After a much awaited delay, the Central Electricity Regulatory Commission (CERC) late Wednesday approved market coupling in power exchanges in a phased manner. To begin with, the regulator has announced to start the implementation of the coupling of ‘day-ahead market’ (DAM) of the power exchanges in a round-robin mode by January 2026.
The move is expected to lower the power prices in the spot market due to increased liquidity and provide a uniform market clearing price for electricity traded, say experts.
IEX plunges
Shares of Indian Energy Exchange Ltd (IEX) on Thursday crashed 29.5% before closing at Rs 132.45 apiece on fears of IEX losing its market share. Of the country’s three power exchanges – IEX, Power Exchange India Limited (PXIL), and Hindustan Power Exchange – IEX has the largest market share.
PXIL said in a statement that it welcomes the implementation order as a progressive development in deepening of electricity markets in India where liquidity improves and pricing becomes efficient.
As per the CERC, under the round-robin mode, the power exchanges may act as the Market Coupling Operator (MCO) on a rotational basis, with Grid-India being the fourth MCO for backup and audit purposes. “This arrangement would facilitate an efficient functioning of the power exchanges and also help instill faith of the market participants in the power exchange operations,” it said.
The regulator also noted that given the shorter time for bid submission and running the market clearing engine, the decision to implement the coupling of Real-Time Market (RTM) of the power exchanges shall be considered at a later stage after gaining operational experience from the coupling of DAM.
“Implementation of market coupling is an essential next step in reforming the electricity market and in moving towards ‘One Nation, One Grid, One Price’ framework which would lead to optimization of despatch of available capacity, better grid operation, higher liquidity and Innovation,” PXIL said.
Market coupling is a mechanism where electricity trades from all power exchanges are combined and matched to determine a single, uniform market clearing price (MCP), leading to softening of price to end-consumer by pooling liquidity.
This enables optimal utilisation of transmission capacity as crossflows reduces requisition for flow across regions/states and eliminates congestion in transmission corridors, as per industry players.
Megha Arora, Partner, CMS IndusLaw explained that market coupling is expected to improve overall liquidity by increasing the number of matched bids, particularly in the DAM segment. It will also enhance price discovery and may lead to lower clearing prices. “With liquidity becoming uniform across exchanges, competition will focus on lowering transaction fees, which could further boost participation and liquidity,” she said.
“By pooling liquidity and bids, market coupling aims to align electricity prices across exchanges. Coupling will pave the way for larger market side reforms like Market-Based Economic Dispatch (MBED) and co-optimization of ancilliary market and energy market, which will eventually deepen the relatively shallow spot market and improve resource allocation,” said Anujesh Dwivedi, Partner, Deloitte India.
Currently, participants prefer exchanges with higher liquidity to improve the chances of bid clearance, further reinforcing liquidity on that exchange.
“Market coupling in the DAM segment is expected to reduce this imbalance, shifting competition among exchanges to transaction fees instead of liquidity,” Arora said.
Price-setting power would no longer be a differentiator for any exchange as pricing would become uniform across all exchanges, added Dwivedi.
PXIL
PXIL noted that the implementation of market coupling would pave the way for reforms such as market based economic despatch, where dispatch of cheapest power from generators happens through order matching and uniform price discovery, electricity derivatives market which require single reference price for clearing and settlement of future contracts.
The regulator said that there is a need to further examine the approach and methodology of the shadowpilot run of coupling of RTM with security constrained economic despatch (SCED) adopted by Grid-India.
“The Commission is of the view that some of the complexities involved in RTM-SCED coupling, as highlighted by Grid-India, could be addressed through suitable regulatory interventions and after stakeholder consultation. The feasibility of coupling of the Term-Ahead Market (including Contingency Contracts) of the power exchanges also needs to be examined by running a shadow pilot,” it said.
The Commission has also directed all the power exchanges to share the necessary data and other information as required by the staff of the Commission and Grid-India to analyze various operational and procedural aspects for implementing the coupling of DAM.