Indian Energy Exchange Ltd

NSE:IEX

Earnings Call Analysis

IEX Q3 FY'24 Earnings Highlight Key Growth

In the Q3 FY'24 earnings call, India Energy Exchange (IEX) outlined positive developments underpinning India's economy—touted as the fastest-growing major economy set to rank third globally within the decade. Power sector performance was robust, with peak demand hitting 221GW in October and a 10% year-on-year hike in electricity consumption, suggesting a 6-7% annual increase over the next decade. The company also focused on the nation's commitment to balancing renewable initiatives with thermal capacity, underscoring financial support from RAC and PFC for added capacity. Crucially, coal and gas prices have declined, easing fuel shortages and boosting IEX's clearing prices and liquidity. Regulatory updates from CRC on charges and GNA regulations are expected to optimize transactions and drive market-friendly policies, thereby enhancing competition on IEX's platform and promoting a more robust green power sector.

An Expanding Indian Economy with a Focus on Green Energy

The Indian economy continues to grow robustly, maintaining its status as the fastest-growing major economy globally, with an expectation to become the third largest within this decade. The economy is projected to expand by 7.3% in the current fiscal year, supported by government spending and a manufacturing uptick, showing an increase from the 7.2% growth recorded last year. Among key economic indicators, the manufacturing Purchasing Managers' Index (PMI) for Q3 FY '24 stood at a solid 55.5%, reflecting increased private consumption and capital investments, while the services sector's PMI was at 56.8%, indicating sustained expansion over a period of nearly 30 months.

Rising Power Demand Drives Energy Sector Developments

India's peak power demand touched a high of 221 gigawatts in October, a sign of strong energy demand following a record 240 gigawatts in September. Quarter 3 saw approximately 380 billion units of electricity, marking a 10% year-on-year increase. The states driving this surge include Uttar Pradesh, Maharashtra, and Gujarat. Anticipating continued growth in electricity consumption at a rate of 6-7% over the next 8-10 years, the government has announced plans to add significant new thermal capacity by 2032, totaling 283 gigawatts, up from the current 214 gigawatts, to meet the peak loads. A substantial portion of this new capacity is intended for market sales, likely leading to faster returns for sellers.

Renewable Energy and Fuel Supply Strengthening

India is on track to meet its renewable energy targets, with 180 gigawatts of installed capacity and additional plans to add 50 gigawatts annually until 2030. The storage capacity requirements are projected at 74 gigawatts by 2032 to support power integration. India's first project of 500 megawatt battery storage system has already been awarded, with a significant capacity open for market sales. Coal production and dispatch to the power sector saw double-digit percentage increases year-on-year, and prices for both imported coal and gas have dropped significantly compared to the previous year, leading to no reported fuel shortages and contributing to a 25% increase in collective transactions in November and 18% in December.

Regulatory and Policy Shifts to Bolster the Power Market

Recent regulatory updates and policy initiatives signal a positive trajectory for market development. The Central Electricity Regulatory Commission (CERC) has corrected the anomaly in transmission charges, leading to a shift in transactions toward the Day-Ahead Market (DAM). The DAM volume in Q3 was up by 17.5% compared to Q1 and 30% as compared to Q2. The General Network Access (GNA) regulations now allow generators with long-term power purchase agreements (PPAs) to sell unscheduled power in the DAM without the buyers' consent. Additionally, policy changes permit power generators, including those without PPAs, to sell in all segments of the power exchange. In response, Renewable Energy Certificates (REC) trading frequency has increased, improving market liquidity.

International Carbon Exchange and Expansion in Green Energy

The company's wholly-owned subsidiary is actively working on launching an international carbon exchange to facilitate carbon credit transactions between Indian sellers and international buyers. Efforts are underway to potentially operate the exchange from the GIFT City, allowing dollar denominated transactions. With these initiatives and increased policy support for renewable energy, the expectation is that green energy volume on the exchange will see significant growth in the near future.

Strengthening Financials and Upbeat Market Prospects

IEX showcased a strong financial performance with a stand-alone Profit After Tax (PAT) growth of 25.5%, rising from INR 71.2 crores in Q3 FY '23 to INR 89.3 crores in Q3 FY '24. On a consolidated basis, revenues increased by 20.3% year-on-year. With an improved coal production and inventory, as well as declining coal and gas prices, the company expects a positive impact on power prices and volumes. Looking ahead, the anticipation of a 10% growth in thermal generation and a robust power demand predicted to soar by FY '25, it is expected that exchange volumes will continue to rise, providing an attractive environment for investors.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q3 FY '24 Results Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is then recorded.

I now hand the conference over to Mr. Sumit Kishore from Axis Capital Limited. Thank you, and over to you, sir.

