Ladies and gentlemen, good day, and welcome to Indian Energy Exchange Limited Q1 FY 2023 results conference call hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital Limited. Thank you, and over to you, Mr. Kishore.
Thank you, Michelle. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q1 FY 2023 earnings conference call. We have with us the management team of IEX, which is represented 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, Lead Investor Relations. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir. Thank you.
Hello. Good afternoon, everyone, and welcome to the earnings call for quarter one FY 2023. Joining me today are Mr. Vineet Harlalka, our CFO and Company Secretary, Mr. Rohit Bajaj, Head of the Business Development, Mr. Amit Kumar, Head Market Operation and New Product Development, Mr. Sangh Gautam, CTO, Mr. Samir Prakash, CHRO, Mr. Indranil Chatterjee, Ms. Aparna Garg, and Mr. Archit Gupta. The pace of Indian economy activity continues to remain robust. India witnessed a strong start to the year with the index of industrial production growth at 6.7% year on year in April 2022, which further increased to 19.6% in May 2022, highest since August 2021. During first quarter 2023, the manufacturing PMI increased to 54.7 in April 2022 as compared to 54 in March 2022, driven by faster expansion in both new orders and output.
However, it is down to 53.9 in June 2022. The services PMI increased to 57.9 in April 2022 as compared to 53.6 in March 2022 and further increased to 59.2 in June 2022. The energy market during the quarter faced a crisis globally. The heatwave in various parts of the world and the Ukraine war upended the global energy markets. The increase in demand, coupled with rising input costs, led to high electricity prices in the market. For example, in Australia, wholesale prices rose 2.5 x in the first half of 2022. Similarly, Nord Pool market, average wholesale prices for the first half of 2022 were 2.7 x than those in the year earlier. In Japan, average price of electricity doubled on a year-to-year basis.
This all caused by increase in prices of imported coal by almost about 2.5 x and an increase in the LNG price by more than 2 x. A similar situation prevailed in India. Electricity consumption in quarter one of FY 2023 increased to 401 billion units, translating into 18% year-on-year growth on account of increased industrial activity and heatwave across the country. However, there were supply-side constraints on exchange platform. Domestic coal was mainly supplied to PPAs plants to meet demand. Availability of e-auction coal reduced, increasing e-auction price by 400%. There was a significant increase in both imported coal and gas price. As a result of this, generation from imported coal-based plants and gas-based plants also reduced. The increase in electricity consumption and skyrocketing of input costs led to an increase in the price on the exchange platform.
The average Day-Ahead Market prices increased to INR 7.7 per unit during the quarter. As on 30th June 2022, the total installed capacity of power generation in the country stood at 404 GW, out of which the renewable capacity is at 161 GW, which contributes almost 40% of the installed capacity. The growing contribution of renewable energy is aligned to India's commitment of 400 GW from renewables by 2030, made by our honorable Prime Minister in COP26 Summit held in November 2021 at Glasgow. On the regulatory and policy front, several developments have taken place. A few highlights are. CERC has issued order on 7th June 2022, approving the much-awaited long duration contracts for trading up to a period of three months. These contracts are called Term-Ahead Market contracts.
This will facilitate the discounts to cater to the demand for long duration within the short-term market and optimize the procurement cost. This will increase market share of exchanges in the overall power market. CERC issued Connectivity and General Network Access to the Inter-State Transmission System Regulations 2022 on the 7th of June 2022. This will streamline transmission charges being paid by the market participants and simplify obtaining transmission access for carrying out transactions. GNA will rationalize transmission charges for exchange transactions and will further promote deepening of market. Subsequently, on the 11th of June 2022, CERC issued draft regulations for sharing of ISTS charges and losses to ensure avoidance of duplication of transmission charges in collective exchange transactions. On the 6th of June 2022, Ministry of Power issued electricity rules for promoting renewable energy through green energy open access.
As per the rules, consumers with contracted demand of 100 kW and above is eligible for Green Energy Open Access. Certain letters on open access related charges also have been provided to the consumers. For green open access, there is no additional surcharge, and even the processing surcharge rates has been capped to 50% for the year in which open access is granted for a period of 12 years. This move will not only incentivize the consumers to go green, but also improve participation of these consumers in the exchange market. On 3rd June 2022, MoP notified Late Payment Surcharge and Related Matters Rules, 2022. The key highlights of these rules are all distribution licensees to intimate their schedule for power draw on Day-Ahead basis from the generating companies with whom they have a PPAs.
Thereafter, the generating company will have the option to sell their un-requisitioned power in the power market. Same has been captured by CERC in the draft grid code also. If the DISCOMs doesn't establish payment security mechanism or continues to default for a period of 30 days from expiry of the notice, the GenCos can sell 100% of the power to the power market. These regulations will help increase sell-side liquidity on the power exchange and will be highly useful for market development. On ninth of May 2022, CERC issued terms and conditions for trade of renewable energy certificates. This will create fungibility of RECs issued irrespective of type of renewable technology and will provide flexibility to the REC generators to sell their power in the green market or in the TAM market and take REC.
These initiatives are aimed at creating an efficient power market and will lead to further deepening of the exchange market in the country. The quarter began on a challenging note at IEX, and we witnessed a high input cost and capacity outages across the country due to shortage of coal. This led to a reduction in sell side liquidity on IEX. In Day-Ahead Market, we witnessed purchase bids of almost 25.877 BUs, while the sell bids were only 17.287 BUs, leading to an increased clearing price of INR 7.7 per unit during the quarter and reduction in clearing volume to 11.283 BU in the Day-Ahead Market.
