Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q2 FY 2024 results conference call, hosted by Axis Capital Limited. As a reminder, all the 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. Thank you, and over to you, sir.
Good afternoon, everyone. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q2 FY 2024 results conference call. We have with us the management team of IEX, represented by Mr. S.N. Goel, Chairman and Managing Director, Mr. Vineet Harlalka, Chief Financial Officer, Mr. Rohit Bajaj, Executive Director, Business Development, Strategy and Regulatory Affairs, and Mr. Aparna Garg, Head, Investor Relations and Corporate Communications. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.
Good afternoon, friends. I welcome you all to the IEX earnings call for quarter two of FY 2024. With me today on this call are Mr. Rohit Bajaj, our Executive Director, Business Development, Strategy and Regulatory Affairs; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations and New Product Development; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Abhishek Wali. Friends, the Indian economy continues to be the world's fastest growing major economy. The recent success of India's G20 presidency and the G20 New Delhi Leaders' Declaration has further raised India's standing as a global leader. Some noteworthy achievements during the India G20 presidency included the creation of a Global Biofuel Alliance, which aims to share knowledge, technology, and finance to develop and introduce cleaner fuels, and the finalization of India-Middle East-Europe Economic Corridor agreement.
The summit demonstrated to the world that India is not only emerging as a world leader, but also becoming a voice of the Global South to achieve the goal of inclusive development and tackle challenges of climate change through global cooperation. Moving on, the Indian economy is sustaining its growth momentum gathered over the past two years. In the face of global headwinds, India's GDP for first quarter FY 2024 grew at a rate of 7.8%, the highest among major economies. This growth momentum has been on the back of an expanding service sector, private consumption, and increased capital expenditure. At 57.5% in September 2023, India's manufacturing PMI remained expansionary for the 27th straight month. The quarter two FY 2024 print came in at 57.9%, compared with 55.9% in quarter two of last fiscal.
Reflecting the country's healthy demand environment, the service PMI cooled off slightly from a 13-year high of 62.3% in July to 61.0% in September, printing at quarter two FY 2024 number of 61.1%, compared with 55.7% same period last year. In this backdrop, the World Bank estimate of India's economic activity for the current financial year is on track to grow at a rate of 6.3%. Coming to power sector update. On the power sector front, electricity consumption in India for quarter two FY 2024 stood at 435.8 billion, a growth of 13% on year-on-year basis. Power demand was higher than anticipated for the monsoon months, with peak power demand touching nearly 240 GW in September 2023.
States like Maharashtra, Uttar Pradesh, Gujarat, Madhya Pradesh, Karnataka, and Tamil Nadu witnessed soaring demand this quarter. In the previous quarter, cooler ambient temperatures had kept demand for power lower than anticipated. By the end of quarter two of FY 2024, India's total installed capacity stood at 425 GW, out of which 179 GW was contributed by renewables. India remains on track to attain its target of achieving 50% of energy generation from non-fossil fuel sources by 2030. On the fuel side, India's coal production increased by a robust 16.2% on year-on-year basis to reach 205 billion tons in quarter two of FY 2024. For the period April to September, coal production was up by 12% on year-on-year basis to 428 million tons.
Coal dispatches to the power sector increased by nearly 11% year-on-year basis during quarter two FY 2024 to 181 million tons. E-auction coal premium has also continued to decline since the beginning of this financial year. The premium declined to about 100% in September 2023, from 276% in September 2022, and a peak of 425% in May 2022. The average imported coal price of 4200 gas coal also continued to be $56 per ton, lower by 35% than the same quarter of last fiscal. Imported gas price has reduced by nearly 60% year-on-year basis to $16/MMBtu. Average coal inventory stood at nearly 13 days during quarter two of FY 2024, higher than 11 days, which was there in the last quarter two of last fiscal.
The improved supply side scenario resulted in increased sales book liquidity, but an unexpected surge in power demand has kept the prices higher on the exchange. The average Market Clearing Price in the DAM market during quarter two of this year was INR 5.8 per unit, compared with INR 5.4 per unit in the same quarter last year, higher by nearly 9% over the last year, and 9% over the first quarter of this year. With supply side volumes continuing to improve and robust power demands, volume on exchange are expected to grow going forward as well. Regulatory and policy initiatives. Let us now talk about the noteworthy regulatory updates and policy initiatives introduced by the government in quarter two of 2024. The CERC has notified Indian Electricity Grid Code, the sharing of Interstate Transmission Charges regulation, and long-awaited GNA regulations.
The salient feature of these regulations are: the long-standing anomaly in transmission charge between multi and bilateral transmission has been corrected, which will facilitate movement of volume from bilateral market back to DAM market, since sellers will no longer be required to pay interstate transmission charges. Under IEGC, generators with long-term PPA would also be able to sell their surplus power, which is not taken by the DISCOMs in the day-ahead market without consent of buyers. To improve availability of selling the market, on 5th September 2023, government has directed generators with PPA to offer in exchange the URS power under the day-ahead market also. Generators will now be allowed to meet their commitment in case of unit shutdown or force outage by purchasing power through the exchange.
