 3 this year, we incorporated a wholly owned subsidiary, International Carbon Exchange. ICX is aimed to leverage opportunities that exist in the voluntary carbon market that ceiled mechanism will facilitate market participants to trade in voluntary carbon cerdit, allowing for transparency and optimal price discovery. We are confident that ICX will go a long way in helping achieve India's target to -- target of reducing the emission intensity of its GDP by 45% by 2030, to limit global warming to 1.5 degrees Celsius.
The quarter also saw IEX become India's first carbon-neutral power exchange using market-based tradable instruments to offset its carbon emissions. This will help IEX members and participants to reduce their Scope 3 emissions by building a greener value chain.
I shall now talk about development at IGX. In quarter 3 FY '23, there has been several top project developments at Indian Gas Exchange. IGX traded total volume of 24.42 million MMBtu during quarter 3 FY '23 which was a 568% year-on-year increase. The growth was largely on the back of participation by major domestic gas producers and an increase in the number of participants. During this quarter, several members, including RIL, BP Exploration Alpha and Vedanta Limited joined IGX.
Recently, IGX launched GIXI, the first-ever nationwide price index to reflect benchmark natural gas prices of India -- for India. The IGX price index is developed with the purpose to derive a single price for the country, in line with the international benchmark such JKM, Henry Hub, West India Markers, TTF, et cetera, which are currently representatives of the price of their respective coverage regions.
Now I will enumerate some of the IGX financials during the quarter 3 FY '23. During the quarter, profit after tax at INR 12.76 crores, witnessed a growth of 427% on quarter-on-quarter basis and 1,437% on a year-on-year basis. Efforts undertaken by IGX in the country's gas sector, but also recognized at the Industry Award 2022, where IGX won the best and pioneering gas exchange initiative for the Gas Economy Award.
It is now time for me to summarize the financial performance of the company in this quarter. On a consolidated basis, revenue for quarter 3 FY '23 increased 3.1% on a quarter-on-quarter basis from INR 113.8 crores in quarter 2 to INR 117.4 crores in this quarter. However, due to a decline in traded volume, revenue for quarter 3 witnessed degrowth of 10.3% on a year-on-year basis.
Consolidated PAT at INR 77.2 crores grew 8.4% on a quarter-on-quarter basis as compared to INR 71.2 crores in quarter 2 of FY '23. With gradual improvement in domestic production of coal and improvement in coal inventory, we expect a rationalization of power prices on the exchange and the volume is expected to improve. Since its inception, IEX has grown with focus on customer centricity, innovation and technology. We continue to work towards building a sustainable and efficient energy future for India. In addition to developing new products such as HP DAM and Ancillary market, we are exploring business opportunities in voluntary carbon credit space with the launch of IGX and also doing policy advocacy to create a framework for setting up coal exchange.
We believe in the government's vision for a sustainable future for India, India's energy sector and are committed to help the country achieve it.
With this, we shall now commence the question-and-answer session. Thank you.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Sir, first question is, how has been the traction in long-term duration market? I think we have afforded 2 kind of contracts monthly and any single side reverse auction. Can you please comment on that?
Yes, in the long -- we introduced this long duration contracts in the month of July. And there is very good response from the market. I think by now, we have conducted more than 50, 60 auctions, but since the price discovered in this auction is on the higher side because of the supply side constraints, as you are aware, many of these auctions have not resulted into a contract. And still, we have done more than 1 billion unit transaction during the 6 months in this segment.
Are we seeing any green suites in this particular segment given that we are entering into a summer season?
See, invariably in the long-duration contract transactions happen when the prices are competitive. And then distribution companies, they get into a contract for 3 months, 6 months to have the power -- seasonal power requirement -- to meet the seasonal power requirement. But the price discovery at the moment because of the uncertainty in the availability of coal and very high e-auction price -- since the prices are higher, it is difficult to say about the volume growth in this. But I can give you broad picture about this market, almost about 50 billion unit of transactions are happening in the less than 1 year contract through the trading company. And this is the potential for this market. And with the kind of flexibility which we have provided for this long-duration contract, I'm sure we should be able to get a good large share out of that. So going forward, we will see, I mean, how the growth happens in this market.