[Sumit Kishore, analyst]

Thank you, Manoja. Good evening, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q3 FY '24 Earnings Conference Call. We have with us the management team of IEX led by Mr. SN Goel, Chairman and Managing Director. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.

[Satyanarayan Goel, executive]

Good evening, friends. I welcome you all to the IEX earnings call for quarter 3 FY '24. With me today on this call are Mr. Rohit Bajaj, Executive Director of Business Development and Strategy; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Operations and Technology; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali.

Friends, the Indian economy continues to be the world's fastest-growing major economy with to become the third largest within this decade. According to the first advance estimates released by the Nation Statistical Office, the economy is expected to grow at 7.3% in the current fiscal, which helped -- which is held by government spending and a pickup in manufacturing. This is slightly faster than 7.2% growth, which was recorded in the last year, '22-'23.

Coming to economic indicators, India's manufacturing PMI at Q3 FY '24 came in at 55.5%. Manufacturing has remained expansionary on the back of increased private consumption and capital expenditures. Services activity also continued to expand with the services PMI for quarter 3 FY '24 coming at 56.8%. The services index has remained above 50 for nearly 30 months at a stretch, the longest of spend since August 2021 -- 2011.

On the power sector front, peak power demand remained at high of 221 gigawatt in October before declining towards the end of the quarter. This was after a record high of 240 gigawatts in September recorded this year. Electricity consumption during quarter 3 '24 recorded at around 380 billion units, saw an increase of 10% on a year-on-year basis. States like Uttar Pradesh, Maharashtra, Gujarat, Madhya Pradesh, Karnataka and Tamil Nadu remain drivers of the surge in demand in power. According to the CA estimates, electricity consumption is expected to continue to increase at a of 6% to 7% over the next 8 to 10 years.

Looking at trends in demand and its expectation in the coming years, recently in November, Honorable Minister of Power, Sri. R. K. Singh ji, spoke about the need for thermal capacity addition to meet the increasing peak load in the country. The ministers of the view that due to increasing electricity demand in the country and the prevailing demand supply situation, the required thermal capacity required will be about 283 gigawatt by 2032. And against this, today, we have installed capacity of 214 gigawatt. Already 27 gigawatt of thermal capacity is under construction and government has decided to add another 50 gigawatt of new thermal capacity that will help in meeting the current demand of the power.

It has been also proposed to add a good part of this capacity for sales to the market as sellers will be able to get adequate return by selling to the exchanges and capacity engines and return faster without the need of

The Mister also mentioned that huge amount of funds will be necessary to create that capacity, and it is believed that RAC and PFC will finance a large part of this. Additionally, the minister noted that company's requirement for 24/7 availability of power requires a double engine that is renewable as well as thermal capacity. With 180 gigawatts of renewable installed capacity, India remains on track at its target to achieve 50% of the capacity from non-fossil fuel source by 2030.

In addition to this, 140 gigawatt of the green energy capacity is under tending and implementation. And this is all about the government target of 50-gigawatt of RE capacity that government is planning to add every year till 2030. To enable power integration, the NAP Project -- the NAP has projected a storage capacity requirement of 74 gigawatts by 2032, consisting of pump storage of 27 gigawatt capacity and battery base storage of 47 gigawatts.

Recently, under the government's funding plan, the has awarded India's first project of 500 megawatt battery storage system, wherein 40% capacity is open capacity for sales through the market through the exchange to meet the peak-hour demand. Additionally, there is a government push towards green hydrogen mission. The push for green hydrogen of 5 million tonnes per annum by 2030 alone would require 125 gigawatt of green energy.

On the fuel side, during the quarter, India's coal production increased by a robust 13.1% on a year-on-year basis. And the production level was at to -- where as these are almost about 256 million tonnes. Coal dispatched to the power sector increased by 11.7% on a year-on-year basis to 203.5 million tonnes. E-auction coal premium has continued to decline since the beginning of this financial year. The coal premium under auction has come down to almost about 40% now. Coal inventory as on 31st December 2023, stood at 13 days. The imported coal prices have also come down for 4,200 GR coal. Last year, the prices were almost about $90, which has come down to $58 per tonne.

Another good thing is imported gas prices have also reduced significantly. Last year, imported gas prices were in the range of $20 per tonne -- $20 per MMBtu. Now they have come down to almost about $9 per MMBtu. And if the prices come down to $7 to $8 per MMBtu, the variable cost, we're using the gas will be only about INR 6 to INR 7. And I'm sure almost 11,000, 12,000 megawatts of the gas base capacity, which is available in the country that can be put to for meeting the peak-hour demand.