Buyers will be able to use their GNA optimally, as transmission charges in collective transactions will be applicable only for the buy quantum in excess of their GNA, which will facilitate buy on the exchange as their working capital requirement will be reduced for participating in DAM and RTM. Interstate transmission charges and losses will only be applicable on buyers, which will provide level playing field for all generators irrespective of their location, and will facilitate competitive competition on the exchange platform. The overall philosophy of transmission planning has changed. Efforts are made to enable adequate transmission capacity addition, which will secure a congestion-free transmission system and reduce volume loss due to congestion. These regulations will also facilitate energy transition in a big way by providing flexibility to thermal generators to replace their brown power with green power.
Introduction of RE aggregators, and an activity to aggregate 50 MW RE capacity. All these will deepen green market on the exchange platform in future. In other updates, India has issued the first amendment to the procedure for cross-border trade in electricity. The amendment allows for cross-border trade of power through the Real-Time Market operated by the power exchanges, which is expected to increase cross-border volumes on the exchange. In addition, final guidelines for Resource Adequacy planning were issued by Ministry of Power in consultation with Central Electricity Authority, to enable adequate generating capacity to meet projected demand in the country. Resource Adequacy creates the basis for capacity contracting and can lead to opportunity for IEX to introduce capacity contracts, such as a market. Such a market will also help in building sell-side liquidity.
The Ministry of Power issued guidelines for tariff-based competitive bidding process for procurement of firm RE power, wherein developers have been provided flexibility to supply up to 5% of the contracted power by purchasing from the exchange. Guidelines on dispatchable RE power to energy storage. These guidelines now allow generators to supply excess power from the RE plant to any third party or a power exchange without requirement of NOC from the buyer. In June this financial year, the Ministry of Power shared a letter with CERC, directing it to look into the market coupling for the Indian power sector. The CERC subsequently released a staff paper on market coupling in August. A detailed reading of the staff paper explains the advantages, disadvantages, and execution challenges of market coupling. The commission has yet to take any view on this, view on implementation of market coupling.
We have also submitted our suggestions explaining why market coupling should not be implemented. We do believe that current market operations of IEX will continue undisturbed. In a strategic move to promote a circular economy and one that aligns with IEX commitment to sustainability and decarbonization, and in harmony with India's net zero commitments, IEX acquired a 10% stake in Enviro Enablers India Private Limited. This deal will augment the value offerings of EIIPL's material waste platform, which brings together all stakeholders in the waste sector. Material waste platform holds significant potential to enhance the scientific processing of waste across India, and establish a circular economy for a wide range of waste materials. I'm happy to inform that we have introduced, we have launched the IEX Academy this year in June to create a pool of skilled professionals for capacity building in the power market.
In a span of less than three months, we have seen nearly 250 enrollments across programs. In line with our aim to provide seamless experience to our customers, the last quarter witnessed onboarding of members, onboarding of members to the grid-based trading platform and to the automated bidding API for DAM and RTM. Recently, we also launched High Price Term Ahead M arket. With this, we will be able to facilitate important coal-based and gas-based power plants to be able to offer high-cost power for up to 90 days. This will ensure there is enough sales and liquidity available during crisis periods. The product would also provide seller revenues to battery energy storage systems, power plant on the exchange.
In terms of business performance, IEX achieved 26.5 billion units of traded volume across all segments during quarter two of FY 2024, registering 15% on year-on-year basis growth. In electricity segment particularly, the growth was about 17%. IGX generated total volume of 195 lakh MMBtu during quarter two of FY 2024, a jump of 262% over the same quarter last fiscal. The volume jump was largely on the back of increased domestic gas volume and decreased gas prices compared with spot prices. The profitability of IGX for quarter two, FY 2024 increased to INR 7.85 crores from INR 2.42 crores in the same period last fiscal, making an increase of about 224%. Let me now summarize the financial performance of the company in this quarter.
On a consolidated basis, revenue for quarter two of FY 2024 increased 16.9% on year-on-year basis to INR 133 crore from INR 113.8 crore in last year. Consolidated PAT during the quarter came at INR 86.5 crore, higher by 21.5% on year-on-year basis, from INR 71.2 crore in quarter two of FY 2023. With improving coal production, inventory, and easing coal prices, we expect rationalization of power prices on the exchange and volumes to improve in the coming months. Based on clear draft plan, power consumption in the country should increase by more than 100 billion units annually till 2030, and this presents an opportunity for IEX to tap into incremental volume and value. IEX will continue to introduce innovative products and market segments to strengthen its existing product portfolio.
We have been exploring options to extend the term market from price up to 90 days, from 90 days to one year, to provide better optimization opportunities for these firms. We will continue to work with ministry, regulators, system operators, and our partners and clients, and all other stakeholders to accelerate India's sustainable energy management. Thank you, friends, and now we can have question and answers.
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 touch-tone 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 Damodaran, from Acuitas Capital Advisors. Please go ahead.