And next year, particularly the Government of India has fixed a very high target for coal production, which is 1 billion tonnes for the country as a whole. And if that happens, I'm sure e-auction coal prices also will cool down, and our clearing price will also come down. And then you will see good traction in this market, long-duration contract market.
Understood, sir. Secondly, on this IGX, how much was the revenue EBITDA and PAT for 9 months? For Q3, you mentioned INR 12 crores, is that number right?
Yes, yes.
During the quarter 3, the total operating revenue was INR 18.5 crores for the IGX in comparison to around INR 5 crores revenue in the quarter 2.
And the 9-month number, sir?
Yes. For 9 months, the operating revenue was INR 27 crores versus INR 5 crores for the previous year.
And sir, profit number, sir, for the 9 months?
Number for the 9 months is INR 16 crores.
Okay. Understood. So most of the profit has come in this quarter?
Yes.
The next question is from the line of Mr. Sumit Kishore from Axis Capital Limited.
My first question is there has been a slight easing of supply side constraints, but we have not seen a meaningful improvement in liquidity on the exchanges so far. October was better in that respect, but then November and December sequentially saw a worsening of liquidity and high exchange prices. January also the exchange prices so far are north of INR 6. So what is the sequence of events you expect over the next few months on the liquidity aspect? And where do you expect -- how do you expect exchange prices to pan out over the next 6 months?
Yes, there has been significant improvement in the coal production in the country. But when the crisis happens, always rushing is done. And this time, Government of India, what they have done is they have increased supply of coal under the PPA, so that states they are able to get coal for running their power plants, running their power plants to the [ IPPs near ] the contracts [Audio Gap] that good part of the demand of the state is met by the [ position ] of the PPA. And PLF of the coal-based power plants increased almost by 6%, 7% as a result of that.
Availability of coal in the market, which is the e-auction market, is still low, and e-auction price is still very high. I think it is still about 240%, 250% of the administered price. And at these prices, the variable cost is INR 5 plus. So generators are not willing to -- they cannot sell power at a rate lower than INR 5.25, INR 5.50. And that is why our clearing price is still high. And -- but I'm sure going forward when coal production improves, availability in the e-auction market is more, then e-auction price, which was only 35% premium in FY '22, it should come down to that level. And when that happens, then you will see our clearing price coming down to 3Q, Q4, and the volume should also increase with that.
So would that be a reasonable expectation to have over the next 3, 4 months? Or based on how things are going right now, you expect that liquidity will be tight for some more time?
Maybe after August, September, this would come down because March, April may have a high demand period. And during this time, even hydro and wind support is also not available, so there is going to be a lot of pressure on the coal-based power plant. But after that, I think the situation should improve.
Okay. And would it be reasonable to say that when exchange prices are high given that state discoms requirement to optimize their power procurement, C&I customers wanting to buy cheaper power, all this demand will get impacted and that could weigh on volume growth on exchanges, like we have seen over the last -- in the fiscal so far?
Yes. Yes. Whenever the clearing price is high, definitely, it is impacting our business because our clear volume normally consists of 3 components. One is purchased by discoms to meet the demand. Second is the states which are located far away from the coal mines, their variable costs used to be higher, they used to back down those costly stations and purchase power in the market. And third is purchase of power by the open access consumer, industrial consumer, so we optimize their cost.
Now with high clearing price, it is only the demand of the distribution company which has come into the market and optimization opportunities reduced to significant extend. And that is why there is slight dip in the clear volume. But I'm telling you, in spite of that, even for meeting the demand, the volume is still very high. And on a quarter-on-quarter basis, we have seen growth. With respect to quarter 2, quarter 3, volume growth is almost about 8.6% in electricity. So with that, I'm thinking -- I'm sure quarter 4 should be better than quarter 3.
Okay. Also, it was expected that now the volume would shift back to DAM from DAC and you would be bringing out the GNA regulations in October. So this issue around double charging of transmission charges, have it still not been addressed? Can you please explain that?
No, no, issue has been appreciated by the regulators. They have already issued the GNA regulation, where they have addressed this issue and there will be no double charging. Only thing is that GNA regulations will be implemented after finalization of the grid code and transmission charge-sharing regulation. These 2 regulations are under the -- hearing has been held for all these regulations. So they are under finalization of these documents. And once these regulations are issued, then this will be implemented together. Because all these 3 regulations are interlinked, so we are expecting maybe from 1st of April, this will get implemented.