Despite these challenges, in Q1 of FY 2023, the total volume at IEX stood at 23.352 BUs, a 10% year-on-year increase from 21.265 BU a year ago. The conventional power market contributed 20.635 BU, consisting of DAM volume of 11.283 BU, which reduced by 21%. The RTM market volume was 6.237 BU, which increased by 34.5% on year-on-year basis, and the TAM market volume was 3.116 BU, which increased by 127%. Increase in volume was primarily driven by increase in electricity consumption in states like Uttar Pradesh, Andhra Pradesh, Punjab, Haryana and Telangana.
The green market segments contributed 1.52 billion units, and the REC market contributed 11.97 lakh certificates, which is equivalent to 1.197 BU. I'm delighted to share that on 27th June 2022, we have successfully launched a much-awaited long duration contract on the exchange trade form. We have introduced any day single site contracts, daily and monthly contracts up to 90 days. This will help us augment our presence in the short-term market. Our customer centricity is at the core. At IEX, our endeavor has always been to advance and strengthen exchange technology and introduce innovative products and services to provide the best-in-class experience to our customers. In this regard, during this quarter, we launched the web-based bidding platform to provide our customers anytime, anywhere, easy and secure access to the trading system.
Web-based financial reconciliation for our customers, enabling online and easy way of reconciliation of the exchange-based transactions. Application programming interface facilitating automated bidding in the integrated day-ahead market, renewable market and other segments. I will now briefly touch upon developments regarding the gas market at IEX. In quarter one of FY 2023, IGX traded 4.7 million MMBtu in volumes and recorded number of trades. This is despite a massive increase in gas price. On an average during the quarter, the Platts WIM prices per MMBtu at Dahej Terminal increased to $32.6 per MMBtu, from $9.4 per MMBtu a year ago. Also, we added four new members into IEX, including OPaL, HPCL, Shell, and GSPC, taking the total number of registered members to 30.
IEX achieved a profit of INR 1.5 crore during the quarter, as compared to a loss of INR 1.52 crores during quarter one of FY 2022. During the quarter, IEX received PNGRB approval to commence domestic gas trading. This approval will lead to new opportunity for sale of domestic gas and price discovery through exchange market besides increasing the sell side liquidity. It gives me immense pleasure to announce that recently IEX was conferred with the Best Energy Startup of the Year Award in the Non-Renewable category at the ET Energy Leadership Award 2022. I will now come to the financial and business performance for the quarter one FY 2023.
On a consolidated basis, revenue for quarter one FY 2023 increased to INR 113.4 crores from INR 102.9 crores in the first quarter of the last year, witnessing a growth of 10%. The PAT grew from INR 62.1 crore to INR 69.1 crore, with a growth of 11% on year-on-year basis. The key highlights of quarter one of FY 2023 included IEX achieved 10% year-on-year volume growth across all segments. The conventional electricity market achieved 2% growth with a total volume of 20.635 BU, out of which Day-Ahead Market constituted 11.283 BU, Term-Ahead Market 3.116 BU, and Real-Time Market 6.236 BU.
The green market achieved 62% year-over-year growth, with a total volume of 1.52 BU, of which the Green Term-Ahead Market constituted 0.445 BU and the Green Day-Ahead Market constituted 1.075 BU. We traded 11.97 lakh RECs during the year, which is equivalent to 1.197 BU. The quarter one has witnessed an unprecedented energy crisis. Going forward, we expect the energy crisis to ease with the initiatives taken by the government and regulators, an increase in the coal production by CIL, and softening of input costs. At IEX, we are now working to commence other market segments such as ancillary markets, capacity markets, cross-border contracts, and are optimistic about commencing them shortly.
In quarter one of FY 2023, we witnessed a significant 11% year-on-year growth in the overall electricity consumption in the country. If the growth continues like this, I am sure we will be able to maintain the growth momentum what we have seen in the past. Our endeavor is to continuously innovate, strengthen technology, and introduce new market segments and products to help the market participants meet their dynamic requirements. We are also continuously assessing our new opportunities to diversify. With that, I shall conclude by thanking all of you, and we will commence with the question and answer session now. Thank you.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mr. Sumit Kishore from Axis Capital Limited. Please go ahead.
My first question is that month-to-date electricity volumes on IEX in July are down over 10% year-on-year. HPX started with TAM volumes post sixth of July, and then PXIL has gained some market share compared to previous years in the first quarter of FY 2023. Could you please speak about the competitive landscape, the likely impact of RTM and DAM launch by HPX in the coming days? That's my first question.
Yeah. HPX has started operation from sixth of July, and they have only started one segment, which is Day-Ahead Contingency Market. Day-Ahead Contingency Market is the place where you have continuous price matching. In this market, volumes transacted are lower. If you see, DAC market volume is hardly about 15%-16% of the total volume. Out of that 15%-16%, they have been able to get almost about 17% of the volume.
PXIL also, during the quarter, because there was very high price discovered on the exchange platform in the day-ahead market, and even at INR 12 price cap also many of the distribution companies were not able to get power because the cap is priced at INR 12. To avoid that, many distribution companies started doing transactions in the TAM market so that they have assurance of getting power on weekly and daily basis, day-ahead basis. Many transactions shifted in the day-ahead market, this TAM market. In the TAM market, as you know, that it is not a price discovery, it is a price matching. All exchanges are at par and maybe some of the exchanges had given some promotional scheme they had introduced. Because of that, they could get some volumes.
I can tell you one thing, that, in the first quarter, our market share has been almost about 85%. In the month of July, we are maintaining a market share of almost about 89%.
Okay. Just to follow up on this point. We understand that HPX is also going to launch products equivalent to Day-Ahead Market or Real-Time Market in the coming days. They count among their shareholders entities like Haryana, West Bengal, Manikaran. Does that, you know, mean that, you know, although you have the dominant market share in DAM and RTM, is it possible that competition can chip away on market share?
