New Delhi/Mumbai: BSE, PTC India Ltd and ICICI Bank have come together to form India’s third electricity exchange, BSE said on Monday.

A power exchange functions on the lines of commodity exchanges and provides a platform for buyers, sellers and traders of electricity to enter into spot contracts that are for the same day, next day, and on a weekly basis. It also provides a payment security mechanism to buyers and sellers. India has two operating power exchanges—Power Exchange of India (PXIL) and India Energy Exchange (IEX).

“BSE, along with PTC India Limited and ICICI Bank Limited, have filed a petition with the power market regulator, CERC (Central Electricity Regulatory Commission) on 7 September 2018 for grant of licence for setting up a new power exchange," BSE said.

The petition has been filed against the backdrop of the National Democratic Alliance (NDA) government readying a raft of structural reforms in the power sector, including freeing green energy from licensing requirement for generation and supply and promoting retail competition, according to the proposed draft amendments in the Electricity Act, 2003.

Of around 1,200 billion units (bu) of electricity generated in India, the short-term market accounts for around 130-150bu. This trade volume has grown by around 10% annually and is valued at around 22,124 crore.

“This proposed institutional exchange, subject to necessary regulatory approvals, would leverage on the experience and expertise of its stakeholders in their fields, knowledge of the power sector, funding of power projects and associated infrastructure, setting up and running various exchanges and platforms in India, and offer the market participants a credible power trading platform," BSE said.

India’s power demand is expected to grow with the government’s focus of providing “24x7 clean and affordable power for all" by March 2019.

“PTC is committed to any initiative that supports the development of the power market in the country. This partnership with India’s oldest exchange, BSE, is in an effort in the same direction," said Deepak Amitabh, chairman and managing director, PTC India.

The government has also been exploring steps to boost electricity demand, even as the power sector remains one of the highly stressed sectors, with close to 1 trillion of loans having turned bad or recast.

Distribution companies have so far been the weakest link in the electricity value chain given their poor payment records.

The government is working on an ambitious plan to provide induction stoves to poor households. Also, the 16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya), launched last year to provide electricity connections to more than 40 million families by December 2018, will require an additional 28,000MW of power, considering an average load of 1 kilowatt (kW) per household for eight hours in a day.

Experts believe that there is a need to be met.

“There is a need to deepen existing exchanges through more evolved products, clarity on cross border trading along with institutional mechanisms to deal with forward contracts of varying durations would be useful," said Sambitosh Mohapatra, partner (advisory, power and utilities), PwC India.