Okay. And my last question is on ICX. In your presentation, you have mentioned that by 2030, India will sell almost 200 million carbon credits. But over the next 2, 3 years, how do you see the opportunity shaping? What are the investments that you will do in ICX? And could you give us some more detailed view on the next couple of years, what will be the development seen?
See, carbon market is a different kind of a market. And we have just started this exchange. What we understand that the opportunity size is quite big. But first 1 or 2 years could be difficult period, difficult years for us. As of now, we have just incorporated the company. We are in the process of developing the technology platform for this and understanding the market, approaching the buyers and sellers, getting them registered. So maybe by middle of this year, we intend to launch this exchange.
And thereafter, I mean let's see. Because many corporates, many industrial houses, they have made their commitment under the ESG to be carbon-neutral and these targets are quite challenging. So all of them to achieve these targets will have to buy carbon credit, so I think India is a large producer of carbon credit also. And in the international exchange, we intend to interact with the international participants also. So opportunity is good but let us see how much share we are able to get out of that.
We have the next question from the line of Sandeep Agarwal from Naredi Investments Private Limited.
Sir, my question is currently 85.9% is our long-term PPA.
Can you please speak a bit loudly?
Hello?
Yes. Yes, please.
Yes. Sir, currently 85.9% is long-term PPA as per your comment. And then after 25 years of completion, it will be no renewal. So what is the other option with the -- other option for the company to sale the power other than exchange, my question is?
Yes. I mean the present companies who have long-term PPAs after 25 years, they are free to sell the power in the market. And then they can -- they have the option to sell this power under the bilateral contracts, maybe for -- on medium-term basis or short-term basis, but exchange is the most flexible option where they can depend -- because after 25 years, the plant also gets ill and their performance also deteriorate slightly. So depending on the availability of the plant, they can best utilize the capacity to the exchange platform because we have both DAM market and RTM market, and we also have long-duration contracts. So I'm sure the participation of these platforms would be more through the exchange.
And sir, do you have any data that after 3 to 5 years, what will be the percentage reduced, 85.9% to what percentage?
See, as of now, from the last 5, 6 years, long-term contracts are not happening and demand is increasing every year at a rate of 5% to 6%. So definitely, the share of the long-term contracts in due course of time will decrease and purchase to the market will increase.
Okay. Sir, my next question is regarding the gas exchange, about 50% of gas is imported by a short term. So what is our exact market size in this? And what is the main trigger you think, other than price to increase the volume in our platform?
See, in any market platform -- on any market platform, the volume increases when the prices are competitive. And same thing holds good for the gas exchange also. This year, the volumes in the gas exchange increased because for the first time, Government of India allowed domestic gas with the ceiling price also allowed trading of that for the exchange. And that brought us good volume, but -- and it was -- LNG trading was hardly any quantity because LNG rate is very, very high in the international market. So import was less and the trading transactions was very less. It was mostly domestic gas with the ceiling price and domestic gas from other sources. Going forward, as and when the LNG prices moderate, they come down to the level of $5, $6, which used to be the price earlier also. And I'm sure when that price comes, the LNG [ port ] will increase, and we will see larger volumes through the IEX platform.
The next question is from the line of Yash Nerurkar from PPFAS Asset Management.
So I had 2 questions. One is basically from a business perspective. So you have introduced many new products in the past, say, few quarters. So going forward, what would be the revenue composition looking like, say, if I have to, further from a year or 2 from now, like what would you want from the revenue side, like how the product should be looking like?
I couldn't get your question. Can you repeat, please?
Yes. So my question is since we have introduced many new products. So the revenue contribution of DAM and RTM is supposed to be the highest right now. So say 2 years down the line, how would you want the revenue composition to be like?
See, today, I mean, there was a time when DAM was constituting almost about 90% of our volume -- 90% of our revenue. Today, DAM is only about 50% (sic) [ 52% ] of our volume and RTM has become 26%. So taken together is about 78% DAM plus RTM. And in fact, DAM plus RTM is the most competitive market as far as exchange is concerned. So volume in these 2 segments will continue to lead other market segments. But we also expect long-duration contract volume to pick up in future.