Let them launch these products. I think, then only we can say anything. Because PXIL also has both these products. They had DAM and RTM.
Yes.
They also have important market players as their shareholder. In spite of that, we have been maintaining our lead in these market segments. I will not like to comment anything till we see their performance in these segments. You know, as an exchange platform, what we have to do is do something to provide value to our customers. Do innovation, do add new products, provide a robust technology platform. That is what we have been doing. I think in the last two years, the kind of new developments, new products and new customer centric activities which we have carried out, I think, with all that we should be able to retain our market share.
Fair point. My second question is, what is the pricing discipline that you are seeing by competition? We understand that PXIL has been offering incentives on the four paise in TAM and REC. Is HPX doing the same? And if at all, is IEX planning to, you know, follow suit? Or are you already providing incentives in RECs?
We have no such plan in the electricity market.
Okay. Last question. You know, there has been a launch of the long duration contracts, you know, finally. What is the initial experience and what is the expectation for the balance fiscal in terms of adoption of LDCs? Is the financial health of DISCOMs going to be, you know, a sort of a roadblock in getting them on board for contracts where, you know, they are in the habit of not paying up in the normal payment period? How would the working capital work out?
See, we launched this long duration contracts from 27th of June, and we have seen a lot of interest in this market segment. We have done couple of reverse auctions also. Only problem is, today in the market, coal availability in the auction space is very, very less. Last year, I think coal auction was about 28 million tons, whereas this year it was only about 9 million tons.
Okay.
The price in the auction market was 400 x. The rate which is being quoted by the generator in this long duration contract for power segment is pretty high, of the order of INR 6 crores, INR 7 crores, INR 8 crores. Distribution companies are not willing to enter into a purchase agreement for two, three months at this high price. Because they have apprehensions maybe that the price may come down. In the Day-Ahead Market, yes, I mean, since that is the last opportunity for them to buy power, they buy power at this rate. In the Term-Ahead Market, they are not willing to get into contract at this high rates. No transactions have materialized, but we are getting interest. As far as the payment is concerned, I don't see any issue.
Okay.
You know, in 2008 when we started our Day-Ahead Market, at that time also the health of the distribution companies was in fact worse than what it is today. At that time also, nobody was comfortable that distribution companies will make advance payment. They did it because they found value in the Day-Ahead Market. They found value in the exchange transactions. Here also in the long duration contracts, if they're buying competitive price discovery happening, I'm sure payment will not be an issue.
Thank you so much for those answers. Operator, please take the next question.
Thank you. The next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Good afternoon, sir, and congratulations on a decent set of numbers. My first question is, does in your opinion, late payment surcharge rules to schedule distribution companies by 10 a.m. likely to be a very, very, material event in medium term for our volumes, yeah.
Yes, yes. I can tell you one thing that this can be a big booster for the Day-Ahead Market. Because if you look at the power of this central generating company, it is almost about 80,000 MW. Out of that, the power which is un-requisitioned, even if it is 2%-3%, then also it can be almost about 20 billion units. That's a rough estimate which I made. If that kind of power comes to the Day-Ahead Market, I think it can provide a lot of liquidity.
Mm-hmm. Understood, sir. Secondly, on this, sir, on the ancillary market, cross-border capacity market, which are the things. Is there any timeline which you can share with us where you think these, all these three can be implemented? As, sir, I understand there is no regulation of capacity market as of now. Is my understanding correct?
Yeah, yeah. See, ancillary markets, CERC has already issued regulations, but that will be implemented after finalization of the grid code, which may take another two to three months' time. Cross-bidding, we have already filed our petition with CERC. CERC hearing has happened. They have wanted us to do the stakeholder consultation. We did that and filed our submissions with CERC on that. So the order is reserved. We are working with CERC for the approval of that. So, I mean, we should get approval, I think, in the next one to two months. Third is capacity market. Capacity market is a new concept for India. I mean, it is there in the European market. But in India, we are working with government also, we are working with regulator.
I understand the new electricity policy, which is under finalization and under approval, is talking about this capacity concept. This concept is being discussed to have adequate resource planning in the country. I'm sure if you want to have deepening of short-term market, you need capacity market also in the country. This is, you can say, at the concept stage, and it may take some time.
What was the revenue of IGX in Q1 FY 2023? Only revenue number.
Vineet.
Just a second. IGX operating revenue was almost INR 4 crores, INR 3.9 crores.
INR 3.9 crores.
Understood, sir. Thank you and best of luck, sir. Thank you.
Thank you.
Thank you. The next question is on the line of Maheshwari from Edelweiss. Please go ahead.
Yeah, thanks for the opportunity. My first question is, there was the CERC on your two paisa transaction fees. They had asked you to justify the transaction fees. Where are we in terms of that?
We have submitted our petition with CERC, and a hearing was held. We are expecting that order should come in another one month time.
Okay. The order is reserved?
Order is not reserved. One of the party had requested a time for making their submissions, and CERC allowed them to make submissions within the next 15 days. They have made the submissions, so we have to now respond to their submissions. After that, CERC may hold one more hearing, and then they will issue the order.
All right. Sir, where are we in terms of gross bidding? You had launched that new product, which is, more, okay, at the individual level. How we are progressing on the gross bidding mechanism?
See, for any new product, you know, there are many ifs and buts.
Yeah.
We file with the regulator. Regulator is also analyzing all aspects of it, and they requested us to do stakeholder consultation. We discuss with the stakeholders also. They understand that, yes, they can get some value out of it. But, looking at, what distribution companies are, I mean, I think only when we implement this product, maybe we'll get some response from them. Otherwise, they are quite positive about this product. We have filed our submissions with CERC, and let's see when we get the approval. It's a new concept, so it will take some time.