We are now witnessing a scenario wherein there is no fuel shortage. On the exchange, the improved supply side scenario has resulted in increased sale liquidity since November. Sales in collective actions increased by 25% on a year-on-year basis in November and 18% in December. This led to aging of prices on the exchange. The average market clearing price in the PAM market was INR 5 per unit compared with -- at INR 5.88 per unit in quarter 2 of this year.

On the regulatory and policy front, the regulatory and policy environment continues to be for power market development. Let us now talk about the noteworthy regulatory updates and policy initiatives for the sector. CRC has implemented the Indian Electricity Grid Code, the sharing of Interstate transmission charges regulations and long-awaited GNA regulations from 1st of October 2023.

The salient features of these regulations are, which are market friendly. The long-standing anomaly in transmission charge between collective and bilateral transactions has been corrected now. With this, during the quarter, we witnessed a reduction in volume in our Day-Ahead Contingency Market and consequently witnessed an increase in volume in the Day-Ahead Market. Volume in the DSC market in quarter 1, while 2 billion units in quarter 2, it was 2.6 billion units. It has now reduced to nearly 0.4 billion units and transactions have not shifted to the -- in the DAM segment. At nearly 15 billion units in quarter 3 volume for DAM, this was higher by 17.5% as compared to quarter 1 and 30% as compared to quarter 2 of this year. This trend is expected to continue in the future also.

Under GNA regulations, transmission charges in collective transactions will be applicable only for the biquantum in excess of their GNA. Buyers will be able to utilize GNA optimally by buying power in the DAM and RTM market.

Under IGC, generator with long-term PPA will be able to sell the U.S. power, not requisition by the beneficiaries in the Day-Ahead Market without the consent of the buyers. Similarly, in efforts to bring URS power in the market, Ministry of Power has proposed amendment of late payment surcharge rules, which mandates generators to offer URS power in the market. These rules also provide for penalty in terms of reduced fixed charges to Gencos if they fail to offer URS power in the market. This will improve sell-side adequate equity platform.

Generators are now allowed to purchase in the DAM and RTM market to meet their supply obligations in case of shutdown of the forced outage. Interstate transmission charges and losses will now be only applicable from buyers. This will provide a level playing phase for all generators irrespective of their profession, and will facilitate competition on the exchange platform.

These regulations will also facilitate energy transition in a big way by providing flexibility to thermal generators to replace their brown power with green power, introduction of RE aggregators and connected -- connectivity to RE generative capacity of 50 megawatt and above. This will deepen green market at the exchange in future. Additionally, Ministry of Power extended the time period for Section 11 directive to imported coal-based power plants up to 30th June 2024 to enable supply from imported coal-base power plants in the system and to counter anticipated surge in demand in the upcoming summer months.

The Ministry of Coal has amended the policy in November to allow power plants, including power generators without PPA to sell power of the -- in all segments of the power exchange. Earlier, it was only limited to the DAM market. Now they can sell power in all segments in DAM, RTM and the TAM market.

The CRC issued it order for increasing the frequency of REC trading on power exchangers twice a month, earlier it was once in a month only. And have allowed fungibility of different types of Consequently, with the added flexibility and increased frequency of trading, liquidity has increased in the IT market. And because of a renewal of REC-based price, REC prices have come down. Earlier, the base price were INR 1,000 per -- at INR 1,000. Now with the removal of the base price, the REC transactions are now -- large transactions were at INR 360 per REC, significant reduction. And as a result of that, REC volumes also increased on the exchange platform. It was 65% higher in quarter 3 in comparison to last year.

has finalized the basic plan for thermal plants to bring their technical minimum of up to 40%, which is currently 55%. This move will help in adding more RE capacity and efficient integration with the grid. Ministry of Power has provided repowering of life extension for wind power projects, allowing sub generators to supply excess power on power exchange. All these measures will lead to a further improvement in cell liquidity on the exchange, leading to a decline in power prices. This is expected to present an opportunity for discoms and commercial and [indiscernible] to optimize their power procurement costs.

Strength. During the quarter, IEX undertook significant initiatives. We are honored to be a part of the groundbreaking green credit program launched by the honorable Prime Minister during the recently concluded '28. Our wholly owned subsidiary, International Carbon Exchange was engaged for the development of green program registry trading platform and portal. On our core business, we are awaiting approval from CRC on our petition for extending the term head contracts from 90 days to 11 months to provide better opportunity for our discoms.

In terms of business performance, IEX achieved 28.3 billion units of trader volume across all segments during quarter 3 of FY '24, growing 16.8% on a year-on-year basis. This volume includes 25.9 billion units of conventional power and 0.4 billion units from the green market segment that has also traded 20.3 lakh certificates, which is -- during the quarter.