Yeah, thank you for the opportunity. Three questions on my side. So one is, you spoke about GNA getting implemented in October, but if I look at the share of the Day-Ahead Contingency Market, that has already come down sharply in September. So what is the reason for that? And given that GNA is being implemented now, where do you see the share stabilizing? So on a sustainable basis. So that was one. Then if you look at the mix of volumes, Term-Ahead Market has seen a very sharp growth. So what is the reason for that in the last quarter? So that is one question.
If you look at, I mean, CERC had, I think, given a deadline for October fifteenth to give all the comments and solutions by all market participants. So now, what are the next steps that the CERC will take to arrive at a decision on Market Coupling? So that's one question. And the last one was, I mean, if I look at the share of bilateral trades in overall volumes, that has also gone up over the last three or four months. I mean, the data is there till July on the CERC website. So, if you can throw some light as to what's the reason behind that. So these are my questions. Thanks.
Yeah. First thing, you asked about GNA. Yeah, GNA has been implemented from first of October, and, in the first two, three days, we saw very positive development after implementation of that GNA. So clearly, volume had increased. But, subsequently, in the month of October, you can say right from sixth of October to fifteenth of October, the demand was very high in the country, and exchange clearing price was almost INR 10 throughout the day. And when you know you have the chance of price, then buyers, they try to get into bilateral market to ensure availability of power, so they contract in the bilateral market or BH market. So that, shifting of, I mean, the impact of GNA was not really positive during those days, but then subsequently, when the prices started going down, the supply side image improved.
We are again now seeing that a good volume is coming in the day-ahead market of exchanges. Our overall volume growth for the month of October, because of GNA implications, has been almost—in electricity, has been almost about 20% now. So that's a positive development, and I'm sure in the coming months, that growth will be better. Your second question was that our market share in the second quarter was lower. See, the reason was particularly the second quarter, as I told you, the demand had increased. Demand increased by almost 13%, and because of the high demand increase, many of the distribution companies, they contracted power through the bilateral contracts. And, in fact, bilateral contracts volume increased by almost about 25% during this quarter.
So substantial volume were fixed to the bilateral contracts, because of which the DAM volumes reduced and our market share was lower. But I'm sure in the coming quarter, you will see good increase in the market share. The coupling, yes, CERC had issued a discussion paper. It was issued on 21st of August, and I'm sure, you must have gone through the discussion paper, and the reading of the discussion paper indicates that CERC has not taken any view. They are neutral in the paper. They have listed out advantages, whatever it can achieve. But the disadvantages and the challenges in the implementation of coupling are more than, and they have highlighted all those things. What we understand is that participants have submitted their comment on that, and CERC is just compiling their comments. They have not taken any view on that.
Bilateral volumes, yes, they have increased, as, as I told you, because the demand for power was very high and many distribution companies got into a bilateral contract. So now, I think, demand has reduced slightly. It is not 5,200 million units per day, but it has come down to almost about 4,300, 4,400 million units per day. So, our clearing price is also down to almost about INR 5. So you should, we, we should see good volume in the Day-Ahead in RTM market.
Any update on, I mean, how CERC will arrive at a decision of when or how long will it take for that coupling?
It goes there. Can you repeat the question?
Yeah, sorry, sorry. Am I, am I audible now?
Yeah.
Yeah. So any update on how long will it take? I mean, this process of CERC, I mean, compiling comments and-
See, I can tell you the process part of it. Based on, I mean, they'll have to compile the comments, take a decision. Commission will have to take a decision based on the comments. They also do consultations. There is a central advisory committee of the commission. They do consultation in that also. And based on all the inputs, commission will take a view on that. If the, if the view of the commission is that we should go ahead with the coupling, then draft regulations will have to be prepared. And when they prepare the draft regulations, they will also indicate why they are going, why they intend to go ahead with coupling. The statement of reasons also will be there, and then they will invite comment on that.
After receipt of comment on that, they will then again see whether they want to go ahead with the coupling or not. If they want to go ahead with the coupling, they will issue the final regulations, and then the activity for implementation of coupling will start. So the process of finalization of regulation itself may take 1 year time, and after that, implementation of coupling is, you know, getting a software, customizing the software for the Indian conditions, putting in place the clearing and settlement mechanism. So all those things, I mean, it might take anything between 1.5-2 years' time for implementing coupling after that.
Sure. That, that's a very helpful answer. That's helpful method.
Thank you so much. The next question is from the line of Mr. Sumit Kishore from Axis Capital Limited. Please go ahead, sir.
Thank you, sir. My first question is, in relation to the long duration contracts. What is the total volume handled by IEX and LDC in the second quarter in the first half of the year? And what is the market share composition in LDCs and how much does IEX have?
Yeah, Mr. Rohit will respond.