All right. Can we expect that in FY 2023, sir?
Yes, yes. We are ready to launch it.
Okay, sir, in terms of financial question, we have seen there is a sharp increase in other expenses in this quarter. Any one-off over there?
Yeah. Mr. Vineet Harlalka here from
Mainly there are two factors. If you look at the consolidated number on year-on-year basis, the increase is around INR 2.7 crores. This is mainly because of the CSR, because the CSR expenses increased to almost INR 2.5 crores, because this is our statutory obligation. Last time it was spread over the two, three quarters, and this time, because we incurred the expenses, so this all were booked. Secondly, if you can recall, during the quarter one of financial year 2022 because of the COVID second wave, so no activities were being taken over, so like traveling, business development and other activities. Now they are fully functional. These two are the major impact. I think the CSR was the major impact on the increase in the cost during this quarter.
Okay. Sir, my last question, if you just look at your cash and cash equivalents, including the liquid investments, it's almost up 80%. It's almost about INR 1,250 odd crores. That's kind of a drag on the ROEs as well. I'm pretty sure that there are some security deposits included in that. Even if you were to adjust, that's a very significant amount of your balance sheet size now. How do we plan to deploy this? I mean, are we just going to sit on cash, or is there some plan over there?
It is basically if you look into the amount of three annual cross, these are basically the deposit amount or the float which we receive for the payment or obligation. Because of the sudden increase in the payment because of the higher prices, so this is float we have to maintain because we have the payout obligation. It is not an amount which we aligned with. Because whatever the surplus amount here, which is already invested. Amount which are lying there substantially are put into the FDs and other things. We are looking and taking care of all the investments which are there.
Shareholders money, shareholder funds around INR 668 crores. INR 668 crores.
We have almost about INR 670 crores of shareholders money. Out of that, we are going to pay dividend, which will be about INR 90 crore. That will leave almost about INR 570 crore with us. That is the money for which we can look for, I mean, investment options. We are working on few opportunities, I mean, new options, new diversification initiatives. As and when that materialize, maybe we'll need some money for that. Even otherwise also, I think we need maybe INR 150 crores-INR 200 crores for the IEX regulatory operations also.
All right, sir. That's it from my side. Wish you all the best. Thank you.
Thank you. Bye.
Thank you. The next question is from the line of Nikhil Nigania from AllianceBernstein. Please go ahead.
Hi. Hi, sir. Thanks for taking my question. My first question is regarding power supply. As you mentioned, supply has been less than the demand in the exchange in the first quarter. Going forward, if you see most of the power plants coming up are either on the thermal side, they are either NTPC state government plants, or on the private side, they are renewable power plants, which are typically locked in PPAs. Given that, how do you see the exchange sustaining strong volume growth, going forward, given the supply being locked in PPAs, future supply, sir?
Yeah. See, on exchange platform, there are two type of sellers. One is distribution company themselves sell power because they have surplus on real-time basis depending on the demand and supply position. There are cases when they have PPAs capacities far in excess of their demand. If the exchange clearing price is reasonable, they sell power on exchange platform. In fact, last year, the sale by distribution company was more than 50%. Then we have generating companies which sell power. On the generation side also, we have almost about 10,000 kind of MW capacity, which is still in the merchant route available. Earlier, even imported coal-based power plants were also participating because imported coal prices were lower. That is another 10,000 MW capacity. Capacity-wise, I don't see any challenge.
Only problem is now e-auction rates have increased and imported coal prices have increased. That is why generating companies selling power at high price and prices, clearing prices are high. That is why the clearing volume is also slightly lower.
Got it, sir. My second question is on the competitive landscape. This question came up earlier regarding transaction charges on the exchange from the competition. On this, there was 1 filing by the Hindustan Power Exchange to CERC requesting permission to give volume link discounts in transaction charges. Please excuse my understanding. What I could see is even IEX had filed a request for liberty to charge anything up to two paisa on the platform. How do you see this evolving and going forward if PTC were to give volume link discount to its customers?
You said the PTC start giving volume discount?
PTC, IEX, Hindustan Power Exchange. Yeah.
PTC exchange. Okay. That is a Hindustan Power Exchange.
Yeah.
I think we should correct that. That is not PTC exchange. That is exchange which is promoted by BSE, PTC and ICICI.
Sure.
PTC is not trading there because PTC cannot trade there as per the regulations. Anyhow, coming back to your question. If they are a new exchange, they are giving promotional discounts. I don't know how long they will continue. As per the market reports, I understand they intend to give that for first 21 days, and after that for three months, maybe some further discounts. We don't want to get into this. We'll continue to maintain our transaction fees what we have been charging. I think the values which we provide to the participants, we'll continue to work on that, and I'm sure that will help us in retaining our market share.
Got it, sir. Understood. I think that's all from my side. Thank you.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Hi, sir. Thank you for taking my question. Firstly, can you talk about the derivative segment? When should we expect that? Would it be once we get substantial volume on long duration contracts, or we will begin it without that?
Derivative contracts will be launched by the commodity exchanges.
Yeah, yeah. Since we are partners, so we would have some expectation as to when it would be launched, right?
I mean, there is a joint working group. The joint working group have to approve that contract because, you know, we have a spot market in electricity, so that contract should not have any adverse impact on the spot market. Particularly during this kind of turbulent condition. I think, for the time being, that product has not been approved so far. Then, maybe in the next two, three months we may see approval of that. We may see derivatives in the electricity market, and that should help also some volume in the long duration contracts.
Good.
That will provide some visibility to the market participants.
Right. Secondly, on the overall pricing thing, will it be possible for you to share, you know, what kind of, transaction fee, Hindustan Power Exchange is charging currently?
On? For what?
What kind of transaction fee are you charging on electricity?