As I told you, whenever the prices -- the coal price come down in the international market and in our domestic e-auction market. In the [ ICX ] market also, we expect significant volume growth. So it will be very difficult to say how will be the distribution of volume under the different segments. That depends on the clearing price, when the clearing price comes down, then you will see large volume in the energy market also.
Okay. Okay.
Green market is another area with large renewable capacity addition, we should see good volume growth in this market also.
So would renewals also be like a major component going forward in the DAM segment, the green DAM segment?
Yes, yes, green market, it was only 2%, 3% 2 years back. Now it is -- last year, it was 5%, and this year, it is already 6%. So I'm sure next year you will see green market going to be almost about 10% of the total volume.
Okay. Okay. And secondly, I just wanted to know about the transaction charges, which are under review. You had submitted your proposal about the transaction charges, and it was under regulatory approval. So does that risk still remain that the transaction charges would drop or would be half?
See, hearing were held in the month of December. And order is reserved by the commission, order has not been issued. So till order is issued, it is very difficult to say what is going to be the final order. But looking at what happened during the hearing, I think we made our case, and we practically convinced the commission that INR 0.02 transaction fees is the right -- which they have -- right number which they have also fixed in the regulations. And probably that should happen.
Okay. So basically, from your point of view, you think that -- I mean it will work in your favor?
Yes, yes.
Okay. Okay. And just one last question. I just wanted to understand about the gross bidding mechanism, like at what implementation stage it is or it is -- that too is under regulatory approvals and it's under review?
See, gross bidding is basically voluntary participation of the state to the market. States can sell their capacity, which is at the margin, I mean, if exchange clearing price is INR 3, then they can sell power from the power plants, which are less than INR 3, I mean, maybe from INR 2.75 and above. They sell in the market and buy power, whatever is required from the market. So you are selling in the market and buying from the market. In that turn -- in turn, you are optimizing. Because your demand during the day is not uniform, so you optimize your power procurement costs to the market. But these kind of things happens normally when that clearing price is competitive. Since this year the clearing price has been very high, there was no opportunity for distribution companies to utilize this gross bidding concept.
The next question is from the line of Nikhil from AllianceBernstein.
I have 2 questions. First question was regarding power derivatives. While you understand it's going to come on another exchange, but it has implications for IEX as well. So I wanted to understand if there are any updates on that front?
Power derivatives have not been introduced yet because this will be introduced in the SEBI regulator exchanges. I think NSE and MCX are working on this. So -- but then there is a joint working group. That joint working group has to approve the contract for the derivatives because in electricity, we have spot market also and regulator wants to be sure that there is no adverse impact of those derivatives on the spot market. So I think it is in advanced stage and maybe in the next 1 or 2 months, we will have derivative contracts in the market.
Understood, sir. Good to hear that. The second question I had was regarding RECs. You mentioned the new regulations coming into play in December. I wanted to understand that the regulation allows power traders also to participate in RECs. Did that have an impact on December volumes? And could it have an impact on future volumes for RECs?
I don't think because all distribution companies, particularly, they would like to do trading of RECs only through a competitive platform so that there are no questions asked. And exchanges have been well accepted over the last 12 years that this is the competitive platform for price discovery and REC trading has been happening through this platform. So I'm sure distribution companies will continue to buy RECs through this exchange platform only. And other opponents of consumer -- industrial consumers, their requirement is in very, very small quantities and they buy it as and when required basis.
So they will also like to prefer exchange platform because there's no -- on exchange platform, the fixed [ day or month ] when the transaction is going to happen. So I don't see allowing trading companies will have any adverse impact as far as REC volume is concerned. But let's see, so far, I don't think any transaction is happening there through the trading companies because it is almost about 1.5 months over and nothing has happened.
The next question is from the line of Devam Modi from Ardeko.
Yes. Sir, what could be the IGX share in the total gas volumes of the country?
So as of now, IGX share is only about 1%, 1.5% only. So it is just -- we started 2 years back, so...
This will be based on the third quarter, 24 million MMBtu, would be 1%, 1.5%?
Yes.