So, in first half, total volume done in LDC is 3.6 billion units. But if we talk about specific months, it was more in September, where we did more than 1 billion units, and October, it is more than, it is about 1.9 billion. So, it started on a smaller note, and if you look back, last year, total volume done in LDC was 1.4. So as compared to 1.4, we have done in the first half itself, 3.6, and, lot of traction is there. This distribution companies are finding it very attractive to source power through LDC contracts, and we are seeing a lot of transactions are happening.
We have organized more than 300 reverse auctions in this particular segment, and wherever rates were suitable, distribution company went ahead and sold this power. So, started on a little slow, slower, but now picking up very fast.
Okay. So what would be IEX share of, in first half, you have done 3.6 billion units, how much was the total REC traded?
Total number is not as readily handy with me, but our share was close to 60% in case of LDC contracts.
Yeah.
Let's say, close to 7 billion unit was all done in the LDC contracts.
Oh. My next question is that you have been seeing a high demand environment, although there has been easing of supply side constraints, I think price discovery have been, you know, the rate of INR 6. So, and, you know, exchanges have not been able to gain market share. Market share has been towards bilateral. So, would you like, you know, like to comment on how the medium-term situation will evolve? Because India seems to be headed into a situation where we could have, you know, tight liquidity continue, or, or is that around the pursuit?
So, see, our reading is this situation that we are seeing, where there is a huge supply side constraint, this is temporary. What we have seen is, in the last three to four months, there is lot of softening in the prices, particularly coal as well as gas. And because of gas improve, there is some improvement in the liquidity. Demand increase in couple some months was more than expected. So, that has taken away whatever additional supply was brought in the market. But going forward, we expect that, some more capacity is going to get commissioned. There are projections, which says that 9,000 MW capacity will come in next five to six months. So this will give us lot of support, and renewable capacity, as you all know, continues to getting added in the system.
So whatever shortages we are seeing now, specific periods we are seeing now, will get covered eventually in coming months. And with that, situation will only improve, and we expect prices to be in a decent level. So this is our reading of the situation, and as this will happen, we expect more liquidity or more buyers will start to come on the Day-Ahead and RTM market, which is the most preferred option for any state, because there the price discovery is most, more efficient. It is most competitive market segments that are available. And we have seen historically, prices are lowest at this particular segment.
Sure. Finally, how do you see the share of overall short-term markets moving, you know, in the past couple of years? Has it been as per your original assessment? And exchanges within the mix have been falling short because of bilateral markets growing faster. So how do you think the next couple of years are likely to go for the short-term markets overall, and exchanges within the short-term market?
So if you see last five years' data, you will find that short-term market is growing, growing very fast. In fact, CAGR growth has been more than 20%. And within the short-term market, exchanges are the one which has been growing at the fastest pace. So this has been the historical trend. There are some aberrations. The point Mr. Goel explained, the point that I was sharing. Because of some uncertainty in availability, some sudden increase in the prices, there was small shift that happened within from exchange to bilateral market. We have seen that in quarter one, this shift was there.
But as the stability will come, as the situation will stabilize, which, it has already started, with increase in coal production, with increase in, more generation getting on board, we expect again the things would be aligned and, exchange would be the fastest growing segment within the short-term market. But one more point here is, since no long-term PPAs are being signed today, not earlier distribution companies were not taking, now many generators are also not interested to lock their power under long-term PPAs. So which means that going forward, there would be, this merchant capacity which is present now, will not go away. And more capacity will come in terms of distribution companies getting more power under the long-term PPA, which are going, the plants which are going to get commissioned.
So therefore, this will create more liquidity on the buy side, which will help exchange market to grow.
Thank you. Those were my questions.
Thanks.
Thank you so much. The next question is from the line of Vikas Jain from Financial Quotient. Please go ahead.
Hi, good afternoon, everyone on the call, and, many thanks for the detailed summarization of what we have done at IEX. My first question was on market coupling, but I think that has been answered very clearly by the management team. So just wanted to know about the tax leverage figures for IEX and PXIL, for the Q2, if any.
Yeah. For IGX, our profit has been about INR 7.8 crore in the second quarter, which is almost about 260% of what we did in the second quarter of last year. The volume growth in case of IGX in the second quarter was significant. ICX, we have not launched yet. So ICX, we are only doing the development activities at the moment.
Mm-hmm.
As of now, there is no revenue except for the revenue income, which is very-
When IEX operations might be expected to get commenced?
ICX, I think, will need some more time, because government is also coming out with their CCTS carbon credit trading scheme. And there are some changes that we are expecting with respect to the mandate and compliance market. So we are analyzing all that, and then we'll launch it after analyzing all these things.
Okay. Just one more clarification, sir. So this IEX would have voluntary and involuntary, both the credit market, being combined into one, right?
Voluntary compliance market will be operated by, IEX. Basically, there will be regulated market regulated by CRC. So all CRC regulated exchanges will be able to offer the compliance market of carbon credits. As far as voluntary market is concerned, there is no clarity about that. Our intention is to launch the ICX International Carbon Exchange for the voluntary market so that we are able to get the voluntary market share. But, whether that market also will be regulated or not, still the clarity is yet to come on that.