Mr. Aggarwal, can you please repeat your question?
Yeah. My question was, would it be possible for you to share what kind of transaction fee, the lower transaction fee that Hindustan Power Exchange is charging currently?
I understand they have issued a circular, and my colleague Mr. Rohit Bajaj will respond to this.
Their transaction fee is same.
Okay.
They have approval to charge two paisa on either side. They have come out with a promotional scheme wherein they are saying for first 21 days they are giving complete waiver, which is going to end-
Complete waiver?
Because they started on sixth. Yeah, 21 days it is complete waiver. Then for next one or two months they are giving some 10%, 20% sort of a discount on the transaction fee. This is what we understand.
Okay. For the first 21 days there is no transaction fee, and then for next 1, 2 months you're saying 20% discount.
Something like that. 10%-20% off discount over transaction fee. Yeah.
Right. Sir, historically based on, you know, PXIL was there. What kind of effect we have seen this play out, you know, lower transaction fee. Does that attract volumes like historically based on if PXIL would have given such kind of discount historically, have you seen that attracting volumes?
No. We have, in fact, other exchange has also adopted these practices in the past.
Right.
They have restarted their Day-Ahead Market multiple times.
Right
We have been maintaining very good, very decent market share. We hope that the kind of value that we are providing to our customers, the kind of liquidity we have, kind of participant base we have, kind of robust pricing that we have, competitive pricing. I think these are the elements which are more important than these small discounts that other exchanges are considering. In the past also, they could not succeed because of this. Going forward also, we are hopeful that we would be able to maintain our market share and won't have to cut down on the transaction fee.
Right. Got it. Got it. That was all, sir. Thank you.
Thank you.
Thank you.
The next question is from the line of Bharanidhar Vijayakumar from Spark Capital. Please go ahead.
Yeah. Good evening. Am I audible?
Yes.
Yeah. This is Bharanidhar Vijayakumar. My first question is on the market share you had mentioned, 85% in the first quarter and 89% in the month of July. I presume it is in the TAM market. Am I right, sir?
No, our share is almost about 85% in the first quarter. It is for all products taken together.
Absolutely.
We have electricity market consisting of DAM, GDAM, RTM, TAM, GTAM, everything taken together. That's electricity market, and you can't talk about one particular product.
Okay. Sure. In TAM you had mentioned the new entrants had garnered around 17%.
Yes. That is on the DAC. In TAM also there are multiple products like intra day ahead contingency, daily contracts, weekly contracts. They have only launched day ahead contingency market. In that they have 17% market share.
Coming to our sell bids in 1QFY23, can you share the proportion of sell bids from DISCOMs and GENCOs separately for this quarter and the same quarter last year?
For DISCOMs, the sell bids are about 55%. From DISCOMs, it is about 56% and from generator about 44%.
This was last year.
This year from DISCOMs it is 46% and from generators it is 54%, because there was a high demand on DISCOMs.
Yeah. Yeah. Obviously the supply situation was tight, so DISCOMs, you know, did not have surplus power. Okay. On the buy side, what is the percentage of open access, sir?
Open access volumes have been reduced significantly. Open access volume is just about 4% now. 4% which is the industrial consumers, and then another 6% by the captive industries like Vedanta, ArcelorMittal and BALCO like that. You can say total about 10%.
Okay. This is obviously because the prices have increased.
Yeah.
Okay. Yeah. One final question.
Mr. Bharani, I would request you to join the queue again because there are many participants who are waiting for their turn. I'm so sorry.
Yeah, please continue with this.
Ladies and gentlemen, in order to ensure that the management will be able to answer questions from the participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Ankur Agrawal from PhillipCapital. Please go ahead.
Yeah, hi. Good afternoon, sir. Thank you for the opportunity. Just wanted to check about the sell side liquidity issues that you mentioned during the quarter. If you can share some developments compared to the previous quarters, and what was the situation during this quarter, and how do we see it evolving? Because as I understand, when coal availability issues were there also earlier, and now probably going forward, we could probably see a continued availability issues there. How do you see the situation over the next couple of quarters panning out?
Situation is continuing. Only thing is the clearing price have reduced slightly. Because of monsoon the demand has reduced, so clearing price has come down. But on sell side, still the price being quoted by the generators is high because the purchase cost for the coal is quite high. When they buy coal at a e-auction price, the variable cost is itself about INR 5 plus for them. That is why on the sell side we are seeing still challenge.
These are mostly the imported coal-based plants or?
No, no. These are all domestic coal-based plants. Imported coal-based plants, variable cost is INR 8 plus 5.
Okay. Over the next quarter, we do see some volume impact coming because of that.
So the production of coal has improved. It has increased. Coal stock position also has improved now. Maybe, you know, most of the states and generating companies are keeping coal to meet the demand of the month of, you know, September, October are two critical months. Thereafter, I am 100% sure that the supply situation will improve and you will see good liquidity on exchange platform also.
Okay. Sir, second question was on the employee expenses. On a sequential basis, we saw a significant decline. Is there any particular reason for that or is there any dynamic that you would like to share on that? Thank you.
Because if you look at in comparison to the June 30, 2022, FY 2022 versus FY 2023 on year-on-year basis, there are two factors which are declining. One is because the last year numbers included the IGX numbers. Now IGX numbers are not consolidated on the balance sheet basis being associate company. So around INR 1.5 crores impact is that only. And second, because there was some structural change into the CTC structure, so some impact was there during the June quarter last year. And overall this year, because of the few attritions, so the cost was lower. So these are the impact on year-on-year basis. If you look at the quarter-to-quarter, we see the decline because there was a one-time expenses because of the variable pay adjustment because of the significant higher volume during the last year.
That time one time cost was booked during the March quarter.