And what -- would there be any -- sir, what will be the Q3 profit from IGX, would be around INR 12 crores, would that be correct?
Yes. You're right.
So would there be any one-offs in this current numbers because with this kind of volumes also would be we posting these kind of numbers, so if the volumes expand further, what kind of profitability can be expected over year? Are there any one-offs in this current number on the profitability side?
No, no. This quarter, volume is mostly driven by the domestic gas, domestic ceiling price gas sold by Reliance and ONGC, and they have regular supply of gas. So I'm sure their requirement will be to do sell off these gas on a monthly basis. And they have seen that exchange platform, again, is more flexible and efficient platform. Again, here, the transactions have been very smooth. So the transactions from these companies would continue and in addition, as and when the LNG prices come down, the volume will further increase.
Okay. So what kind of -- would you -- so you are saying current base would remain around these levels and then volume increase will depend on further narrowing down of LNG prices? Would that be the right impression?
See, in fact, in the gas market, there are many fields which have been given to the private sector and there are many fields in fact, presently, which were auctioned in the recent past. In those fields, there is no auction and there is no ceiling in their price, so as and when gas production from those will start, I'm sure they also -- their participation also will increase on the exchange platform. There are many marginal fields which are coming up now, so we may expect good participation.
And this year, already gas exchange has done more than 3x of what they did last year within -- in 9 months. So by the end of the year, it should be almost about 4x of what we did last year. So for next year, it will be difficult to give a number, but certainly, it should be in the range of 50 million MMBtu.
So what would be the quarterly overheads at IGX level?
Quarterly overhead is around INR 5.5 crores.
This would mean all admin expenses and salaries?
Yes.
Okay. Okay. And sir, what will be the volume share in the core business of IEX, that is the energy extent? What would be the volume share of SEB on the buy side and the sell side in this quarter?
Buy side, it is about 88% to 90% between -- about 88%, although sell price at 65%. So distribution companies today are the major buyers and sellers, buying mostly the distribution company because due to the reasons explained by Mr. Goel. Sell side also, we are seeing very good participation from discoms because they are the ones who are getting more coal under long-term supply than they have -- they are operating their plants at higher PLF. Wherever they have surplus, they come to the exchange market and sell that off.
Correct, correct. Sir, I was just trying to understand what you were saying with regards to the fact that when the prices are higher, typically, you would expect the volumes to be slightly hit because of the lower SEB participation. So what would be -- would you feel that the non-SEB component of the demand and supply will be much more inelastic to price movement, would that be the right understanding?
No, what we were trying to explain was from the discom or SEB side, we get 2 types of buy. One buy is there to meet the deficit, which is price insensitive. Whatever is the price, they want to buy this power and supply to the end consumer. Now second part of buy is actually optimization buy. In first 9 months, the growth in the overall electricity demand grew by 10%.
Now growth was so robust that there was so much deficit buy, which led to prices being on the higher side coupled with the higher input costs and hence, optimization buy was not happening. So the number that we have registered till now, it is purely on deficit buy. The point we were trying to explain was as the supply will improve and as the cost -- input cost will go down; we expect more buy to come from same SEB. Now this additional buy would be on account of optimization or replacement.
Sure sir, what I was trying to ask was the non-SEB volume that is the volume from industries and other private entities, would that be remaining generally -- would that be growing in a normal trend, I mean, irrespective of the fluctuations in power cost?
No, no. That has gone down drastically. In fact, non-SEB volume today is only 10% because our prices are very high. As the prices will start to come down, you will see this number going up to as high as 30%, 35%. There is so much demand which is there, which is waiting on the sidelines, waiting for price to come down. Every day, these players -- these industries are placing their buy bids. But their bids remain unclear because the prices are high. So this is additional over and above SEB buys, this quarter will also come as the prices will come down. It is highly price sensitive buying which we get from industries.
We have the next question from Anshuman Ashit from ICICI Securities.
Sir, over the past few days, we have seen the INR 12 price cap being hit during the morning and evening was during many time blocks, so sir -- so what is generally the view on this price cap, will it continue? Will it be changed because it is hurting the discoms a lot and hurting our volumes as well? And do you see that the coal -- international coal price moderating a bit, do you see supplies from imported coal-based plants increasing and there being some near-term relief on prices?