Our gas exchange, IGX has celebrated its third anniversary in December and has since inception cumulated more than 900 lakhs MMBtu in gas volumes. During the quarter, due to wide variation in demand and supply of gas, IGX volume declined 65% on year-on-year basis at 284 lakh MMBtu. However, on a 9-month basis, IGX volume was down only by 7% from April to December. The profit after tax for IGX for 9-month period increased by 14% from INR 16.3 crores in 9 months of FY '23 to INR 18.6 crores in 9 months of FY '24. As gas prices continued the downward trend, volume at IGX will pick up in the going forward. And I'm sure in this summer month and with the -- of gas-based plants, our gas exchange will have better opportunity.

Let me now summarize the financial performance of the company for this quarter. On a stand-alone basis, the company recorded a PAT growth of 25.5%, increasing from INR 71.2 crores in quarter 3 of FY '23 to INR 89.3 crores in quarter 3 of FY '24. On a consolidated basis, revenue for quarter 3 of FY '24 increased by 20.3% on year-on-year basis to INR 141.2 crores from INR 117.4 crores in quarter 3 of FY '23.

Consolidated PAT during the quarter came to INR 91.8 crores, higher by 18.9% on a year-on-year basis. For fiscal year 2024, the Board of Directors of the company have announced an interim dividend of 1% equivalent to 100% of the face value of the equity shares.

With improving coal production and inventory and aging coal and gas prices, we expect realization of power price on the exchange and volumes to further improve in the coming few months. As India looks to add -- look forwards to add 20 gigawatt thermal capacity in this financial year, thermal generation will increase by almost about 10%. This will lead to increased cell liquidity on the exchange with the expectation of power demand to store about 256 gigawatt in FY '25 and improved [ sell cell ] liquidity and sure exchange volumes will continue to increase.

Thank you, friends. And now we can have question answers.

[Operator]

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

[Unknown Analyst]

Congratulation on a good quarter. So my first question is, sir, on the new GNA regulation that kick in from October, I guess. Sir, have you seen the -- have you gained any market share after the new GNA regulation kicking in? And can you please quantify market share in Q3 FY '24?

[Satyanarayan Goel, executive]

Yes, our market share for quarter 3 has definitely improved because if you were to compare with quarter 1 and quarter 2. As I told you that DSC volumes have reduced. If you take all the 3 exchanges together, then also there is a significant reduction in the trading volume in the DSC. And that quarter has shifted to the DAM market and RTM market.

[Unknown Analyst]

Is it possible to quantify the market share?

[Satyanarayan Goel, executive]

Yes. Mr. Rohit?

[Rohit Bajaj, executive]

Yes. So in the month of November and December, November, our overall market share was 91%. December, it increased -- further increased to 95%. If I talk about quarter as a whole, it is a little below 90%, about 87%, 88%. So we have seen significant improvement -- I'm talking about total, including certificates.

[Satyanarayan Goel, executive]

Including certificates.

[Rohit Bajaj, executive]

Yes. So if I talk about electricity in December, it is 97% -- 96%. So that's the significant improvement in the market share with the action of living DSC and movement from DSC to the end market.

[Unknown Analyst]

Sir, my second question is on the surplus. You said that the cost plus -- cost plus power plant can still in the exchanges. Sir, this has been on talks for the last few years. Has there any change in the particular quarter in some -- in the sense, the government has come out with a new regulation in notification, which believe -- which you believe can increase the liquidity on the exchanges because of this particular -- because of this -- can you please comment on that?

[Satyanarayan Goel, executive]

Your question is not clear. Can you please...

[Unknown Analyst]

I'll come back. Sir, on acquisition surplus, which you mentioned, sir, this has been in talk in the sense that the government came out with the first regulation maybe couple of years back, and it never helped us. So what has changed in this partial quarter?

[Satyanarayan Goel, executive]

I got your point. See, earlier, as per the earlier systems and processes, the consent of beneficiary was required by a generator for offering the power on the exchange platform. Now under the GNA and the new electricity grid code, the consent of beneficiary is not required. So a generating company, if the URS power is there, they can build that power on the exchange platform without opening the consent of the beneficiary. So this is a significant change in the electric grid code itself.

Further to this, Government of India also has now issued a draft rule wherein they have said that the generating company must offer that power of the exchange platform. And if they fail to offer that power of the exchange, they fail to -- submit sell a bit of that, that quantum will not be [indiscernible] to ourself fixed cost recovery. I mean maybe the total -- which will impact the cost recovery. So because Government of India wants that -- that liquidity from market should improve. These rules are going to be finalized maybe within this month. And already, we have started seeing volumes from the generating companies, the URS power getting bidden by the exchange platform. So the sales side liquidity has improved because of that.