Okay. Thank you, sir.
Thank you. The next question is from the line of Lavanya from UBS. Please go ahead.
Hi. Thanks for the opportunity. Sir, I just wanted to know your opinion on implementation of market coupling and MBED. Do you see any potential implementation of market coupling without MBED happening?
I haven't heard this topic in the market from the last seven, eight months, I think.
Okay.
This story is over. Nobody's talking about it now.
Okay. Both MBED and market coupling, right?
You see, market coupling makes sense only when MBED is implemented.
Right.
That is how the discussion paper of the Government of India, which was issued to CERC, also mentioned that the first phase of MBED, where the generating stations of the CPSUs were covered, that was without market coupling. Based on the experience of phase one implementation, if they want to extend it to the states also, then maybe market coupling can be considered. Even phase one itself is difficult to implement. You know, under the kind of situation which took place in the month of March, April, May.
Mm-hmm.
World over, energy markets are under review. Australia, they suspended the energy market operations for two weeks. UK, they are looking at the market design now. In India, our situation was much better, mainly because we had almost about 85% of the demand through the PPA. There was no abnormal increase in the costs. I think our market model is, from that point of view, working very well. We have to slowly increase the liquidity in the short-term market so that market participants also get used to that.
Got it. One more thing on long-duration contracts. There is a difference in price discovery of long-duration contracts. Can you just help me understand how is it different from our traditional previous term-ahead price discovery?
In the Term-Ahead, we had matching contracts also and open auction also.
Mm-hmm.
Now in the Term-Ahead Market, the matching option has been discontinued by CERC, so it is going to be only open auction. Another contract is now reverse auction. Reverse auction, the way the price used to get discovered on the DEEP platform, the same mechanism is also now being approved for excess generation for long duration contracts.
Okay. Thank you. If I may squeeze in last question, what is the open access users volume contribution previously, I mean, volume contribution previously, and how is it. Now it is around 4% is what you highlighted. How was it before when situations were normal?
I think it was about 11%, last year during the first quarter, 12%.
Oh, okay. Captive?
Captive is around at 4%-5%. See, captive come to the market because if they are not getting coal, then they come to the market. Last year, the coal supply situation was not bad, so captive contribution was less.
Got it. Thank you so much, sir.
Thank you. The next question is from the line of Sri Karthik Velamakanni from Investec. Please go ahead.
Hi, sir. A quick question. Can you tell us our market share in the DAM and RTM segment for the quarter? Thank you.
See, in the RTM segment, we have practically 100% market share in the RTM. In the DAM, you can say it is 99%. Yes, 99% of the DAM.
Also, sir, quick one on the stakeholder stance on MBED. If you could help us understand where does NTPC, the Government of India and CERC stand with respect to how they're thinking about the implementation? That's all. Thank you.
I told you from last one year, I have not been hearing anything about MBED. There are many issues involved in implementation of MBED. First thing is the consent of the states. What I understand that most of the states are not in favor of MBED. Because, you know, at present it is the state who has to arrange supply of power to the consumers of the state. Under the MBED, it becomes a central, centralized system. States will have no control. Under this kind of situations, there will be many states who have supplied power, but under MBED, maybe they will not be able to supply that kind of reliable power, because their share will be taken by somebody else. As of now, there is no discussion going on on MBED.
I don't think it will get implemented.
Thank you.
Yeah. Anything else?
Thank you. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.
Hi, sir. Sir, on the slide 35, you have mentioned about the late payment surcharge rules where, before 10 A.M., by 10 A.M. they have to schedule. What's holding it back? I mean, the rules are already notified. What steps are required for this to get implemented now?
The scheduling of power happens as per the CERC regulations only. Rules issued by Government of India have been considered by CERC, and in the draft grid code, they have included this provision that distribution companies shall give their drawal schedule by 9:30.
Okay. Once the draft code is confirmed, only then these rules will be.
Yes.
-enforceable.
Yeah. You are right.
Oh, okay. Got it. Sir, okay. Any sense this is in the draft stage right now. After that is the public hearing, and then the final regulations will come.
Yes.
Is that?
Yes.
Okay. Sir, the second question is on the LDC market design. You mentioned currently, I believe for TAM market, you are following the open auction mechanism, and you are also planning to implement the reverse auction as per CERC. Sir, currently the DAM market is what design?
See, for the TAM market, we have already implemented the reverse auction.
Okay.
We have also carried out a couple of reverse auctions. For the DAM market, it is a double-sided closed auction.
Sir, isn't the regulator allowing a double-sided closed auction in LDC market?
Double-sided closed auction is effective in a market where there is a very high liquidity. In case of our DAM market, we have almost about 700-800 participants participating, where you have more than 200 generator sell side participants and 600 buy side participants. There is effective price discovery which can take place. If you adopt this kind of a model in a long-duration contract where the participants are two,three, then price discovery will not happen. That is why open auction is normally adopted for that kind of a situation.
Perfect.
Open auction.
Got it, sir. Perfect. That's very helpful, sir. Thank you so much.
Thank you. The next question is from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.
Good afternoon, and thank you very much. Can you share some thoughts on how your gas exchange is performing and how you see the gas trading volumes pick up this year, especially given that gas prices have gone up sharply compared to last year. How do you see that impacting volume, and how do you see the prospects for the volume, say, over the next two, three years?
See, under these difficult conditions, the gas exchange, I will say, that has done very well. Their volume during the last year has increased every quarter. They did almost about 1 crore 20 lakh MMBtu. We did a turnaround in the first year of operation itself. That was a wonderful thing, I must say. Now also, you know the gas market conditions. In spite of very high price of $30-$35, in spite of the fact that LNG import is not happening in that big way, still, they are doing decent volume. In the first quarter, we have made a profit of INR 1.15 crore after meeting all the expenses. Then July is also so far they have done good volume.
