Indian Energy Exchange Ltd
NSE:IEX
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Indian Energy Exchange Ltd
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Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q4 FY '23 Earnings 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. Thank you, and over to you, sir.
Thank you, Tanvi. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q4 FY '23 Earnings Conference Call. We have with us the management team of IEX, which is to be presented by Mr. S.N. Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Head Business Development; and 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, Goel sir.
Good afternoon, friends. I welcome you all to our quarter 4 and earnings -- annual earnings call for the year financial year 2023. With me today on this call are Mr. Rohit Bajaj, our Head Business development, Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations and Product Development; Mr. Sangh Gautam, CTO; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali.
Friends, last year was a turbulent year. And particularly for the global economy due to geopolitical disruptions, IEX forecast base line global growth falling from 3.4% in 2022 to 2.8% in 2023. In comparison, the Indian economy has fared much better due to several proactive policy enablers by the Indian government.
Economic growth sustained its momentum during the year, led by a strong rebound in the industrial activities backed by strong private consumption, higher capital expenditure and robust financial sector. India is expected to register a strong growth of 7% for fiscal '23 as per the economic survey 2022, '23, and has been identified as the fastest-growing major economy in the world. India's manufacturing PMI in quarter 4 '23 stood at 55.7% compared with 54.4% in quarter 4 of 2022. While the services PMI was higher per quarter for '23 at 58.1% compared with 52.3% in quarter 4 of 2022, the country's index of industrial production for '23 grew 5.1% year-on-year basis.
India's G20 presidency this year provides a significant opportunity for the country to lead the global narrative in sustainable energy transition For the year 2023, '24, Government of India has presented a Saptarishi budget with green growth being 1 of the 7 focus areas, thus clearly laying out the positive priorities for the energy sector in the country.
During the year, fuel supply constant due to Russia-Ukraine ward led to several countries facing a severe liquidity crunch. Heatwave in various parts of the world increased power demand, which coupled with rising input fuel costs led to high electricity prices in almost all major economies. As per IEA, during second half of 2022, electricity prices increased fourth fold in France to cross EUR 320 per megawatt hours and reached almost EUR 330 per megawatt hour in Germany.
In the U.S., average wholesale electricity prices in the second half was USD 91 per megawatt hour, which is 65% higher than second half of 2021. In Australia, prices averaged AUD 170 per megawatt hour, which is more than twice of second half of 2021. A similar situation prevailed in India, electricity consumption in FY '23 increased to 1,504 billion units, a 9.4% increase on a year-on-year basis. This was due to increased industrial activity. The hottest summer months in over 120 years, which coupled with supply-side constant, led to high price -- high power prices being discovered on the power exchanges.
While coal production increased by 14.7% on a year-on-year basis in FY '23 to 892 million tonnes, the coal dispatched to power sector during FY '23 increased by 9.1%. However, this coal was mainly supplied to PPA-based power plants to meet increased demand. This led to a reduction in availability of e-auction coal by over 50% to 53 million tonnes in FY '23 in comparison to 108 million tonnes to FY '22, leading to higher premium of nearly 260% over notified price in fiscal year 2023.
The average market clearing price for DAM for the fiscal increased nearly 36% to INR 5.96 per unit, while the quarter 4 average price on the exchange was INR 6.1 per unit, nearly 13% increase with respect to quarter 4 of FY '22.
However, essentially, the prices of e-auction coal has reduced to a premium of nearly 137% over the notified price in April 2023. Price of 5,000 NTPC imported coal has also reduced to nearly to about USD 95 per tonne, a 33% drop over May '22 price. For gas also, the prices have reduced to almost about $10 per MMBTU. And in the month of May, which is a drop of more than 100% on a year-on-year basis.
In this year, the country was prepared to meet the summer power sales on the back of several productivity initiatives taken by the government of India. The unexpected cooler weather conditions in April, which continued till mid of May, helped mitigate the expected demand such. Measures during the year were taken to increase coal production and prioritize supply to power sector. Coal blocks were auctioned to private companies, PSUs for commercial mining. Captive mines were allowed to sell up to 50% of the annual production after meeting and used plant requirement.
Coal allocation for power sector was increased and its transportation prioritized through the railways. Further the power ministry mandated states and Gencos to import at least 6% of their coal needed to blend with the domestic coal. Section 11 of the electricity act was involved thereby all imported coal-based power plants were asked to operate at full capacity with the option of selling unsold power on the power exchange. Strict monitoring was done for plant maintenance to minimize downtime.
