NCDEX and NSE float new power exchange
MUMBAI: The business operations of Power Exchange India Ltd (PXIL), an electricity exchange promoted as a joint venture between two of the largest and most respected exchanges in the capital and commodity markets respectively, NSE and NCDEX, was inaugurated by the Hon’ble Minister of Power, Shri Sushilkumar Shinde at a function held in New Delhi today.
PXIL aims to provide an easy to access, fully electronic market place which provides substantial benefits to buyers and sellers of Power.
Both NSEIL and NCDEX bring with them deep rooted understanding of shaping Indian Capital and Commodity markets. Their presence in the venture provides PXIL the required wisdom and strength in its efforts to create a truly vibrant market in electricity.
PXIL has also attracted the equity partnership from Power Finance Corporation (PFC), Gujarat Urja Vikas Nigam Ltd. (GUVNL), JSW Energy, GMR Energy and Jindal Power Ltd.
The function also witnessed the launch of a financial product by PFC for “Financing of power purchase on PXIL”. PFC has taken a professional clearing membership on PXIL and would be supporting members on PXIL for purchasing power through this product.
Electricity Act 2003 had laid down a framework for developing a competitive power market in India. The National Electricity Policy and various subsequent regulations, including the issuance of a staff paper on development of a common platform for trading of electricity by the Central Electricity Regulatory Commission (CERC), have propelled the implementation of a market framework in sync with Indian realities.
Power markets around the world have structures where a large part of the demand is catered to by capacity tied-up through long term contracts. Seasonal or daily variations in demand are managed through trades in the day ahead or short term market. In such a context power exchanges serve an important purpose in as much as they enable matching of seasonal or short term surpluses and deficits of various participants in the market in a transparent and efficient manner. As markets mature even the longer term contracts are often cleared through the exchanges to ensure adequate transparency and security.
In India, generation capacity planning had been done for each State independently, with some efforts by the Central Government in later years to create generation capacity through CPSUs at a regional level. A silo like approach to load management with most of the generation capacity tied-up in long term contracts tends to not only under exploit potential but also exaggerates daily or seasonal shortages plaguing the sector .
In such a scenario, the emergence of a Power exchange would help optimise the utilisation of existing generation capacities in the country by utilising complementarities in widely varying demand profiles for various states across regions. In an Exchange platform buyers and sellers of power can come to trade their seasonal or time of the day surpluses and deficits with each other. This common platform is being institutionalised in the form of a Power Exchange which can remove information asymmetry and reduce price arbitrages.
In addition to the temporal surpluses occurring across India at various times of the day, which can be optimally utilised by trading on the exchange, India also has a large untapped captive power capacity which is connected to the grid and can be utilised. This source has immense potential of entering into the day-ahead power market through PXIL and efforts are being made to further enhance liquidity on the exchange by tapping these captive power generators across the country with a low cost of entry and operational flexibilities so as to enable them to sell surpluses through PXIL.
Most of the installed generation capacity is owned by government utilities, who would be participating in the power exchange to manage their demand profiles. However, these utilities may not have the necessary processes to manage day-to-day fund flows which is required on the exchange, since initial margins for the electricity to be traded has to be provided on an exchange on a day to day basis. Recognizing this need, Power Finance Corporation, the largest lender in the power sector has created to product to assist in financing of power purchase of members on PXIL.
Furthermore, the trend of power developers keeping some of the installed capacity free for trades in the short term market is also fast catching up. An active role in PXIL would help PFC in keeping abreast with such significant developments and their impact on power sector financing.
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