[Operator]

The next question is from the line of Gaspar from Marine Capital.

[Unknown Analyst]

Can you hear me?

[Satyanarayan Goel, executive]

Yes, I can hear you.

[Unknown Analyst]

I think the whole of India should be great source for the extraordinary work that India Energy Exchange is doing in facilitating the provision of electricity to the whole of India. And I think you're an amazing team. I wanted to get your update on the comments procedure for the Central Electricity Regulatory Commission, where they are in their discussions with the Power Ministry. And if the Power Ministry eventually takes a decision on market coupling, when they will -- when your best estimate is of when they will take it? And I would imagine that if they decide to go there, there's going to have to be a lot of discussions on exactly how to implement it and what the market procedures will be and even which contracts they might start working with first. I can't imagine they would do it all at once. So I'd love to get your take on where that is, where your discussions are and how you see it unfolding from here?

[Satyanarayan Goel, executive]

Yes. First of all, thank you very much for complimenting. And with regards to market coupling, let me first tell you the events which have happened. I think in the first week of June, there was a letter from Ministry of Power for implementing market coupling to CRC. CRC issued their discussion paper in the month of August, and they invited suggestions on that. And almost about 127 person submitted their suggestions, comments. And in that also, what we find is that more than 70% persons, they were not in favor of coupling. If you look at -- all these comments are posted on the CRC website, you can have a look at yourself. All imminent persons of the sector, experts of the sector, they have opined that market coupling will not bring any value in the market. And the power is basically to improve more liquidity in the market.

As the present arrangement, there are 3 exchangers -- these 3 exchangers are competing with each other. So if you do the coupling, it will stick on the competition and innovation and still -- So based on the comments received, I am sure, -- there are a few comments where the alternate options were suggested. So what we understand is that CRC is now also exploring, analyzing the alternate options given in some of the suggestions. And maybe at the appropriate time, they will take a view on that, whether there is any merit in implementing market coupling or not. So I will not be able to give you any time frame -- will take a view on that. After CRC takes a view on that, then also the process is quite long because they will come out with a draft. They will discuss on paper again on the new concept and then take comments on that. They may come out with the draft regulations, finalization of the regulations, development of software and laying down the settlement mechanism. I mean, doing the mock drill for that. So -- it's a long-term process.

[Unknown Analyst]

And I would also, just to confirm, I would imagine that developing that new system, if it ever comes about, would be with the involvement of the existing market players to ensure that there is -- that energy continues to be traded smoothly, so you would be closely involved in the development of that system?

[Satyanarayan Goel, executive]

Yes, yes. I mean, whatever is done by CRC, that is in a transparent manner and with the involvement of all participants.

[Unknown Analyst]

Thank you for your great work. You're a great Indian institution, and I'm proud to be associated with you, as you know.

[Operator]

The next question is from the line of Ankit Kanodia from Smart

[Ankit Kanodia, analyst]

My question is again related to market coupling, but just slightly on a different point. So in our call, we have been very clear that if the market coupling comes in, it would lead to a depth of innovation in the market, right, in the exchange market. So -- but we see some of our competitors celebrating market coupling. So can you throw some light as to how can market coupling be beneficial for one player and not beneficial for others?

[Satyanarayan Goel, executive]

See the point is -- I will always tell the side of the story which suits me. And same thing is true for the other exchanges also. That is why there is a regulator. Regulatory is independent body. They will take a view considering what is good for the sector. And that is why they issued the staff paper. And in the staff paper, if you see, the suggestions received are not only from these 3 exchanges, that suggestions received are 124. There are other 124 participants who have made comments on that. And these include sector experts. You can say they're members of the CRC, ex members of the CRC, ex member -- Chairperson of CRC, Authority, ex members of the [indiscernible] ex secretaries of the Government of India. I mean ex regulatory commission -- State Exchange Regulatory Commission Chairman and maybe -- from IIT and IIMs and NGOs. So all those persons -- comments on that. Please have a look at those comments. You will yourself will be convince that market coupling probably will not add any value. But anyhow, we have to leave it to the regulator, they have to decide about it. It is their prorating to decide what is to done in the market. But I can only tell you that implement the market coupling is a never change in the market design. So I'm sure regulator will take a view considering all aspects and the implementation of that also is a long-run process.

[Ankit Kanodia, analyst]

Got it. Thank you so much for the detailed answer. My second and last question would be related to the international carbon exchange, which we are planning. Can you give us some color as to where we are in that? And how do we see that shaping up in the next couple of years? Any qualitative and quantitative details you would like to throw up?