NVVN was appointed as nodal agency to facilitate supply of 4,000 megawatts of NTPC gas based power and 1,050 megawatts of torrent gas based power during peak months to be sold on the exchanges. Additionally, a decisive focus on renewable energy by the government has helped the energy sector, diversify its fuel sources. India has achieved a renewable capacity of 172 gigawatt as on 31st March 2023, which is more than 41% of the total capacity, which is 41% of the total capacity of 416 gigawatt. The country added about 15 gigawatt of RE capacity in the last fiscal, the fastest state of growth among the major economies. This makes the country well poised to meet its reason of achieving 500 gigawatt of nonfossil fuel-based electricity installed capacity by 2030.
With improving supply side liquidity due to above policy and regulatory enablers and cooler weather conditions, more competitive prices are being distort on the exchange now. Going forward also, we expect more competitive price from the exchange in the coming months.
IEX commends the recent proposal of the Group Institute, constituted by Ministry of Power for development of electricity market in India. The country's electricity market is undergoing transformative changes led by the government's decisive focus on sustainable energy transition and energy security. Power markets will have an instrumental role to play in accelerating India's energy transition by enabling smooth integration of renewable into the grid.
Some key recommendations of the group, such as mandating renewable energy sources to participate in the market and additional RE capacity to be developed through the contract for difference mechanism will facilitate faster addition of RE capacities as per investment in the sector, thus helping attain India's 2030 RE targets. To increase RE participation in the market, a pilot mechanism has been proposed for implementation within a year and initial capacity of 1,000 megawatts will be tendered by the nodal agency under the single price option whether 15 years we pay 10 year. The significant benefit of the CfD model is that it deepens the market by providing certainty to boost generator and buyers by guaranteeing a fixed price for the defined prior. The mechanism ensures a stable revenue stream for the renewable generator. Countries such as U.K., U.S.A, Germany, et cetera, we're able to increase the renewable generation capacity more than 30% by implementing market-based reforms such as CfD to facilitate renewable and integrating into the grid.
Now Government of India has also decided to explore this option. Further, the proposal to introduce financial products for electricity to help against price volatility in spot market will lead to capacity addition, increased private investment and ultimately result in lower prices for consumers.
The group has also recognized the inefficiency and inflexibility of long-term PPAs and a stronger role for power exchanges to deepen the market and enable efficiency in electricity procurement. Improving the efficacy of the Day Ahead market will lead to market-based merit order dispatch of electricity, which will result in effective cost optimization.
Higher renewable energy integration will necessitate detailed resource adequacy planning by the utilities to ensure optimum resource mix and introduce capacity contracting through Power Exchange. Similarly, a market-based mechanism through exchange for secondary reserves will lead to RE development at competitive prices. We are confident that implementation of this road map will fast-track India's energy transition goals through an efficient optimal and reliable market framework.
Looking at the last fiscal, we saw several important developments on the policy and regulatory front. A few highlights are that the draft national deficit receive policy which aims to increase the share of competitive power market to 25% of the total electricity supply by FY '23. The policy highlights resource adequacy for better planning of resources. It also allows countability among various buckets of renewable purchase obligations to provide flexibility to distribution exchanges. The policy encourages market-based RE development and aggregation of small capacity for RE development.
General network access was notified during the year. The notification to implement all provisions of general G&A will go a long way in streamlining network access and network user charges. G&A will strengthen exchange-based power markets in the country. Further, it will remove regulatory arbitrage which has led to temporary shift of volume from DAM to DSE and will be more conducive towards further market development in the country. Electricity Amendment rules 2022 are expected to promote renewable energy through green energy upon access. This should deepen the electricity markets and efficiently integrate RE resources into the grid. The Green Open Access clause 2022 has reduced the open access limit from 1 megawatt to 100 kilowatts. While there is no limit for captive consumers. This will also allow smaller consumers to buy or sell RE power and increase access to renewable capacity.
The Electricity Amendment Bill 2022 proposes several reforms to the distribution sector, promote private participation, better services and improved financial health. Further, the Energy Conservation Amendment Act 2022 allows for development of national carbon market in the country. Deviation settlement mechanism and related matters regulation 2022 in 2022 is likely to increase RTM volume exchange.
[indiscernible] Regulation 2022 for development of territory reserve ancillary services will be effective 1st June and this is the operationalize procurement of services through the exchange. Further, several enabling interventions were made towards increasing the generation and adoption of RE resources. A new trajectory of RTO mandate states to procure 27% of their electricity needs from renewable sources to be scaled up to 43% by the fiscal year 2030. Interstate transmission charges have been waived off for RE to reduce the cost of integration of renewables, while new transmission infrastructure is being set up to improve excess of power to the excess of RE to the grid.
Renewable generic obligation mandates new coal or ignite based plans to establish RE capacity of a minimum of 40% of the plant capacity. IEX will remain at the forefront of this transition by constantly innovating new products and segments to meet the evolving need of the market.