I'm sure there is good opportunity in the gas exchange. I personally believe that, if the gas prices come down to $6-$7, which used to remain earlier, then the opportunity for the gas exchange is as big as what we are doing in the electricity exchange.
Oh, that's very interesting. If you were to, you know, extend this to the energy saving certificates and, you know, India's progress towards, you know, green transition, how do you see your power exchange and the gas exchange together, you know, playing an active role in terms of helping both the generators as well as the users of energy use trading to, you know, meet their renewable energy requirements and also, you know, develop an offset mechanism where they are falling short in terms of reducing the carbon emission objectives. Is there any thought process on that? Can you give us some, you know, thoughts on that?
Can you repeat your question and tell me what exactly you want to know about that?
Yeah. In terms of your own, you know, perspective on any of the role Indian Energy Exchange can play, both in the power trading as well as gas trading, as we move towards green transition. You're talking about Energy Saving Certificates in one of your slides. In terms of the longer term role you can play in the country's, you know, transition towards green energy, how do you
Okay.
Yeah.
I'll tell you.
Okay.
Number one, Government of India has now I think a target of almost about adding 500 GW of renewable energy by 2030. A lot of work is happening in that area. We are also interacting with many IPPs, many developers for setting up renewable generation capacities through the market mechanism, and we are getting a very good response from them. That is one area. Second area is that even this carbon market is also getting a lot of traction now. Renewable energy certificates and energy saving certificates, which are now being traded, government is thinking of stopping transactions of RECs and ESCerts, and then they will create a carbon market, where these certificates will be converted into carbon credits, and there is going to be a mandatory carbon market for that.
In fact, Bureau of Energy Efficiency is working on that, and we are closely in discussion with the BEE on these issues. As and when the opportunity is there to launch that carbon market, we will. We are working on that too, and we will launch that. We'll be the first to start that market.
Interesting. Thank you very much, and all the best.
Thank you. The next question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Hello.
Hello. Yeah, Mohit.
Can you hear me audible? Yes, sir. One clarification, sir. Do you think in carbon markets, IEX or exchanges will have exclusive role to play, or do you think it'll open to the OTC markets also?
Can't say. I mean, it depends on what kind of market design is Government adopting. It all depends on that.
Okay, sir. When do you think the clarity will emerge on this carbon trading market, sir? Why in your opinion?
By this financial year-end, something should happen because Government is working on formulating rule of the game, and BEE also has appointed a consultant now to work out the market design.
Understood, sir. Thank you, sir. Thank you and all the best, sir. Thank you.
Thank you. The next question is from the line of Ravi Naredi from Naredi Investment. Please go ahead.
Thank you very much to give me the opportunity. Sir, when Exchange will have new MD or chairman as both posts held by same person, as new exchanges are coming, so aggressive role of MD now needs. That is my question. I have total regard for MD at present.
I couldn't get your question.
Sir, Exchange have CMD, one person only.
Yeah, yeah.
I would like to know when the chairman or MD will be separate as new exchanges are coming and new aggression is needed in the exchange of IEX.
Okay. I mean, your suggestion is that we should separate the chairman and managing director position.
Yes. Previously it was separate only.
Yes.
When the MD resigned, you have taken over as a Chairman cum MD. That is my point.
Yeah. See, I'm sure you are aware why it happened, because after my first term of the MD, I was continuing as a non-executive chairman of the company.
Right.
To ensure continuity of the business, I took over as the CMD of the company.
Right. Right.
We are working on the succession planning, and company has a plan for the new MD also.
Okay.
Yeah.
This new exchange is coming. What strategy we are making to compete with them?
As I told you, as an Exchange, we have to provide value to our customers.
Right.
We have to innovate, we have to launch new products, we have to understand the requirement of the customers and design the products to meet their requirements.
Right.
We have to continuously interact with them, understand their problems, suggest them, tell them how Exchange can provide benefit to them. That is something which we are doing. If you look at the developments which have taken place in the last two years, the kind of new products which we have launched on the Exchange market.
Right.
Our customer-centric initiatives which we have done in the last two years.
Right.
Technology platform, the new developments which we have done on this platform. I'm sure my colleague, Mr. Amit Kumar, is here, and I'll request him to brief about some of the initiatives which we have taken.
Okay. Okay.
Yeah, thank you. We have launched multiple customer initiatives to improve the experience that customers get from our platform. Some of the key ones have been automated bidding through application programming interface. Web-based platform. Financial reconciliation through web-based systems. Auto carry forward of bids from one segment to another so that it reduces the manual effort to transfer bids from one segment to another. These are some of the important customer-centric initiatives that we have implemented and many more we are working upon to ensure that customers experience with our platform continuously improves and they get best-in-class experience with our platform.
Okay. Thank you.
Thank you. The next question is from the line of Ankush Agrawal from Surge Capital. Please go ahead.
Hi, sir. Thank you for the opportunity again. Can you talk little bit about in terms of, you know, the pricing that we're looking for the gross bidding contracts? We've always maintained that, there will be some discounts we would be offering. Can you talk a little bit about that? Also, you know, with this, discounted pricing that we will, do in the gross bidding, do you think, that will open up, you know, situations wherein, you know, the end, clients of IEX would be, looking for the same kind of pricing in the other segments as well?
Yeah. Yes, we are. In fact, we have mentioned in the past that when the gross bidding thing will be introduced, we might have a different pricing for that. We have not yet decided because it is still little away from implementation. Approval is awaited from regulator. Once we have that approval, we will do. Just to answer your second question, where you have raised concern, if we are going to give discounted price in gross bidding, then in the retail electricity segment also there could be pressure on the pricing. I don't think that will happen because when we are asking anybody, in fact, when we are convincing any distribution company to go for gross bidding, we are asking him to put buy as well as sell on our platform. Today, what they are doing is, they are placing their bid on net basis.