[Satyanarayan Goel, executive]

Yes. In the -- carbon is -- in terms of carbon exchange, I think we are still working on that because the transactions are basically mainly with the Indian sellers and international buyers. So these are going to be -- I mean, dollar-rupee transactions, and it is difficult to facilitate these kind of transactions on exchange platform. So we are now exploring the option with the GIFT City to launch this exchange from the GIFT City so that we can do dollar-dollar transaction. And we had a couple of interactions with the GIFT City officials. And they are also very supportive of this. Let's see if it metallizes in the next couple of months.

[Ankit Kanodia, analyst]

Okay. So maybe in FY '25, we can expect some transaction flow -- some notable transaction?

[Satyanarayan Goel, executive]

We are desperately working on that, and we intend to launch that as soon as possible.

[Operator]

The next question is from the line of Nikhil Abhyankar from ICICI Securities.

[Nikhil Abhyankar, analyst]

Sir, in your initial remarks, you mentioned about the fungibility of REC. So can you please explain what exactly you mean by that?

[Satyanarayan Goel, executive]

Yes. Earlier in the case of REC, the RP obligation was separate for the solar, separate for the wind, separate for the hydro, all those things are separately specified. And as a result of that, some states -- I mean, the inventory for the -- inventory for solar was higher, wind was lower. So there were problems in that. But now with the fungibility, after creating fungibility, all RECs are in one category, and there is a multiplier effect based on the technology. So now the obligation can buy that REC to meet the requirement. There is no -- all the obligations are again combined together. So they can -- I mean, that has basically increased liquidity in the sell-side and also made it simpler for that distribution companies to meet their obligation.

[Nikhil Abhyankar, analyst]

Understood. And sir, would you be able to also mention what will be the industry-wide like the system-wide inventory level for RECs as of, say, on December?

[Satyanarayan Goel, executive]

Pardon?

[Nikhil Abhyankar, analyst]

As the system-wide inventory level of RECs.

[Satyanarayan Goel, executive]

Yes. Inventory is very, very high in the market now. It's almost about 2.5 -- more than INR 2.5 crores RECs are there in the market. See, now there is a mechanism that even distribution companies, if they have renewable power at their disposal, which is more than their RP obligation, they also can get RECs. So as a result of that, there are distribution companies like Karnataka, Telangana, Andhra Pradesh, Himachal Pradesh, they also have RECs. And then the generators, REC renewable generators. So the combined REC volume is quite significantly high.

[Nikhil Abhyankar, analyst]

Okay. And sir, last question, what were the long-term volumes in Q3, long duration TAM, basically?

[Satyanarayan Goel, executive]

Rohit?

[Rohit Bajaj, executive]

Long term, yes, volume. So in Q3, this volume is about 3 billion units. Now it is -- every month, we are doing close to 1 billion unit trading -- contract. So total in 9 months, we have done close to 7 billion units, which have picked up in the later months. And if I compare it with the last year, last year total, in complete year itself, we did about 2 billion units. So there is a massive increase in LDC volume.

[Nikhil Abhyankar, analyst]

Okay, sir. Sir, and should we expect that in Q4 ahead of the summer season, this volume can really spike because most of the discoms would like to acquisition power for the next -- for the summer season?

[Rohit Bajaj, executive]

Yes. So there is a lot of interest now and you rightly said because for the summer season, there is a visibility that probably there is going to be decisive again. So many of these distribution companies, they want to come to the market at this point in time and lock their procurement for the coming months. So we are working towards achieving even better numbers and -- better numbers in months to come.

[Operator]

The next question is from the line of Sumit Kishore from Axis Capital.

[Sumit Kishore, analyst]

My question is in relation to the flurry of firm dispatchable RE tenders that we have been seeing over the past few months. So basically, as the electricity storage solutions evolves and it becomes more and more prominent, what implications does it have for the volumes that come to the short-term market and particularly to the exchanges? And also, if you quote combine this answer with the opportunity that you see with the RE capacity that would be set up for green hydrogen over the medium term? Again, what could be the quantum of associated generation that, if possible, could come to exchanges?

[Satyanarayan Goel, executive]

Say, first of all, let me tell you the best principle. Renewable energy generation capacity is, there is a lot of variation in that. There's a lot of volatility in that. Whereas demand is particularly fixed. So a buyer will have to have other sources of power also to meet the demand. And it is seen that the countries where renewable generation capacity has increased, the exchange transactions have also increased because exchange -- on the exchange platform, you can do integration of different resources in a more efficient manner. So like for the storage capacities. The battery storage system or the pump storage system, there the cost of generation is going to be higher. And exchange can provide that high price during the peak hours. So I'm sure with higher renewable energy capacity and the service systems, the exchange will be definitely a preferred option. Even the Government of India is talking about the storage capacities under the vibrating funding system. And there also the mechanism being explored -- The sale of power is at least on the exchange platform during the peak hour, so that the maximum realization of revenue can happen on that.