Now welcome to IEX update. During the year, IEX launched the much awaited term ahead market contracts with delivery upto 9 kgs. These contracts enable customers to help risk against volatility in spot market. We also launched green monthly contracts and introduced green hydro contracts. Last year, due to sludge of electricity prices in the spot market, CERC imposed the price up of INR 12 per unit across market segments. While this move rationalized prices for buyers, high-cost generators are left and -- left with standard capacity.
To bridge the demand supply cap during the high demand period, the ministry proposed a high-priced day ahead market. And following a petition by IEX, CERC has canceled approval to this product. This segment enables high variable cost generates such as gas-based power plants, imported coal-based power plants, battery energy storage systems to participate in the market at -- in the price range of INR 0 to INR 20 per unit.
IEX commenced trade of high-priced day ahead market after it was launched by the Honorable Minister, Shri RK Singh ji on 9th of March 2023.
This segment will bring more capacity to the spot market during high demand periods. We have made a humble beginning in this segment with the first trade executed on 15th of April of 2023. During the year, IEX maintained a near 100% market share in collective transactions, that is DAM and RTM. Together, these 2 markets constitutes about 80% of the power exchange business.
Moving on to IEX. Overall volume of 26 billion units was achieved across all segments during the quarter 4 FY '23, a 7% -- a 7.9% quarter-on-quarter growth. Total certificates traded during quarter 4 amounted to 1.8 billion units, an impressive 50% quarter-on-quarter growth. However, the total volume declined by 3.3% in quarter 4 of FY '23 as compared to quarter 4 FY '22 due to supply side constraints. The average day ahead market price during quarter 4 was INR 6.07, higher by 13% on a year-on-year basis.
For the fiscal year 2023, IEX traded 96.8 BUs, a decline of 4% on a year-on-year basis. Because of the sell-side liquidity constraints. For the fiscal year, their market price was INR 5.96 per unit, higher by 36% on a year-on-year basis. This was...
This is the operator here, we lost the connection for the management. Please hold while we reconnect. Ladies and gentlemen, we have the line for management reconnected. Sir, you may proceed now.
Yes. For the fiscal year 2023, IEX stood at 96.8 BUs, a decline of 5% on a year-on-year basis due to sell-side liquidity constraints. For the fiscal year that day ahead market price was INR 5.96 per unit, which was higher by 36% on a year-on-year basis.
Liquidity was affected due to supply constraint that led to higher prices of e-auction coal, imported coal and LNG gas. The average day ahead market price for April '23 came down to INR 5.41 per unit, which is a decline of 46% on a year-on-year basis as with respect to April of '22. Going forward, with gradual improvement in domestic production of coal and improvement in coal inventory, which is at 14 days compared to 11 days of last year and a reduction in imported coal and gas prices, we expect a rationalization of power prices on the same platform. This will enable cost optimization by discoms and open access consumers and will suit results in higher volume on exchange platform.
In line with this -- in line with its commitment to facilitate India's decarbonization and targets, IEX has been certified as India's first carbon-neutral power exchange by using market-based tradable instruments to offset its carbon emissions. This certification will also help our members and participants to reduce their Scope 3 emissions.
And employee focused approach built on the foundation of trust and respect has made IEX the first power exchange in it to be certified as great place to work.
IEX continued to leverage technology to launch market friendly products and increase efficiency for our customers. We launched web-based bidding for GDAM, DAM monthly and any day single-sided reverse auction products to provide any time anyway of easy and secure bidding access to our customers. With this financial reconciliation to enable easy reconciliation of the bidding transactions done through the -- through out our platform, with this data insights to enable effective bidding decision-making, automated financial limit allocation across product segments, utility for easy integration with RTM market, API, market data API to enable automated access to price and volume, market data across product segments. Further, we undertook process automation, which are leading to benefits such as better system availability and ease of operations.
We continue to invest in to create a robust and secure IT infrastructure at IEX. During the year, we also integrated with the National Open Access Registry of Grid India.
I shall now talk about developments of IGX. In FY '23, there has been several notable achievements at our Indian Gas Exchange. IGX started total volume of 50.9 million MMBTU during FY '23, a 319% year-on-year increase. This growth was largely on the back of participation of major domestic gas producers and an increased number of participants.
A total of 2,355 trades were executed during this year, an increase of 400% on a year-on-year basis. The profitability of IGX for FY '23 has increased to INR 28 crores from INR 1.75 crores in FY '22.
I will now talk about financial performance of IEX. On a consolidated basis, revenue for quarter 4 FY '23, increased 10.5% on a quarter-on-quarter basis from INR 107.4 crores in quarter 3 FY '23 to INR 129.6 crores in this quarter. Total revenue of quarter 4 FY '23 witnessed a growth of 1% on a year-on-year basis.