Okay. Thank you so much. I wish you all, all the best for the coming up quarter.
Thank you.
Thank you, bye. Have a good day.
Thank you. The next question is from the line of Arun Selvan from Independent Advisors Private Limited. Please go ahead. Mr. Selvam, your line is unmuted. Please proceed with your question.
Hi, can you hear me? Am I audible?
Yes. Yes, please go ahead.
Yes. Good afternoon. I just have a few questions. The first question here is regarding the market share of IEX in the different segments. I believe the slide in the PowerPoint presentation, which had all these market shares was not given this time. Could you please help with that?
Okay, what else?
Okay. The next question here is just one question about this relationship between the high-priced power and bilateral trade. So could you please help me understand what is the incentive for the parties to transact in the bilateral market when prices, you know, go to double digits on the exchange?
Yeah. Is it okay? I mean-
Yes, those are my two questions.
Anything else?
No, not as of now.
Okay. So let me tell you about the market share.
Mm-hmm.
In the Collective Transactions, which is our Day-Ahead Market and the RTM market, our market share continues to be almost about 99.9%.
Okay.
In long duration contracts, which are daily, weekly, and monthly contracts, our market share is almost about 55%. And in the day-ahead contingency market, the market share is close to 40%. So with the, with the implementation of the GNA, the DAC volumes are expected to go down, so overall market share will improve.
Has it gone down in the month of October, the total volumes of energy traded on the DAM versus-
Okay, you are right. You are right, that volumes traded in the month of October have significantly gone down with respect to September. I believe in the month of September, the average daily volume was close to 15, and it was close to 25 in the month of October.
Okay.
In the month of November, I'm sure what is happening is hardly anything, single digit DAM volumes are happening now.
Okay, okay.
And so now the second question was about bilateral transactions at SP10 markets.
Right.
In HP-DAM market, transactions will happen mainly when the crisis is there, and the coal-based power plants are not able to meet the demand. So you have to get the power from the gas-based power plants, where the cost of generation is something around INR 13-INR 15. So we have not seen much transactions in that market, because distribution companies are not willing to buy power at that high price. But when there is a crisis, very high demand, there is a tendency on the part of distribution companies to purchase power in the bilateral market, even by paying slightly more premium, so that they are assured of power supply. Because on the exchange platform, if they are purchasing power in the day-ahead, in the RTM market, then they are not very sure whether on that particular day, whether they will get the power or not.
So that is why we have seen in the past also, whenever the demand is very high, the bilateral transactions increase. And, now for the month of, you can say November, December, January, February, when the volumes or demand is likely lower with respect to the summer months, the bilateral transactions will go down.
... Okay, okay. I'm, I'm a little bit separate. You're saying that when the prices are high, the consumers are not—the DISCOMs are not willing to purchase on the exchange because there's not certainty that they will receive the electricity. Is that, is that the case?
Yeah, yeah. See, when the price is high, it means that the demand is high and supply is not commensurate with the demand.
Okay.
That is a high demand period, and during the high demand period, some of the discoms who are, who wants to ensure 24/7 power supply and who wants to purchase power at any cost, they pay premium over the market, market price and purchase power in the bilateral transactions.
No, the only question I'm wondering, sir, is, is there a material difference between the high power, the high price segment, which we've launched recently, and, and the bilateral market? Is there, is there a difference in terms of the availability of power versus or the ease of convenience, on the transaction charges? I'm trying to understand, in, in what way is the bilateral market better than the exchange market?
See, the point is, let me first clarify one thing, that on the exchange platform, we have also bilateral contracts. These contracts are for weekly, fortnightly, monthly basis for delivery of power up to three months.
Okay.
But in all these contracts, the ceiling price is INR 10.
Uh-
If somebody wants to buy power, if he is not able to get power within that, if he wants to buy gas-based power, then he will have to go to the HP- DAM market. Whereas in the bilateral transactions, even the coal-based power plant, the multi coal-based power plant, also supply power and the rate would be 3 INR, 7 INR, 8 INR, 9 INR. So bilateral transactions, there is no segregation of HP gas DAM market, high price market or the normal market.
Right, I understand. Okay, okay. That's it for now. Thank you.
Thank you. The next question is from the line of Viraj Mithani from Jupiter Financial. Please go ahead.
Yeah, good afternoon, sir. I think I'm audible?
Yes, yes. Good, good afternoon.
Yeah, so I have three question. My first question is on carbon exchange. When you talk about this international trading on the carbon exchange, what will be the benchmark we'll be using? Will it be a Paris-based benchmark or the U.S.-based? Any thoughts on that? And can you be more clear in terms of the volumes we can attract in days to come, since we have signed this 2030 Paris Accord, and world is going green? That is my first question. My second question is, suppose if the coupling is implemented, then what are our plans to, you know, mitigate that? How are we getting prepared for that? And my third question is: How are we placed against the competition? That's, that's it from my side. So thank you and over to you.
Yeah. I'll request my colleague, Mr. Amit Kumar, to respond to this question.