[Sumit Kishore, analyst]

Sure. And so basically, if you look at the period FY '22 to 1H FY '24, I mean, the share of exchanges has not really increased in power consumption is going from 7.4% to 7.1%. The overall short-term market has also stagnated at around 13.6%, 14%. In the next 4, 5 years, based on how renewable penetration is going to increase. How do you see the share of short-term market going up? What is going to drive that? And how is the share of exchanges within the mix going to increase, maybe a 3-year time frame?

[Satyanarayan Goel, executive]

This is very difficult to say about what is going to happen in the future, but I can tell you in the past, if you look at the last 5 years, our volumes have increased at a CAGR of, I think, more than 16%, 17%. And I'm sure with the high renewable, this number will just further better.

[Sumit Kishore, analyst]

Sure. So you had mentioned that in the European markets or do you have renewable capacities, which are coming to the market under the...

[Satyanarayan Goel, executive]

See, let me tell you one thing, in case of the European market, they have a market framework even at the retail level. So competitive framework at the retail level also. So I think their model is more competitive and exchange transactions are more in those countries. So -- but the trend is that with the high renewable, exchange also improve. The share of exchanges increase significantly.

[Sumit Kishore, analyst]

So are we seeing more renewable capacity being set up on a merchant basis now in the next couple of years?

[Satyanarayan Goel, executive]

Not necessarily, not necessary. We have seen states having high renewable at their disposal of the PPA. There's still more power during high renewable generative per year -- as there are different companies who buy that power. What is required is, we need to have capacity addition in the sector.

[Sumit Kishore, analyst]

Yes. So for the time of the day, requirement of looking forward, especially during evening peak hours, exchanges could prove a very important tool to manage that situation.

[Satyanarayan Goel, executive]

If you look at our real-time market, the real-time market volumes have increased to almost about 30 billion units now. And the share of real-time market is increasing. It is mainly because of these things. That with the renewable capacity that has taken place, there are participants who are selling power in the total exchange platform whenever the renewable is high, and there are other participants who are in need of power...

[Operator]

The next question is from the line of Sagar Vijaybhai Shah from Shah and Company.

[Sagar Vijaybhai Shah, analyst]

Yes, sir. So thank you for the brief insights on the quarterly update on the results. So I was just going through the replies, which the members have commented on the staff report, which the CRC has asked for. So I was going through the IEX reply also. In that you -- the company has mentioned that this may be on constitutional as well. And because the objective of giving the license to IEX is also based on some sound principles, which if the market coupling is happening, then it is violating and it may be unconstitutional. So if you can just throw the light on that?

[Satyanarayan Goel, executive]

I think our suggestions to CRC are very detailed and they are self explanatory. I will request you to find the -- and go through them and you can I'm sure get more clarity from the suggestion -- suggestion. I don't think -- no suggestions are, I think, in 30 pages, and I'll be able to detail them out on this call.

[Operator]

The next question is from the line of Balani Vijaykumar from Park.

[Unknown Analyst]

This is from Park.

[Satyanarayan Goel, executive]

I'm not able to hear you.

[Unknown Analyst]

Is it audible now?

[Satyanarayan Goel, executive]

Better.

[Unknown Analyst]

Yes, sir. So my first question is on our GTAM and GDAM volumes. Like can you elaborate the reason why it is on a declining trend this year compared to last year, the volumes from GDAM and GTAM?

[Satyanarayan Goel, executive]

Yes. In the green market, see, we do not have significant merchant generation capacity in the green area. Mostly that green power sale was coming from distribution companies who have green power beyond the RP obligation and more from the Karnataka. This year, the Karnataka demand has -- there was a significant increase in the demand, almost about 30%, mainly because that the rain shortfall was there in Karnataka during that time. The wind generation happens earlier, they were selling that power. This year, their own consumption was high. So the sale was less on the exchange platform because of that. Otherwise, as far as the demand is concerned, there is a huge demand for the green power and the premium over the conventional power in the grid market is also almost about 40%, 50% per unit.

[Unknown Analyst]

Second question is on the recent some developments on open access there and then on the revoking or refilling of any license requirement of translation for renewable projects or any new projects to be set up by the developer. So how are all these things having a positive impact on our open access volume, if any? Or will it have any positive impact in the future?