Consolidated PAT at INR 88.3 crores grew 14% on a quarter-on-quarter basis as compared to INR 77.2 crores in quarter 3 of FY '23. For the full fiscal year 2023, on a consolidated basis, the revenue declined by 2.1% on a year-on-year basis from INR 484.4 crores in FY '22 to INR 474.1 crores in FY '23. Consolidated PAT at INR 305.9 crores was lower by 0.9% on a year-on-year basis as compared to INR 308.6 crores in FY '22. Please note that the Indian gas exchange was a subsidiary of IEX till 16th of January 2022. And IGX became associate company with effect from 17th January 2022, and as a consolidated basis on equity measured in above numbers.
For fiscal year 2023, the Board of Directors of the company announced a final dividend of INR 1 equivalent to 100% of the face value of the equity shares. During the year, the Board of Directors of the company also approved the buyback of the equity shares in the open market amounting to INR 98 crores, and this was completed successfully from January to March.
For the past 15 years, IEX has continuously pioneered the market with a keen focus on customer centricity, innovation and technology. IEX will remain at the front of curating India's energy transition towards net zero. We will continue to explore business opportunities in new products and markets such as ancillary markets, capacity market and gross bidding. Through our diversification initiatives, IEX will continue to deepen the energy markets of the country. In addition, IEX will help build a wideband gas market in India.
And bring the government aim of doubling the share of gas in the energy mix of country. IEX will continue to work with the Ministry regulator, our partners and clients and all of the hold us to build a sustainable and as the efficient future for India.
Thank you. And now we can have question and answer.
[Operator Instructions] The first question is from the line of Nikhil Abhyankar from ICICI Securities.
My first question is, when do we expect the G&A regulations to be effective, which will remove basically the arbitrage between DAM and DAC?
We understand that this will be effective from 1st of August. They will be issuing the grid code maybe in this month itself. And after that, NLDC will need maybe 2 months to develop the procedure and do necessary changes in the system to implement grid code and transmission charge saving regulation.
Understood, sir. By 1st of August, by Q2, it will already be implemented. How do you expect like all the volumes which were shifted to DAC will be transferred back to DAM?
That should happen because if you look at the volume in the DAC market 2 years back, there was particularly nothing happening in this. And in fact, at that time, even RTM market was not there. Now with the RTM market, there is no place for the DAC market, without this arbitrage.
And sir, how do you expect the long-term duration volumes to pick up, sir? Because now it hasn't picked up substantially. So what are the measures that we are taking towards it?
Yes. I think in the long duration contracts also, there's a lot of interest, which has been shown by the distribution companies and many auctions were conducted, but since the price discovered in these auctions was quite high this year, they have not resulted into contracts. And now with the improvement in the coal supply and reduction in the e-auction rates, I'm sure the price discovered in the long duration contracts will also be very competitive, and the conversion should happen. So we expect good volume growth in this market also. Last year, we did 1.6 BU in you can say, 8 months. So this year, we are running at least 5 BU in this segment.
We have ordered 1 BU in first 2 months.
Yes. We have already done 1 BU in 6 months at this rate so it should be more than 6 BUs.
You just said 1 BU in April and May?
Yes, yes.
Okay. Understood. And sir, final question, sir, what is the product launch pipeline for FY '24?
Ancillary market is going to start from 1st of June. and in last 2 years, we have launched so many products, so it is time that we get -- we bring liquidity in this products and bring agendas about these products so that participants do participation in these things.
The next question is from the line of Sumit Kishore from Axis Capital.
I have a few questions. The first one is that you seem to have exercised some cost control, your employee cost is down year-on-year, even other expenses are down year-on-year because of which Q4 EBITDA margin has improved. So could you speak about the cost control? And is the margin improvement sustainable?
Now in case of employee i think the cost is almost the same what it was last year.
Sir it is down from...
Yes, I would request my CFO, Vineet Harlalka, to respond to this question.
On a year-to-year basis, I mean, if you look at the employee cost, it came down from almost around INR 41 crores to INR 34.5 crores. It was mainly because some portion of the IGX cost was in the IEX cost in for the 9 months for the last year, that was one significant portion. And secondly, because of the higher profit last year, so there was a provision for that with the variable scheme. So those 2 impacts were there, which is not there. So that's why you see the gap in the cost.
Got it. Got it. And as far as other income is concerned, I mean, I see on your balance sheet, that cash and bank balance and investments have reduced. There was a buyback also of INR 98 crores, but the reduction is higher, but your outcome has gone up on a year-on-year basis in quarter 4, quite substantially. It has gone up even quarter-on-quarter what is resulting in lower -- yes. Yes, sir.
Please, can you repeat what you were asking in the last line, I didn't get it.
So I was saying basically, the movement of cash and bank balance and investments, there is a reduction year-on-year even after adjusting for the buyback. And the -- but the other income in quarter 4 has gone up quite sharply on a year-on-year basis.
