Energy exchanges here to stay, will add to development of power mkt

Written by Sanjay Jog | Updated: Sep 18 2009, 04:15am hrs
Power Exchange India Ltd (PXIL), which has done a trading volume of above 400 MUs since its operation on October 22, 2008, hopes to break even much earlier than projected. Power Exchange India MD & CEO Rupa Devi Singh speaks to FEs Sanjay Jog on its strategies to take on competition. Excerpts:

What is your experience of the exchange operation, when the mismatch between demand and supply for power is widening day by day. Have utilities, generators, distribution, regulators, policy makers accepted the fact that power exchanges are going to stay here

The bidding pattern for day-ahead market reflects the demand and supply gap in the country for short-term. Mismatch between demand and supply is a continuous phenomenon mostly because the day-ahead market takes care of immediate requirements, which are not planned so efficiently. With the launch of longer tenure products at PXIL we are hopeful that the mismatches would come down as buyers and sellers have more time to take informed decisions and bid accordingly. All stakeholders have realised the enormous benefits that exchanges have brought into the market, especially with their standardised contract structures and risk management practices. It is understood that exchanges are here to stay and would only add to the development of the power market in the country.

What is the turnover achieved since its inception and forecast for 2009-10

PXIL has done a trading volume of above 400 MUs since its operation on October 22, 2008. However, the above were accounted by only day-ahead products.

Given the continuous increase in the volumes at PXIL and the launch of new products, we are hopeful of crossing much larger milestones in the present financial year.

What are the products being offered When can you break even

Presently, PXIL offers day-ahead spot, day-ahead contingency and weekly products on month-ahead basis. PXIL is also ready with intra-day products and monthly products, presently awaiting the right time to launch these products, hence covering the entire spectrum. We, however, believe that the development of products should be in steady and phased manner, which allows a balanced learning curve for all. We are progressing well ahead of our business plan and with the increased interest and participation in the power utilities we are hopeful of breaking-even much earlier than projected.

What are the major regulatory and policy hurdles being faced and which needs to be corrected

The development of the exchanges in the country has happened through a process of extensive deliberations across the entire sector with all the stakeholders participating in the same. Even the development of the new products on the exchanges has taken place only after extensive debates and discussions. The regulators and policymakers are completely aware of the direction the power sector needs to take in order to blossom into a pulsating power market. However, as the market develops and deepens, even regulatory and policy making bodies would need to traverse the learning curve in order to develop the right mix of global best practices and indigenous innovations, which can take the market in the right direction quickly.

It seems there has been quite a low turnover at your exchange. What are the main reasons for this

The power exchanges account for only 0.5% of the electricity consumption in India. This is small from any standards in the world. Presently, Indian power market is in a transition phase from a regulated market towards a liberalised market where power exchanges have an immense role to play.

The day-ahead market, on which both the exchanges had been allowed to trade earlier, was a model completely emulated from NordPool. The entire system had been structured on a model, which did not allow any differentiation in the trading system. For PXIL, which started later, this was an obvious disadvantage.

However, in the longer tenure market, the trading system has been developed by PXIL through an extensive consultation process, keeping in mind world-class exchange practices as well as indigenous requirements. PXIL had adopted the philosophy of taking a steady and phased development of the products, which is why we chose to develop two products that closely reflected the realities of the Indian power market. This was the polar opposite of the stand taken by our competition, which brought a bouquet of three out of its four products from an international market and tried to implement them here.

Today, we stand vindicated when both the products implemented by us, weekly and day-ahead contingency, have resulted in successful trades.

What is your response to introduction of price cap by Central Electricity Regulatory Commission (CERC) on electricity being traded on day-ahead basis

We would like to maintain that power exchanges provide a transparent market place that is a true reflection of the electricity demand and supply in the country. The CERC order has been released mostly based on the price data for the period end July 2009 to mid August 2009. During this time there was tremendous shortage of electricity in the country led by a delayed monsoon and extra load because of high pumping required for irrigation. If we look at price data of last two weeks, the prices at the exchanges have not only been low but for some hours they had been much lower than the prices of even long-term PPAs from base-load stations. Overall it is our belief that fixation of a prices caps are not appropriate measures for controlling volatility in the market, they are only reactions to symptomatic trends. It would be beneficial for the market if the underlying issues are resolved first.

What is the way forward Are you seeking more equity participation as well as getting more members

We as an exchange have always believed in measuring our success through getting increased participation from completely aware and educated participants. The number of members on the exchange has been continuously increasing and so have the volumes on the exchange. We intend to continue on this path of developing products relevant to the Indian market and do so through a consultative approach. The equity participation too is a reflection of our principles and participation from serious participants in the Indian power market only shows the innate belief in PXIL and its growth.