IEX tanks 12% on reports of govt's plan to implement market coupling

IEX doesn't see any merit in market coupling for power exchanges and believes that there will be more complexities in its implementation, than gains.

Shares of Indian Energy Exchange (IEX) tanked on Tuesday amid fears of market coupling, which refers to a uniform market clearing price for buyers and sellers in all exchanges operating in an area.

The stock, which scaled a 52-week high of Rs 244.35 during intraday trade, settled 11.56 per cent lower at Rs 211.60 apiece. It has gained 57.91 per cent in the past six months and 26.10 per cent on a year-to-date (YTD) basis.

The average trading volumes on the counter jumped over six-fold, with a combined 110.74 million equity shares, representing 12 per cent the total equity of IEX, having changed hands on the NSE and BSE.

 

It bounced back 82 per cent from its June month low of Rs 134.30 apiece. It hit a record high of Rs 318.71 apiece on October 19, 2021.

The Grid Controller of India (Grid-India) has been requested by the Power Ministry to ensure that the pilot study for coupling power exchanges is completed according to the set timeline, reports said. 

IEX, in its FY24 annual report, said one of the key regulatory aspects that has a direct bearing on the exchange is market coupling in terms of design changes.

The Power Market Regulations, 2021 (PMR 2021), notified by the Central Electricity Regulatory Commission (CERC) provides the enabling provision for market coupling.

However, it is provided in the PMR 2021 that this provision will be effective as and when the commission decides on the matter.

The CERC is yet to take a decision on the implementation of market coupling through the regulatory process, the company had said.

On the basis of stakeholder comments, CERC is exploring if there is any advantage of coupling Real-Time Market (RTM) data with the SCED, that is, Security Constrained Economic Dispatch, which is operated by Grid India.

CERC, in its order on a shadow pilot study on market coupling dated February 6, 2024, had directed Grid India to develop software for shadow pilot within two months of the order and after that run simulation for the next four months.

The recent amendment in Late Payment Surcharge Rules 2022, mandates the sale of un-requisitioned power (URS) on the exchanges in day-ahead market (DAM) and RTM.

The mandatory sale of URS power in DAM and RTM will lead to optimum utilisation of capacity and any further optimisation by coupling SCED and RTM may not lead to any significant value.

It is expected that the shadow pilot being implemented by Grid-India will not yield significant gains, IEX said in its FY24 annual report.

“We don’t see any merit in market coupling. We do believe that even if there is a small gain, there will be numerous complexities in its implementation, and hence market coupling will not be feasible,” IEX said.

Motilal Oswal Financial Services (MOFSL) in its report on power utilities said that IEX is a natural beneficiary of rising power consumption, growth in power infrastructure, slew of launches such as

long-dated contracts, and rising firm and dispatchable RE projects.

The brokerage firm estimates a compound annual growth rate (CAGR) of 17 per cent/15 per cent in IEX's volumes/PAT during FY24-27, amid falling power prices, favourable base effect and strong market share.  

Analysts believe the launch of long-dated contracts could add 4 per cent to volumes in the initial year. 

The potential implementation of market coupling is a key regulatory overhang that could dampen IEX growth prospects given its dominant market share, MOFSL added.