So on the International Carbon Exchange, as you mentioned that, we intend to operate it in the voluntary carbon market. And the way in the voluntary carbon market, the trade happens is that there are global registries which are available, like Verra, Gold Standard, which basically register projects and they certify projects for issuance of carbon credits. And those carbon credits which get issued by these global registries, Verra and Gold Standard, and there are few other registries as well, they are basically then eligible for trading in the voluntary carbon market. So basically, once we commence our operation, we will have integration with these registries so that the project developers whose projects are registered for credit issuance, they will be able to list those credits for sale on our platform.
The buyers who want to buy these carbon credits to do offsets, they will come and buy these credits from our exchange platform. That is how we basically, the voluntary carbon market operates, and that is what we intend to tap in from an international perspective.
What is the benchmark like? It will be based on certain benchmark, right? Either by the Paris or the US or India or something.
Yeah. So the registries for different projects, they have the methodologies defined. So like for project, where we have a methodology defined, the projects, let's say build a forestry project, that meets the requirements of the methodologies that are defined within Verra, they, those projects, once they apply for registration, Verra will approve those projects. So each registry for the different types of projects, because carbon credit has been a commodity. So there are different types of... Like you have nature-based carbon credit, cookstove, then you have carbon credit for renewable. So for cookstove, there is a set of methodology that each registry will define. Now, a project, for it to be accepted for approval for credit issuance, they have to be aligned with the methodology that that registry has defined.
That is how basically the trade, issuance and the project that will work in the voluntary carbon market.
Okay. The other two questions are there.
Can you repeat the question, please?
Then, my next question was, if the coupling is implemented, how are we prepared to mitigate that issue?
Yeah. First of all, implementation of coupling itself is doubtful. No view has been taken by the CERC so far, and we don't think based on our interactions that the coupling is going to get implemented. In any case, I mean, I respect your question. If coupling is implemented, we are already working on the different strategies to create a strong customer connect. And you must have seen that in the last two to three years, we have done a lot of development in our technology platform also. We have a strong integration with our customers through the API system, and we are also providing value-added services to our customers. The data analytics which we are providing, I think all these things are giving a lot of value to the customers.
The relationship which we have built with the customers over the last 15 years, I am sure with all that, we should be able to maintain our market share.
Sir, how are we placed against the competition? I guess we are the largest exchange so far, right?
Yes.
Okay. How are we placed? Are we are the competitor gaining more grounds against us, or we are still performing better than them? If you can give some light on that to follow on that.
As far as collective transactions are concerned, which are the collective transactions in any exchange platform, which is Day-Ahead Market and Real-Time Market. In these two segments, our market share is 199.9%. And if you look at the volume in these two segments, is almost about 75% of the total volume happening on the exchange platform. So in these 75% volume, our market share is 100%, you can say. So rest of the 25%, which is consisting of DAP market, TAM market, certificate market, all these things, our market share is close to 40%-45%. So as you can say, as of now, our market share is about 85%-86%, but going forward, it should improve on that.
Thank you, sir, and all the best to you.
Thank you.
Thank you. The next question is from the line of Devesh Agarwal from IIFL Securities. Please go ahead.
Good afternoon, sir, and thank you for the opportunity. My question is around the supply side. You did mention that the supply is likely to improve going ahead, but I just wanted to understand better in terms of what is giving you that comfort. And secondly, given that we will be entering into state elections and then union elections, wouldn't SEB be wanting to sign short-term bilateral contracts to ensure that the supply is intact during this election period?
Yeah, I mean, liquidity as of now in the market is very good. We are getting every day close to 300+ MU on the sell side, whereas demand is only for about 200 MU, 225 MU. And so there is more sell available than the buy requirement. And I'm sure this situation is going to continue for the next three to four months. From March onwards, when the election fever will catch up, some of the discoms may get into a bilateral mode, who are politically-- because this is a very politically sensitive issue, so it's very difficult to make any comment on that. But yes, some of the discoms may get into virtual contracts also.
Understood.
We can ask them to buy power for up to three months now, and going forward, we will launch up to 11 months also, since GNA has been implemented and short-term contracts can be done up to 11 months. So we will get approval, and we will launch 11-month contract also. So we are also gearing up for this. We also understand there would be some tendency among some of the distribution company to source power under bilateral. And since we have offering now, earlier days, we had only TAM, which was up to 11 days. So situation is a little different, and we are gearing up to compete with other bilateral contracts.
Right. And just to understand better, you did mention that in the ABC market, in the first half, you did 3.6 billion units. So, if you were to divide this in one month or three-month contract, where are we seeing most of the volume coming in? Where is the concentration of volume? Is it in, like, a 10-day-15-day contracts or one month or three months?
So today, the concentration is up to one month, but recently or lately, I would say, we have started seeing some activity in the second month also. So if I talk about H1, it was majorly first month, but now some transactions are happening for December, January also, which means that it has extended to second also, and going forward, it can be we will add some more months. It will be third, fourth, and, and, and so on.