Yes. Price cap of INR 12 is expected to continue for some more time. CERC has already assured that this will continue till further order, so which means that they don't see -- they don't expect revision of this upwards in the near future. But let me tell you one thing, with INR 12 price cap, we don't see any impact on the volume because whatever sale is available in the country, the marginal cost of that is much lower than volumes. Even domestic coal-based power plants, there also the cost is in spite of high e-auction rate is INR 5, INR 5.5. Imported coal-based plant, the cost is about INR 6.5, INR 7. So INR 12 is much higher than that. So all of them have incentive to participate in this market. So I don't see any impact on the volume because of the price cap.
Okay. Understood. And sir, for the 9 months, so what has been the total exchange volumes? And how has been our market share? So could you give some details on that?
Exchange volumes has been almost about 60 billion -- 70 billion units -- 70.7 billion units in the first 9 months. And our market share is -- in this quarter, it is almost 92%. And if you take the full year, it is 89% electricity -- in electricity.
Sir, is it fair to assume because the other 2 exchanges mostly have term ahead contracts and because volumes there have increased and for DAM, it has reduced. So once DAM volumes pick up, our market share may revert to the earlier levels?
Let us first understand one thing why the DAM volume fixed pickup. If you analyze the volume trend on the exchange platform for the last 13, 14 years, the DAM volume used to be hardly 1% or 2% of that total volume here on the exchange platform because distribution -- when there is enough liquidity in the day ahead market and RTM market, they prefer to buy in the DAM and RTM because that provides them a lot of flexibility. In this year, when there were supply side constraints, demand was more, many distribution companies prefer to get into the [ day ahead ] market to ensure availability of power. So that is why the DAM volume increased.
In future with the increase in coal supplies, price moderating on the exchange platform, I am 100% sure that DAM volume will rather go down. We have seen in these 9 months or so, the month in which the clearing price was lower, the DAM volume were lower in that month. So I don't see any reason for DAM volumes to go up.
Okay. Understood, sir. And sir, for FY '24, so what is the growth that you are looking forward to -- in terms of exchange volumes overall?
Yes. Our growth is dependent on the market conditions. If GDP grows, electricity demand is going to grow. If electricity demand increases by 5%, 6%, then which means that almost about 50 billion to 90 billion units of extra demand in the country. And I'm sure a good part of that will come to the market. But from within that demand, there should be enough supply also. And supply can happen only if there is adequate coal supply.
So I mean, it is all dependent on these things. So it will be difficult to make any guess on that. But I can tell you one thing. If you take our average for the last 5 years, 6 years, our growth rate has been almost about 20% on CAGR basis. So it should be possible to achieve that kind of a number if market conditions are conducive.
And sir, one final question, sir, you had mentioned in your initial remarks that ESCerts trading will start in this month, is it? So sir, what kind of volumes are you expecting in that?
ESCerts, I think the total volume of ESCerts for sale is hardly about INR 40 lakhs, INR 50 lakhs.
INR 50 lakhs.
INR 50 lakhs. And -- but then the purchase obligation is for only INR 35 lakhs. So the size is very less in this.
Okay. Okay. And similar for the REC for FY '23?
Pardon?
For REC...
For REC. So what's the kind of volumes?
FY '23?
Yes, what's your expectation for the Q4?
We have already done INR 43 lakh REC trading, and we should close this year with, I think, almost about INR 60 lakh REC closing.
Yes. So we are expecting another INR 20 lakhs in the next 3 months because these are the closing months and majority of the buy is in these ending months only.
The next question is from the line of Lavanya T from UBS.
So I just wanted to understand if once we get approval or order from CERC on the transaction charge, do we have any idea on the frequency of the approval, which is needed? Or is it only whenever a new product is launched?
No, I mean, invariably, these kind of approvals are for once approval. And thereafter, if there is -- if conditions change, if regulator feels that there should be reexamination of that then they can do that. In fact, in case of trading margin -- the next best example is the trading margin. CERC had notified credit margin in 2010. And in 2020, they reviewed that and issued an order wherein they, in fact, revised the trading margin upwards after 10 years. So it is not on an yearly basis. Once this approval is there, I'm sure this approval is going to be there for a very long time.