[Satyanarayan Goel, executive]

All these things are basically for development of the market and the development of green energy in the country. So -- and as I told you, anything which leads to capacity addition in the sector is going to be positive for the exchange also. So these things will be positive, but let's see about the implementation of this because these things -- these kind of things will take time for implementation and seeing the results of that. These are all futuristic issues.

[Operator]

The next question is from the line of Devesh Agarwal from IIFL Securities.

[Devesh Agarwal, analyst]

My first question is on the long division contract. So if you see one of the benefit of exchanges was lower prices compared to the bilateral market and that has been driving the move from bilateral to exchanges. On your new contracts that you are seeing in the LDC, can you give us a comparison in terms of prices that we are seeing in the LDC market versus the bilateral market?

[Satyanarayan Goel, executive]

I can only tell you one thing that the practice which distribution companies are adopting is they do it under on big platform. And also for that, they have some time available to give their consent. During that time, they run their auction on the exchange platform also. And invariably, they find lower rate from the exchange and they it into a contract investment standpoint. So on a case-to-case basis, it is very difficult to give you a comparison for each of it because these are different tenders coming out of different But definitely, exchange prices are lower.

[Devesh Agarwal, analyst]

But any -- sir, can you say that 10% to 20% could be the difference or even that will be difficult

[Satyanarayan Goel, executive]

10% to 20% is a very, very large number, what you're talking about. This is normally, you can say, about 20%, 25% per unit.

[Devesh Agarwal, analyst]

20%, 25% per unit.

[Satyanarayan Goel, executive]

Yes, maybe which is about 3%, 4%. See, the generator is giving a competitive rate on the exchange platform because he is getting -- on the leases. So his working capital requirement is less and he's basically selling cost there in that. And then he is assured of payment. So that is why a generator is offering competitive price on the exchange platform.

[Devesh Agarwal, analyst]

All right. And sir, if we -- you did mention about the incremental supplies coming from the imported fuel projects, but if we just want to understand better over the next 2 quarters when we'll see the peak demand, what is your sense in terms of how much incremental supplies can come from which segment, which can help us meet the demand and drive the exchange volumes based on your past experience?

[Satyanarayan Goel, executive]

See, number one, last year, also, Government of India has given direction for the imported coal-based power plant to run. And -- but last year, the coal prices were itself very, very high. The variable cost was something around -- during this time of the year, March, April, I think it was about INR 8, INR 9 per unit. But now the coal prices have come down, so variable cost is only about INR 4, INR 4.5 per unit. So I'm expecting the imported coal-based power plants to run at the full capacity, which is something about 10,000, 12,000 megawatts. That capacity is going to be available.

And another thing is the gas-based power plants. Gas rates also have come down. I was seeing today the West India market is about $9. It is expected to -- the future of the LNG are being traded for the month of March at $7 to $8. So if it comes down to $7, the variable cost with LNG will be only about INR 6. So today, we have 25,000 megawatts of cash based capacity. Out of that, almost about 12,000 megawatts is on bar, so that can start generating power. So there is a lot of capacity, 12,000 megawatts of gas, 10,000 megawatt of imported coal. And also, the new generation capacities are under domestic construction and So we are expecting by March, even almost about another 4,000, 5,000 megawatt capacity will get added. So taken together, this summer, things would be comfortable.

[Devesh Agarwal, analyst]

Understood. And sir, on REC, we've been seeing that the prices have corrected significantly versus what they were earlier. Does this pose any risk to our exchange tariffs?

[Satyanarayan Goel, executive]

Yes. Exchange volumes have significantly increased in the month of December. I think -- in third quarter, our volume was 65% with respect to last -- third quarter of last year, 65%.

[Devesh Agarwal, analyst]

No, no, sir. In terms of tariffs, I'm asking, the tariffs that we charge at INR 40 per certificate, given that the prices have come off significantly, is there any risk to that INR 40 or there's no risk to that INR 40?

[Satyanarayan Goel, executive]

I tell you one thing. We were charging the same tariff when the REC rate for the solar was INR 2,500 also, okay? So the exchange fees is same. It is not price sensitive because -- if it is price -- price-sensitive, then we will always like to have a higher price, which is not in the interest of consumers. That is a fixed fee.

[Operator]

As there are no further questions, I would now like to hand the conference over to management for closing comments.

[Satyanarayan Goel, executive]

Thank you, friends. I would like to thank each one of you for being part of today's call. Throughout the quarter, we witnessed a number of efforts announced by the government and regulators aimed at establishing a favorable policy and regulatory climate to develop the energy sector. We remain committed to contributing to the development of a sustainable and efficient energy futures. Have a wonderful evening. Thank you very much.

[Operator]

On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.