By when do you intend to increase the tenure?
Sorry, come again.
By when-
We'll be filing our petition with CERC in the next 10-15 days for offering long-duration contract for delivery up to 11 months. And CERC normally takes about two months time to approve that. So hopefully, by end of December, we should have approval, and from first of January, we should be able to launch this contract for delivery up to 11 months.
Got it. Understood. And sir, any recent bilateral agreements that are being signed, if you can give some insight in terms of what is the price that is being discovered in the bilateral market versus the price that we see on the exchange platform?
See, one thing is, prices in the bilateral contracts are definitely more than the prices on our DAM market, DAM or RTM market. So that is why people only go to the bilateral contract when there is a crisis, and they want to just ensure availability of power at any cost.
No,
There are many instances where distribution companies purchase power in the bilateral market at a higher price. On the real-time basis, because of the signal variations, the demand in that particular case was lower, and they ended up selling power on the exchange platform at a lower price. Bought at a high price in the bilateral and sold at a lower price in the day-ahead market or the market. So distribution companies are also realizing it now, that too much of reliance on the bilateral market is not desirable, and they are contracting maybe certain minimum content based on their demand and supply for the firms.
Right. And, the final question from my side, sir. The government has extended the Section 11 until June 2024. So does this scenario in any way help or hurt us in terms of volume?
See, Section 11 extension up to June 2024, will definitely ensure increased availability of power in the market. If there is an increased availability of power in the market, then the desperate situation will not be there. It is good for the sector, it is good for exchanges, because overall liquidity on the sell side will improve, and we would be able to, whether all of us will be able to meet the demand.
I understand. Thank you so much. Those are my questions.
Thank you. Thank you so much. The next question is from the line of, Mr. Nikhil Abhyankar from ICICI Securities. Please go ahead.
Good afternoon, sir. Thanks for the opportunity. Sir, can you please focus on what product additions are we looking at in the next 6-12 months?
In the last two years, we have added many products, and we did RTM market, and we launched Green Market, Green Term-Ahead Market, Green DAM, now HP DAM, HP TAM. I don't... HP DAM also was introduced in the month of October. So and now we are going for the long duration contract for delivery up to 11 months. That is also expected in the next two to three months' time. So I don't think you can add new products every two months. There is a limit to that. Only thing is, whatever new products were introduced, we have to bring more liquidity in those products. So we are working in the market to bring like Green, Green Market, Green product, Green DAM, and Green RTM, Green DAM market. There, the volumes are still not significant.
I mean, I think combined volume in a year is almost about 8 billion-9 billion. So we have to bring more liquidity in the Green Market. A lot of activities are happening in that. So we are working with the generators, we are working with the state also, how to bring more liquidity in this. The government also, we are doing the policy advocacy with the government. Government has allowed that, generator can purchase, I mean, you can purchase up to 5% of the power in a contract to meet your commitment, from the Green Market. All this, and they are also working on the CFD contracts for the Green Market. Virtual power purchase agreements are also now becoming popular. So all these initiatives are being taken to bring more liquidity in these markets.
Okay. Is there anything around power derivatives?
Pardon?
Power derivatives, electricity derivatives.
Power derivatives will be launched on the exchanges which are regulated by SEBI, that LDCs or NSE or the MCX. There is a committee which is working on this. I think they have still not come to a conclusion of launching derivatives at this stage, because volatility in the market is too high at the moment.
Right. And sir, you mentioned that, LDC volumes are high, in the last three to four months. And once you get the approval of, LDC for 11 months, can we expect a large part of the bilateral contracts will shift to us?
Sure, shift. That is our effort. That is the intent with which we are going to offer these contracts. And then our interactions with the... We'll start interacting with the distribution companies and generating companies to ensure they're participating in those contracts.
Okay. And sir, final question. We, we have around INR 1,400 crore of cash on our balance sheet, investments and cash. So can we expect more buybacks than that?
We will take call on that, whether buyback or dividend. When we have a policy of rewarding our shareholder, and we give almost more than 50% of the profit in the form of dividend or buyback. So we'll continue to do that.
Okay, sir. Okay, thank you. That's all.
Thank you. Thank you so much. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, please limit your questions to two per participant. Should you have any follow-up questions, you can rejoin the queue. The next question is from the line of Jiten Rushi from Axis Capital. Please go ahead.
Yeah, good afternoon, sir. Thank you for taking my question. My first question is on e-certificates. So the Cycle 2 , is it over in October? Because we are seeing volumes coming up significantly. So we expect the cycle to over for this year, or when, when we get to the next Cycle 2?
Yes, Cycle 2 is over now.
Okay.
We have to now wait for Cycle 3.
That will be in next three years, right?
It depends on when MoP notifies that. Yes, we are expecting next year.
...Next year, okay. And sir, on the LDC, just want to reiterate, you said in volume in LDC in October is almost 1.7 billion?
Yes, yes.
Okay, sir. That's all my side, sir. Thank you, and all the best. Wish you have a good day. Thank you.