How much?
Yes.
Deficit they have or how much surplus they have, they place bid only for that. When we are requesting them for gross bidding, then they are placing their sell also and corresponding buy also they are placing at our platform. We cannot treat both the things at the same level. We have to differentiate, and we don't think that it can cause any impact on our pricing, on the regular pricing, on the different electricity segments where we are trading now.
The thought process that I had over here was that this is on the gross bidding. It is basically, you know, volume-based discount. There's someone who is taking much more volume, adding to liquidity, so we'll be providing discount.
The thought over here is, in the regular market, there's some clients, so something like NTPC or all that, who might have a very large volumes, something like PTC, you know, who brings very decent volumes to our exchange. In that case, you know, maybe they might also be of the thought, you know, since we are also bringing a lot of volume, shouldn't we also qualify for, you know, some kind of discount?
We are not talking about anything volume-based discount. To give you one example, see today, if a state has 25,000 MW PPAs
Mm-hmm.
The demand is 20,000 MW.
Okay.
Out of the 25,000 MW, 22,000 MW capacity is available. What we are saying is, if your base load demand is 18,000 MW, for rest of the 4,000 MW sell you put on the exchange platform and 2,000 MW buy also you put on the exchange platform. Exchange will do the optimization for you.
Okay.
Out of that in a particular time block, suppose he has sold 3,000 MW and bought 2,000 MW, that means on net basis he has sold 1,000 MW.
Correct.
For this 2000 MW which has been sold by him and bought by him, the price will be different.
Yes.
For this 1,000 MW which has been sold by him, the price will be normal price which we are charging. It will be basically based on this concept. I don't think this has any linkage with the volume-based discount.
All right. That clarifies it. Thank you. That's all.
Thank you. The next question is from the line of Ankur Agrawal from PhillipCapital. Please go ahead.
Yeah, hello sir. Thank you for the opportunity once again. I just wanted to come back to the sell-side liquidity issue. I mean, right now we are seeing some structural increase in the electricity demand in India in terms of the peak capacity, peak demand that we have seen, jumping over 210 GW. Do you see any. I mean, there's no thermal, new thermal capacity going to come online. I mean, limited thermal capacity going to come online over the next, let's say five to 10 years, and we are focusing more on the renewables. Are you seeing any structural issues with the sell-side liquidity that will be, that we foresee, going into the future? And how do you see that panning out, I mean, with limited thermal capacity getting installed?
This year there were few challenges, partly because of non-availability of coal and very high price of imported coal. It was felt that whatever coal-based capacity we have, maybe that may not be enough to meet the peak load demand, going forward. What I understand that some of the new projects are being taken up now. Very recently, I read in the newspaper NTPC has awarded 1,320 MW new plants, and they are working on couple of more plants.
I will just add here. See the PLF that we have recorded in first quarter is about 59%, and this is a 10 year high PLF. We have never seen this kind of PLF in the past.
Yeah.
Yes. Last year this number was only 54%. Still a lot of capacity which is available which will be utilized going forward as the demand will increase. If you refer to any of the system operator report, NLDC report, you will find that any given day more than 50,000 MW capacity is non-operational. It is not available because of various reasons. We feel that there is some capacity still available. There is lot more capacity which is going to come. More than 30,000 MW capacity will get commissioned. More than 10,000 MW is merchant capacity which is available in the country where the utilization level is very, very low. These plants are not operating because the prices most of the time are not conducive.
What we feel that as price pressure will be there, prices will start to rise more and more of this capacity utilization will start and it will increase. Yes, going forward three, four years down the line, two, three years down the line, we might see some shortfall depending on how our demand will increase. In the near term, near to medium term, we really do not see any major shortfall in the demand. We have sufficient capacity available as of now.
Okay.
The present crisis that we have seen, it is solely, mostly because of coal. The coal prices were high, imported coal prices were high. Many of them were not buying, not able to buy at that price. Second thing was certainty is also not there. Because when you import coal, it takes about one month, by the time you start getting coal, and you are not very sure whether after one month also the same price would continue. I think these are some of the factors which has caused this disruption. The government measures where the coal production has increased now, the supply to the IPPs have also increased now. We are hopeful that in times to come, the situation would be much better and supply side constraints will be eased out.
Yes, sir. You are absolutely right about the supply side constraints. The demand side also we have seen a structural shift, I mean, because we earlier used to be having a peak demand of somewhere around 180 GW-185 GW, and now that has jumped to over 200 GW. Of course, I mean, the summer heat wave had something to do with that. We are also seeing some increase in the demand, so peak demand. I think the system slack that might be available could be going down. Is that a fair way to look at it also?
When the demand was 211 GW, even at that time also, we had some capacity which was not operating.
Right.
I don't as of now, for the next couple of years, I don't see any challenge in that. As Mr. Rohit Bajaj mentioned that there is already some capacity which is under construction, which will get commissioned, and maybe some new capacity will be taken up. Government and CEA, they are all working on all these things.
Great. Thank you, sir.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sumit Kishore from Axis Capital Limited for closing comments.
Thanks a lot to Goel, sir, the whole management team at IEX for patiently answering all the questions. Sir, if you have any closing remarks at this point.
I would like to thank each one of you for being part of today's call. During this quarter, we have seen lot of initiatives announced by the government and regulator towards creating a favorable policy and regulatory environment and to transform the energy market. We remain committed in doing our bit for building a sustainable and efficient energy future in India. Thank you, friends, and I look forward to our next interaction with you. Till then, wish you all good health, and thank you.
On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.