End of Monopoly: IEX faces competition in electricity exchange

On Thursday, the stock of Indian Energy Exchange Ltd fell over 8% and closed at Rs 136.50. Today, it opened at Rs 127.60 and is currently trading around Rs 123, more than 9% down from the previous closing of Rs 136.50. 

The reason for this fall was the Ministry of Power (MoP) asked the Central Electricity Regulatory Commission (CERC) to initiate the process of “market coupling” in the market. 

What is market coupling?

The term “Market Coupling” refers to the integration of multiple electricity markets in different regions or countries to create a single, unified marketplace. It involves linking the trading of electricity across these markets to promote efficient allocation of resources, enhance price convergence, and facilitate cross-border electricity trade. The objective of market coupling is to optimize the utilization of available generation and transmission resources, reduce market price differences between interconnected regions, and promote the efficient integration of renewable energy sources. 

The market coupler gathers all buy and sell orders from all power exchanges, which are then combined and matched to determine a standard market clearing price, regardless of platform, for all exchanges. 

Currently, IEX holds a significant position to determine the price in India, but post market coupling the new aggregator will be the authority to decide the price for the same as MoP has directed the CERC to initiate the market coupling process. 

As of now, there are three energy exchanges in India, on which electricity is traded and buyer and seller can place their order according to their need these are the Indian Energy Exchange (IEX), the Power Exchange of India, and the Hindustan Power Exchange of India. Out of these three IEX holds a significant market share of over 90% in the overall market and almost 100% share in the key segments such as the Day-ahead market (DAM), and Real-time market (RTM). 

Through market coupling, a single standardized cleared price will be established for all participating exchanges. This price will be determined by an appointed authority responsible for setting the common price. Consequently, IEX Ltd. will lose its authority to determine prices, leading to a potential loss of market share. This will create an opportunity for the other two exchanges to gain a larger market share. 

The trading volume of IEX Ltd. experienced a significant surge yesterday, with a total traded volume of 2.6 Crore shares on both BSE and NSE. Out of this, approximately 1.3 Crore shares were taken for delivery by investors, accounting for around 49% of the total traded volume. In comparison, during the previous week, the trading volume was 1.5 Crore shares, with a delivery quantity of 68 Lakhs shares, constituting 45% of the total volume. 

The stock of IEX was not performing for the last year and generated a negative return of 32%, even last month it declined more than 20%. Its 52-week high and low are Rs 185.50 and Rs 116.05. The current market capitalization of the company is Rs 11260 Crore. Promoter holding in the company is 17.88% while FIIs and DIIs hold a significant position of 21.53% and 60.32%.

Will they reduce their stake post this news of market coupling, well let’s wait and watch.