Okay. So I was just checking because for trading margin, it was a cap and explicit approval for each of the trading licensee was not required. But here with exchanges, along with the cap, approval was required for each of the exchanges separately, so...
Here also, they are going to approve the transaction fees as a cap that exchanges. We cannot charge more than so much of paisa as transaction fees in the DAM market, so much paisa in the RTM market because if you fix the number, then between the different exchanges, they will not be able to promote competition. Here also, they're going to put the cap and they have already put that cap in the regulation, a cap on INR 0.02. So I'm sure that number is going to come.
Got it. Got it. And with the -- I mean I just wanted to understand your view on the overall market. So usually, during winter, so I mean, overall electricity demand comes down and supply is relatively better during this period. But despite that, the exchange prices are quite high. So coal prices is the only reason or any other change in the market or that you are seeing why so high market prices even in January?
One is the demand of power in the country has increased. It has increased by almost 10% this year, which is again unprecedented. In the last 20 years, this is the first year where the electricity demand in the country has increased by 10%. Otherwise, it used to be at a rate of 4%, 5%, 6%, so that is one factor. And second factor is, I mean, coupled with this, very unfortunate, the coal prices have increased in the international market because we have almost 20 gigawatts of that imported coal-based capacity that capacity is operating hardly at 30%, 40% PLF, so the pressure is on the domestic coal-based power plant, and that is why all these problems are happening.
Okay. Got it. Got it. So with some moderation in international coal prices, do you see this improving in the coming months? Or how do you see this moving?
I'm sure because the prices have already started coming down. Every month, we are seeing 4%, 5% reduction in that imported coal prices and domestic coal price, e-auction price also is reducing every month. So in the near future that should come down to the normal range.
Got it. So last question from my side. So we have seen sell-side from state board - state electricity, these things, for 65% now. So what this used to be earlier? Like what is their share on the sell side in the normal year like 2020?
Yes. No, distribution companies sell used to be 30%, 40%. And generating company used to be 60%, 70%. But this year since the distribution companies states go -- move full under the PPA, so they had more power at their disposal. And there are many states where the demand is in the morning and evening hours, but then they don't have -- they have very less demand during the night hours and daytime, so to keep the plant running they sell power during the nighttime and daytime.
So I mean, when there are states who have contracted capacities keeping their demand growth for the next 10 years, and they have today surplus capacity at their disposal. So they sell power from those plants. And since the price -- clearing price on the exchange platform is lucrative, these states [indiscernible] are also able to make some reasonable profit out of that.
We have the next question from Ankush Agrawal from Surge Capital.
Sir, firstly, on the IGX, sir, what will be the total traded natural gas in India including the domestic gas?
So far, the natural gas traded is almost about 36 million MMBtu and the very large part of which is domestic gas only. Domestic gas plus -- domestic gas has got 2...
No sir, I'm asking the total Indian consumption, not what IGX is doing.
Indian gas, total gas consumption in India is almost about 160 CMD, which is million cubic meter per day, 160 million cubic meter per day. And out of that, 50% is produced domestically and 50% is...
What would be in MMBtu terms and size...
We don't have the number.
Rough number.
But right now, I would not like to make a wild guess on this.
Okay. So sir, out of this, what would be the addressable opportunity for IGX, like the short-term traded gas, like which is traded from traders or bilateral deals, something like that?
IGX this year is doing almost about 1.5% of the total of gas consumed in the country.
Okay. But what will be the short-term market size?
And looking at the plan of the Government of India, government plan is to increase consumption of gas from 6.3% to 15% of the energy basket in the next 7, 8 years. And they have created large infrastructure in the gas sector like LNG terminals, gas pipelines are being constructed. So if gas growth happens like that, I'm sure opportunity for the gas exchange is very, very high and I always say that opportunity for the gas exchange is as big as what we are doing in the power sector.
Yes, [indiscernible] is taken but any -- like idea on what is the short-term market size, like for -- in the electricity, we have about 12%, 13% which is stated on the short-term side, so on the gas side?
In case of power sector long-term contracts are almost for 87%, 88% of the demand. In the gas sector, long-term contracts are hardly for about 70%, 75% of the demand. Rest of the gas is under the short term, getting imported or export in the short-term market [indiscernible] much higher.