If you look at the total investments, investments have not gone down significantly. Actually, there was a shifting of the investment of long-term products. So if you look at the investment reducing the short term, the current investments in the long term from the current to noncurrent. So that is the case. And secondly, because of the few initiatives and the parking of the fund into the good yielding products, so that was the impact. Because last year, if you see, there is a significant increase in interest rate. And during the last quarter, so because the quite security crunch and also we got the good opportunities in the MLDs and other products. So we take the advantage of that. That's why we got a better return on our overall investment portfolio.
So what is the nature of noncurrent investments, which i've seen you have increased?
Noncurrent are basically, we put the money on the target maturity firms or the long-term MLDs, FDs. So that's why those are the non current trends.
Okay. Okay. On the business front, a few questions. One is we find that in May, as you pointed out, the imported coal prices have come off, e-auction coal prices have come off, availability has also seemed to be improving. We had weak demand growth in March and April. But I mean, May also seems to be soft on volume growth on a year-on-year basis so far. So what is -- when is the inflection -- when is the acceleration going to happen?
See, the volume growth for the first 2 months so far has been almost about 6% in electricity. So it has always started. I mean go has already started, but I think in the coming months, when we see better supply of coal in the market at lower e-auction price, because e-auction conducted in the month of April, it has -- quantum was also significantly higher and the price was also reasonable. So the supply of this coal will start maybe in the month of June, July, and we should see competitive price, further reduced price and higher volume on the exchange platform. Further, winds is also coming -- wind generation also will improve hydro-generation also will improve. So all that should provide good equity on the sell side.
Sure. And finally, on contract for differences, seems to be a very promising move. So what is possible in the next 1 year in terms of volumes coming to exchanges, what is possible over a 3-year time frame in terms of CfD leading to higher penetration of renewables in the merchant market?
I would like to say 1 thing that we have been working on this product contract from the last 3 years. And I'm very happy to say that government has finally accepted this concept. So that is one thing which is an achievement -- big achievement in itself. One thing they have accepted is that they will tender out 1,000 megawatt of renewable capacity under the CfD, which will be sold through the market.
Second thing that we did this year is that 4,000 megawatts of NTPC gas stations and 1,050 megawatt of torrent gas stations will operate and sell power in the day ahead market. And difference between that market clearing price and the cost of gas-based generation will be paid by Government of India. Again, it is a contract for had also approved Procurement of 1,500 megawatts of imported coal-based power under contract for difference was selling in the exchange platform to meet the demand during the first year. Of course, in that particular contract, there was no response from the generators. So that did not better materialize.
So what I'm saying is that there is no acceptance of this concept. And in the coming years, I'm sure the standard capacity, gas-based capacity in particular will be utilized during the high demand period to meet the peak out demand. And that should provide good liquidity of the sales platform.
Got it. So what was the volume in HP-DAM since launch?
For HP-DAM, the volume has not been significant because April and May months were comparatively much cooler months. The demand has not increased. In fact, the demand in these months was lower by 1% with respect to last year and clearing price was 40% lower than last year. So that is why volume has not happened in the HP-DAM market.
The next question is from the line of Apoorva Bahadur from Goldman Sachs.
Sir, continuing on this contract for difference products. Now I understand it's a derivative product. So will IEX be allowed to transact once the volume picks up, and also for approvals, will you need to approach CERC or SEBI?
I think this product has been already approved by the Government of India now. And for delivery transactions, see if you look at the delivery transactions, beyond 11 days that is also considered as a forward contract. But now these contracts are allowed on the exchange platform. Similarly, this contract also -- since it is going to result in delivery of power -- actual delivery of power, and this will be allowed. And this, in fact, Government of India has already contracted 1,050 megawatt gas based capacity from Torrent and 4,000 from NTPC for selling through the market under this concept.
Okay. Since it is derivative delivery based, there won't be any issue or regulatory side?
Yes. Yes.
Okay. I understood, sir. Sir, second is on one of the suggestions -- recommendations, which the ministry panel had suggested for deepening the market, and that's for 15-year renewable contracts, right? So just wanted to know what sort of appetite will the lenders have in funding this type of product?
See, if you look at the contracts, in most of the contracts, the debt obligation is serviced within 10 to 12 years. So as far as lenders are concerned, this will be comfortable with 15 years.
With the short lending period, I mean, will we really be viable on a cost competition cost competitiveness basis?
See today, one of the big problem is integration of renewables with the conventional power. And most of the renewable is happening through PPA. And if it is PPA, then it is a must and it will operate as and when the power generation happens. I think to integrate with the market, they need this kind of market instruments, and that is why government is now saying that we should have 15-year PPA, so that after 15 years, this power is sold through the market mechanism. And I'm sure 15-year is a long period even from the funding point of view, this will be able to get funding at a reasonable cost even for this period.
Understood. So essentially, the new capacity might sort of start coming in our platform, say, after 15 years.
Yes. Yes, you are right.