Thank you. Thank you. Wish you a very well, too.
Thank you so much. The next question is from the line of Amey Kulkarni from Candor Investing. Please go ahead.
Hi, good afternoon. I had a couple of questions. We had this proposal for block bidding, and we are also familiar with the position we have been sometime in 2021. Is there any recent update on this issue? And, sir, what is the progress with the transmission system operator for the gas system? And a couple of just one or two more questions. Is there any update on the renewal contract by CERC using the price rise, which we call a contract for difference? Thank you.
Okay. First one is on the Gross Bidding. See, Gross Bidding is basically optimization by distribution company. And this concept is more relevant when the prices are competitive in the range of maybe INR 3.5-INR 4. But since for the last two years, our prices have been around INR 5, there is not significant opportunity for Gross Bidding at the moment. In any case, the new GNA regulations and transmission charge regulations, which have been issued by the CERC now, under those regulations, now, Gross Bidding, it can be implemented. You don't need any separate approval for the Gross Bidding. It can be implemented by the distribution company very effectively, and many of the distribution companies are already doing it. See, there is no extra payment to be made by a distribution company for sale of power on the exchange platform now.
Suppose a distribution company has got a PPA with a generating company, and under that PPA, they have power available, they don't need that power. They can schedule that power in the morning hours, submit bid on the exchange platform based on the variable cost of that. If that power is cleared, they can continue with the schedule, and if that power is not cleared, they can revise the schedule of the generator on the lower side. So all these flexibilities are there. There are no transmission charges to be paid for sale of power, and no losses are accounted for that. So that flexibility that we were looking for in, under the gross bidding condition, that has been already provided by CERC in the GNA and grid code, all these new regulations which have been implemented now.
We find there are states like, Punjab, MP, Haryana, Maharashtra. Many of these states are permitting this for purchase and power and sale of power, both. And that is basically with the intent of, of doing optimization in their power procurement cost. So we are working with the states now that how can they use the GNA provisions to effectively implement, I mean, not in Gross Bidding, given optimize your cost now. This was the intent of the Gross Bidding. Second question was, on the Gas System Operator? Yes, I mean, government, in fact, had mentioned in many of the forums that, they are going to create Gas System Operator. But as of now, nothing has happened much on that. And your third question was about?
CFD.
Yeah, CFD contracts, yes, I mean, this issue is under discussion, which is in fact what I will say, the final stage of approval. But only they are looking at taking a view that if, if at all there is a gap in the contracted price and the market claimed price, how to fund that. So once they decide about that, they will approve that contract. Otherwise, all other modalities are already discussed and analyzed.
So just one last point. The distribution companies, when they buy under the LDC contract, the long duration contract, suppose we extend it to, say, 11 months, do the distribution companies need approval from the regulator for the prices discovered in this contract? Because they are saying exchange regulator approval is not required.
Yeah, for the LDC contracts, they normally take approval from their respective state regulatory commissions.
Before bidding it?
In many of the states, they have given certain limit, up to this price, the distribution company can purchase the power. But if the price is more than that, they can take the approval, and such approvals don't take much time. Because regulators are also aware about the market conditions.
Okay. Thank you.
Thank you. The next question is from the line of Dhruv Muchhal from HDFC Asset Management Company. Please go ahead.
Sir, thank you so much. Sir, I just one question. Somebody who... the buyer who's buying from the green exchange, green products, does he have to pay transmission charges or that is also waived for you, for the buyer?
As per the new GNA regulations, sellers, whether they are from green plant or whether they are from the coal-based power plant, no seller is required to pay any transmission charges.
And the buyer?
Transmission charges are to be paid by the buyer only. In case of green power, for the projects commissioned after 2025, even the transmission charges for the buyer also is waived off.
... for projects, but okay. So the, but the buyer is generally, say, for example, some third party or somebody, say, I'm trying to understand if somebody is selling in the merchant market then. So green market would be merchant market, that's it?
No, no, I think it is, it is for the projects which are under the PPA mode.
Okay. So for the green products that we have, the buyer has to pay transmission for that. The transmission is exempted for the volumes that you do on exchanges.
So for exchanges also, it is exempted, but the problem is it is not yet implemented. We expect going forward, very soon, this will be implemented, and then it will be waived off. To begin with, it is easier to implement that for bilateral contracts through exchanges also. Little difficult for collective, but eventually, in time, in months to come, it should get implemented.
So it's a clarification which probably or some modification that we are seeking, and once that happens, it will be answered.
Absolutely.
Yes, got it. Sure. Thanks. Thanks so much and all the best.
Thank you so much. We would take that as our last question. I would now like to hand the conference over to the management for closing comments. Thank you, friends. I would like to thank each one of you for being part of today's call. During this quarter, we have witnessed a lot of initiatives announced by the government and the regulators towards creating a favorable policy and regulatory environment to transform the energy sector. We remain committed in doing our bit towards building a sustainable and efficient energy future. Have a great evening. Thank you very much and happy Diwali!
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.