Right. Okay. Got it. . Secondly, sir, on this carbon exchange that we are looking to start -- so I believe this would be a global opportunity for IEX because carbon credits basically, the issuing agencies are global in nature, so this would be fungible globally. Are we targeting the global opportunity? Or no, we would be restricting to carbon credits that would be issued and domicile largely in Indian markets?
No, this is going to be a global opportunity. That is why the name of this company is International Carbon Exchange. Because as of now, many European and American companies to comply with their ESG commitments, they are buying this carbon credits, so buyers are more active in the international market. And we have on sell side, India is also producing many carbon credits. In fact, there is a good opportunity for sale from the India, Southeast Asia countries and African countries. So we intend to tap all these sources for the carbon credits and buyers in the European-American markets.
Correct. The idea would be to firstly act as a supplier of Indian carbon credits to the global market?
You are right.
The next question is from the line of [ Arul Selvan ] from Independent Advisors Private Limited.
Can you hear me?
I can hear you.
Yes. I remember I heard that from a long duration perspective you said that the current market size is about 50 billion units. Am I right in what I heard?
You're right.
Yes. So my basic question here is that how exactly are the current market players trading in this segment, if it's not really through an exchange platform. Is there some other platform? Or is it just a traditional P2P bilateral contracts way?
Most of the trading in this market is happening through the deep platform. This is a platform which is for...
Right. Owned by the government, right, if I'm not mistaken?
When the reverse auction happen for price discovery and most of the trading -- So the trading companies [indiscernible] generated from distribution companies...
Okay. Okay. So now when long-duration contracts are, I guess, introduced for, let's say, progressively longer duration. Then right now, we have if I'm not mistaken, 6 months, right? That's the longest duration that we have right now, right? So let's say...
We have right now [indiscernible] delivery up to 3 months.
Three months, sorry.
Yes, we're talking to regulators for approving [indiscernible] delivery.
Yes. So now my question here is, I suppose, let's say, in the future, we get the regulatory approval for launching contracts for, let's say, up to 6 months or 1 year or 2 years, do you expect these players to automatically shift to our platform? Or do you think that the existing deep platform provides certain other advantages that are not available on our platforms?
See, shifting of the participants on our platform will depend based on the value which we provide. If we are finding more value protection, they will definitely switch to the exchange. So we are trying to create value for them for the exchange platform. Number one value is that this exchange platforms are flexible. You can keep your requirement for doing e-auction any day and auction can be done within 3 days' time -- 2, 3 days' time. And we have very efficient system of our scheduling, so we, in fact, ensure that it's matched and the scheduling of the power also and also do the complete financial transaction.
We pay to the generators on a daily basis. So that is a big USP of exchange. Generators are willing to sell power at a price lower on the exchange platform because they are assured of the payment. In case of deep contracts, they are not assured of the payment on the industries. They in fact get payment after the supply of power [indiscernible] after that, in many cases takes 2, 3 months also. So looking at these kind of values, I'm sure participants will be more active on the exchange platform.
Right, right. And just a couple of more questions. The first one -- I am sorry, the next question is that -- are there any competitors who are offering these long-duration contracts for up to 3 months as of now?
All the 3 exchanges are offering this.
Okay. And you said that the traction that you were seeing -- the lower amount of traction. Is that also across the other exchanges or is it across the -- is it only on our platform?
No. I mean volumes are happening in other exchanges also, but I can definitely say that our share is more than, yes, yes.
Would you have a number for that in terms of what our market share would be on just the long-duration contracts that have been recently introduced?
No. Because as I told you that the volume in this segment at the moment is not significant because of the high clearing price. So this percentage and market share will be meaningful when the volumes increase.
Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.
I would like to thank all of you for being part of this call today. Friends, higher input costs continue to impact our volumes. Going forward, with the increased coal production target for which has been fixed as 1 billion tonnes for the financial year '23, '24. We expect reduction in input price, lower clearing price on exchange and increasing optimization potential for discoms and open access consumers. And I'm sure this will support better volumes from IEX platform. IEX has always remained committed to positively contribute towards the sustainable Indian energy sector. Thank you.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.