Okay. Okay. Got it. Sir, I think last question is probably on the demand side. So we are seeing that the prices have corrected sharply, and that is something to do with the softness in demand, maybe due to the weather factor. So do you think that structurally, has the supply side situation improved? Or going ahead if the demand picks up again, will again be a supply crunch.
I think there is significant improvement in the supply side. But it is not as it was 2 years back, definitely. But I think in the next 2, 3 months with increased coal supply to the IPPs, there should be further improvement in the supply side.
The next question is from the line of Damodaran from Equitas Capital.
Just 2 questions from my side. On the day ahead contingency market. The first one was while we have a day ahead market, what purpose does the day ahead continuously to be market served? That's one. And the second there is why the market share in that low at 45% odd. So those are my 2 questions.
Yes. In fact, day ahead contingency market was introduced in the beginning because if somebody has not been able to purchase power if his volume, which are not cleared day market, then there was another opportunity in day ahead contingency for market for him to do the transaction. But in 2022, the RTA market was introduced in this market, there is a lot of liquidity available. So I think now the purpose of the day ahead contingency market is over, and that is why no significant volume was happening in this market. Volumes are happening only when in 2021, when the transmission pricing regulation was issued and the arbitrars is available in the PRC market, the volume started shifting in this market.
In this market, since it is a price matching, it is not a price discovery. So I think all 3 exchanges have -- are on the same footing, and it all depends on the interactions with the customers, connectivity with the customers. So that is why we have a better share in this market. We will come present at other 2 exchanges. But I think all of them has an opportunity to get market shares. And I understand some of the other exchanges were also giving some incentives on the transaction fees.
The next question is from the line of Ankit Kanodia from Smart Sync Services.
I just wanted to understand in relation to the G&A regulation, if I remember correctly, it was first supposed to be implemented by -- from October 2022. From there, the date changed to January, then in the last con call, we discussed about 1st April. And now we are guiding for 1st of August. Why this delay is happening for so long? And do we have any sort of certainty that 1st August is a clarity or we can further have delay from 1st August as well. That's my first question.
The point is implementation of this will depend on the regulatory orders. And this is linked with the issuance of grid regulation. So that has not been issued so far. After grid code is issued, thereafter NLDC will align its processes and systems in line with the new grid code and transmission regulation. So they will also need some time to implement that. Based on the discussions and based on the developments which have taken place, we expect that it should get implemented from 1st of August '23, but I cannot guarantee that. It all depends on the order issuance of order by CERC and thereafter, revision of processes and systems by any NLDC.
That really helps. And my next question would be, so if I understand correctly, when the price of electricity in exchange is higher then probably the demand suffers. So that is what we witnessed in the last year. So what gives us an idea that this year sustainably the price will be lower? Or can we have any guidance in terms of how we look at the prices? And do we have any forecast for the prices or it is completely demand/supply driven and we have no control in foreseeing that?
Power price discovered is purely based on the demand and supply. And we have seen years in which the supply is more, the prices are competitive. Last year, we had more demand than the supply that is when the prices were higher. This year, we are definitely expecting a much better situation because coal supply, coal production targets are very, very high targets, and the target is for 1 billion tonnes of coal production, which is 12% more than last year. And -- whereas the demand -- the electricity demand increase is expected to be only 5%, 6%. So increased coal availability in the market, that should lead to better liquidity on the sell side and lower price on the exchange platform. And also, what happens if the imported coal prices are higher. Last year, the 5,000 GCV coal price was about $130. It has come down to almost about $90 now, and it is expected to go down further. E-auction prices are invariably linked to the imported coal price. So E-auction prices also have started coming down now. Quantum of coal offered on the e-auction that has also started increasing. So all these things should result in availability of coal at a lower price and lower tiering price on the exchange platform.
If I can sneak in one last question. As you rightly mentioned that the G&A regulation is not in your control, but it is all in the regulatory end, do we see any threat or risk in terms of our market share getting further eroded, if we are unable to get the market share from DAC to -- back to DM, do you see that as a long-term problem, if this issue persist for a longer period of time?
One thing I want to make clear that in the day ahead market and RTM market, our share is practically 100%. That is one. And it will -- I mean we are quite confident we will be able to retain this market share. The transactions happening in DAC market are mainly because of the arbitral available in the DAC market. Once that is over, there is no reason for the transaction to happen in the DAC market.
My question is related to that only if the arbitral persist for a long period of time, do you think that could be a threat to us or no that is what my question.
I mean this is a market distortion shifting volume from the DAM market. I mean in DAC market, as I told you, all 3 exchanges are So that will definitely then lead to loss of share. But looking at the developments which have taken place and which are happening, I'm sure within a day or 2, you will see CERC issuing the grid code and implementation of G&A would happen from 1st of August, as discussed with the other stakeholders.
The next question is from the line of Drashti from Thinqwise Wealth Managers.
