India’s leading private sector power firms, such as Reliance Power and Tata Power, and trading firm Adani Enterprises Ltd are joining hands to set up the country’s first power exchange in association with Financial Technologies (India) Ltd (FTIL) and PTC India Ltd.
The exchange will offer spot trading of power two months after it gets a formal approval.
The initial investment cost for financing the infrastructure required to set up the exchange is estimated at Rs10 crore. Once the company is formed, FTIL, promoter of Multi Commodity Exchange of India (MCX), will hold 51% of the equity, while PTC, the largest power trading company in the country, will take 26%.
“About 23% (equity) will go to important utilities in the power sector. Of this, Tata Power has agreed to take a 5% stake, while we have an in-principle agreement with Reliance Power to take another 5%,” said MCX deputy managing director Joseph Massey. He added that Adani may take another 5% stake.
The exchange will primarily identify the price for the following day, which is the electricity sector’s equivalent for the spot price. Besides, it will help better match demand and supply for power in the short term. Currently, these prices are determined bilaterally by the buyer and seller, mostly over the phone; short-term power trading on a daily basis comprises around 15% of total trade in power.
“The Central Electricity Regulatory Commission (CERC) has agreed to grant an in-principle approval to set up the Indian Energy Exchange (IEX). It will be led by FTIL, the company that promotes MCX,” said Massey.
Tantra Narayan Thakur, CMD, PTC India, confirmed the move and said: “We plan to take 26% stake in IEX. The initial investment for the project will be around Rs10 crore of which our share will work out to around Rs2.5 crore.”
Thakur said IEX will be beneficial in the long term when all regional grids (that carry power in various parts of the country) get inter-connected and power dispatch centres get connected to the exchange.
CERC has asked for some basic information about FTIL and MCX apart from details on the management, functioning, transparency and impartiality that the exchange will maintain. “We have already submitted most of these details and once CERC gives a final decision, we will take a couple of months to get the exchange going,” added Massey.
Shubranshu Patnaik, associate director, PricewaterhouseCoopers, said: “Right now, power trading is being done on a bilateral basis. Setting up a power trading exchange is a positive thing for the sector. As the pricing will become more transparent, more power from the captive power generation units will come to the grid.”
Other advantages of a power exchange is that it guarantees payments will be made once a transaction is struck. It also provides a countrywide access to buyers and sellers through a common platform.
FTIL claims it is well equipped with a risk management and surveillance mechanism for these functions.
Although IEX will be the first power exchange in the country, the National Commodity & Derivatives Exchange (NCDEX) is also planning to start a similar power exchange along with NTPC Ltd. PTC wants to invest in both. “We are also willing to be present in the exchange set up by NCDEX and NTPC Ltd,” said Thakur.
Massey, however, had reservations about PTC’s involvement in both. “Since setting up of such an exchange involves developing expertise and sharing of domain knowledge we would prefer exclusive partnership with PTC,” he said.