The National Commodity & Derivatives Exchange (NCDEX), following a similar initiative by the Multi Commodities Exchange of India (MCX), is poised to submit its proposal to the Central Electricity Regulatory Commission (CERC) for enabling trading in power.
“NCDEX has been successfully running the commodity exchange business for three years. We are confident we will be able to run the power exchange as a smooth, impartial and transparent business,” said Arvind Pal Singh, assistant vice-president, energy, NCDEX.
He also said the power exchange will help merchant and captive power generating companies to leverage tradable surpluses besides getting buyers and sellers together.
NCDEX is also talking to several power companies for possible tie-ups, though officials did not wish to reveal the names of possible stakeholders.
CERC, the power sector regulator, had earlier this year issued guidelines inviting interested parties wanting to start power exchanges in the country. It wants at least one exchange to get off the ground this year.
According to experts, a power exchange will primarily identify the price for the day ahead, which is the electricity sector’s equivalent for the spot price. This will help tap shortfall of power in the short term. Currently, these prices are determined bilaterally by the buyer and seller mostly on the phone. Short-term power trading on a daily basis comprises around 15% of total power trading.
A power exchange “will generate a liquidity and price discovery mechanism and reduce regulatory oversight as power prices through the exchange will be market-determined,” said Kuljit Singh, a partner with consulting firm Ernst & Young. “It will also mitigate credit risk of traders as once a trader defaults in payment, his name will be precluded from trading.”
But Singh sees a flip side of the exchange, too. “Power prices may go up in the short run because of supply constraints,” he said.
The government is open to having more than one such exchange in the country. “We have already submitted our proposal to CERC and have implemented all the required mandate as asked by the Commission. In fact, we were the first ones to come up with a composite plan of action when CERC issued the guidelines inviting exchanges to come up with proposals for setting up of power exchanges,” said Joseph Massey, deputy managing director, MCX, which has approached power companies in the business of generating, transmitting and distributing to partner it in this venture. MCX’s plans were first reported by Business Line.
“Quite a few stakeholders have evinced keenness to join us in power exchange,” said Massey, adding it is too early to reveal names of those interested. Financial Technologies (India) Ltd, the promoter company of MCX, however, will be the leading stakeholder. MCX’s intrinsic advantage lies in the fact it has been dealing with the chunk of trade happening in energy sector for the last three years, Massey added. “Over 97% of trade in crude oil, natural gas and furnace oil happens through MCX.”