I just have one question. In a recent interview of one of the exchanges MD, he mentioned that the initial steps towards market coupling has been implemented by CERC, which is introducing ancillary services market from 1st May '23 that he had mentioned that date. So if you could help us understand what exactly are these stats and how can it impact our existing products?
There was lot of echo, but let me repeat your question what I understood. What you said that ancillary market is a step towards market coupling. Is that correct?
That's right, sir. Where he mentioned that these are the first stop towards market coupling, which have been implemented.
Can you be slightly away from the microphone because there's a lot of...
Sir, is it better now?
Yes, yes, better now.
Yes. Sir, in one of the interviews of the competitive exchange, the MD had mentioned that the first steps market coupling are being implemented by CERC, while introducing ancillary service markets. So if you could help us understand those and how can it impact our existing products?
Yes. See ancillary market, if you look at the market design, ancillary market is exchanges are only taking bids from the participants. These bids are forwarded to NLDC, because NLDC is deciding how much of power they have to procure on a real-time basis. And based on that requirement, then they will stack these bids. And procure -- I mean, purchase the power or take the power based on the least cost option basis. So in this case, because the requirement is by NLDC. It has to happen only in this manner. I mean each of the exchange cannot do price discovery and discover these prices and volumes to the NLDC. NLDC have to decide how much of power they want to buy. And based on that, they will exercise a least cost option. And there is no price discovery in this case. The demand is fixed and based on the demand, based on the bids for the supply, they will find out what is the least cost option.
Sir, so yes, that's what I wanted to understand that since these are the initial steps for market coupling, how can it impact us in the future and which all products would be impacted?
This is a different kind of the product. This is a product which is for meeting the requirement of NLDC. So this is, again, not price coupling. This is just extends are inviting bids and forwarding the bids. It is NLDC who have to basically then select how much of power they want out of that is by them. I don't think this will have any impact on the other products in the market.
Joining of other products is exchanges will invite the bids, they will do the price discovery and settle financial and physical settlement. In this case, we are not even doing the physical and financial settlement. It is just, we are selecting the bids and sending it to NLDC.
[Operator Instructions] The next question is from the line of Lavanya from UBS.
Hello, am I audible, sir?
Yes, I can hear you.
So just going on with the earlier question, ancillary market, if I understand, it is for -- you'll be taking only supply side bids and forward to the NLDC, who will take based on the merit order. Is that understanding right, sir?
Yes. Yes, you are right.
So how will you pick the transaction fees on this particular product?
Based on that, which received by us, selected by NLDC scheduled for supply. On that -- the quantum which is scheduled for supply on that we can charge transaction fees. Since the opportunity in this market, let's see how much volume happened in this market and then we will decide what. As for the CERC order we can charge up to INR 0.02.
INR 0.02 only to the supply side then?
We can charge them to INR 0.02, but we don't intend to charge them because in this case, scope of work is much less for the exchanges. There is only collection of and sending the bid to NLDC.
Okay. Got it. So other thing on the overall market, sir, so just wanted to understand in terms of power market. So last year, whatever we have seen, it was just only because of coal availability or we are seeing any difficulty in terms of capacity as well? Like the supply side, it was largely due to only coal availability or in terms of capacity also we are closing...
It was more because of the coal availability.
Okay. And quantum -- I mean, capacity is still...
We have capacity. Even now also when the demand of 221 gigawatt met, I think, in the month of May, we still had the surplus capacity available in the system. And in any case for meeting this kind of demand, 25 gigawatt of gas capacity is also available. And based on the current gas prices, which are likely to go down further, I'm sure even cost of with the cash also will come down to less than INR 10.
Sir, before 2019, I mean, the supply from gas stations was happening or was that not happening...
2019, the demand in the country itself in comparison to what it is today was much lower. So there was no need for the gas based generation to bid in the market because that's a cost base generation. But now since the demand has increased, and if there is a shortage of capacity maybe for 15 days, 1 month in a year, the gas based generation also can be utilized.
The next question is from the line of Nikhil Nigania from Alliance Bernstein.
My first question is regarding a portal which the government had launched PUShP portal, any traction which has happened on that or not really until now?
Not to my knowledge. I think [Foreign Language] happened there, but nothing after that.
Okay. Okay. Understood. The second question I had was regarding the CfD, which is proposed as a great move from a renewable generator or even an exchange perspective. But I would think of it from a discount perspective, what is the incentive for them to sign a CfD contract versus signing a PPA, for example, especially if renewable prices are falling every year.
This comps will not sign the CfD contract. Discomns may not find the CfD contract. But normally, these kind of contracts are signed by the nodal agency of the government. In this case, it may be SEBI or any other public sector company, government can ask them to get into these kind of contracts. But even in case of distribution companies also see what happens a distribution company who have to meet the RPO obligation. If they get into a RE capacity on through the PPA, then they will have to purchase that power. And they will have to manage the variability of that power with respect to the demand and supply.
Other option for them is that they get into a contract, pay the money contracted by you to the generation, take the green attribute for your RPO obligation and let the directors sell the power in the conventional market. And the difference between the conventional market rate and the price can be borne by the distribution company, which is basically towards that green agreement. And what we find is that for such kind of contracts also, there is a very, very strong case because the rate in the conventional market is definitely higher than the strike price. In fact, we got a study done from Deloitte doing the price forecast for the next 15 years based on the marginal cost basis. And what we have come to see note that the price for the next 15 years, if somebody gets into with the CFD model, no funding will be required. So in fact, there will be a surplus in the pool.
Got one more question then, not to related point, but regarding another notification of our ministry on fair allocation of coal, where they said that if states are found using domestic coal to selexis power on the exchanges, their rates will be curtailed and given to other states. Has that been implemented in practice or any impact of that, that you're seeing now?
I think that notification was applicable up to 31st of May, and nothing has happened in the last 2 months.
The next question is from the line of Bharani Vijayakumar from Spark Capital.
Yes. So in this development of power market report by the government, there is also a lot of mention on MBED. It looks like MBED is seriously being thought about by the government at least in the long term. So how is this positive or negative for IEX?
First of all in the report, they have very clearly mentioned that implementation of MBED is a complicated issue and will require a lot of consultation with the stakeholders. So having realized that Government has that this is a part of the long-term plan and in future for renewable integration, there at appropriate time. I don't think they have mentioned any time frame about that. It is in long-term time frame.
So is it possible to expect it in the next such from your side?
Very difficult to say what is going to happen in the next 5, 10 years, yes. I think things are changing very fast these days. But I'm very sure that not in the next 5 years.
Okay. Yes, got it. So also, we have this clarity on our margins recently with CERC However, even in that order, there has been indications that in the future, there would be margins that could come under the scanner of the regulator. Essentially, say, being lower IEX has submitted lower margins for longer products. So what is your view on long-term nature of our margins? Is it likely to come down any time in the next 3, 5 years?
CERC had mentioned a cap of INR 0.02 on the transaction fees in the regulation. And with the requirement of regulation, we filed our application CERC, that also they have given approval for charging transaction fees up to INR 0.02. So we don't see any further lines. Though it is mentioned in the order of that staff will work out details in after studying the other exchanges. But looking at the market size, which is just about 6%, 7% of the total the country. I think looking at what has happened in the last 2, 3 years, regulatory is more concerned about development of the market. And looking at the road maps of the expert group also, government is concerned about deepening this market. So more efforts are required for dipping the market than for regulating the transaction fees because if you do that, then you are going to create entry value of the market. I mean I'm sure other exchanges will not be commercially financially viable if the transaction
Understood. Two bookkeeping questions. So what is the potential in this DAC volume shifting to G&A in this year in million units.
Can you repeat the question, please?
What is the potential in million units where the G&A regulations are implemented, there will be some DAC to DAM for us?
Yes. Last year, DAC volume was 40 BU. And now this year, we are expecting from 1st of August of 4 months, you can say 2/3 of the 40 BU, which is about that 9, 10 BU, that shift back to the DIM market.
9 billion to 10 billion units should be incremental for us on an annual basis?
No, no, for this year. Next year, we are expecting that out of this 40 BU at least 12 BU will get shifted to the market.
Okay. And the second, on the ancillary services, you mentioned that demand is kind of fixed. So in megawatt terms or in million unit terms per year, what is the overall demand in the country for this kind of power?
Demand is very high. But again, we are expecting sell-side as to be constant.
No, no. I'm talking about ancillary market, which is arranged by NLDC. So any number on per year capacity that is mix through ancillary markets?
Yes. Requirement of ancillary market ranges in the range of 2,000 to 3,000 megawatts. But then again, that depends on the time of the day, just not wanted for the day and throughout the year.
Okay. But typically 2,000 to 3,000 megawatts if it is to an average for every day for the full year, if it's 2,000 to 3,000 megawatts.
No, no, it's 2,000 to 3,000 megawatts whenever they want it. But if you look at the average for the full year, the content is going to be much, much lower.
Due time constrain, we'll take one last question from the line of Ankit Kanodia from Smart Sync Services.
Ankit, your line has been unmuted, please proceed with your question. With no response, I'll hand it over to management for closing comments.
I would like to thank all of you for being part of this call. While higher input costs impacted our volume last year, going forward with increased coal production and pulling down of input prices, we expect lower clearing price on IEX platform and increasing opportunities for optimization by distribution companies and consumers. And I'm sure thereby our volumes also will be much better. As always, we remain committed to positively contributing towards sustainable Indian energy sectors. And thanks for the interest. Thank you.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.