INDIA ENERGY EXCHANGE

Market leader eyes huge energy pie

Indian Energy Exchange is India’s premier energy marketplace, providing a nationwide automated trading platform for the physical delivery of electricity, renewable and certificated. Of late, the company has pioneered cross-border electricity trade, expanding its power market beyond India, in an endeavour to create an integrated South Asian power market. It enjoys a virtual monopoly with a 92% marketshare, even as it is still in the early stage of business. Obviously, prospects for the company are highly promising.

Consider:

• Powered by state-of-the-art and customer-centric technology, enabling efficient price discovery and facilitating the ease of power procurement, the company has a robust ecosystem of 6,800+ participants located across 29 states and 5 Union territories, consisting of 55+ distribution utilities and 500+ conventional generators. It also has a strong base of 4,400+ commercial and industrial consumers, representing industries such as metal, food processing, textile, cement, ceramic, chemicals, automobiles, information technology, institutional housing and real estate, as well as commercial entities. The company has ISO certifications for quality management, information management and environmental management since August 2016, and is approved and regulated by the Central Electricity Regulatory Commission. This year, India is facing a severe coal crisis, and a bourse with a near monopoly in electricity trading in India is drawing attention.
• IEX, the country’s first energy exchange since its inception in 2008, is in the bluest of oceans – its only competitor, Power Exchange of India, would surface months later. A dozen years down the line, IEX still has a vice-like grip over the energy market — which in India means the electricity market — and the company’s fortunes look set for both external and internal reasons. As far as the external factor is concerned, energy markets in India are still evolving. Volumes are still extremely low, cueing fast growth. In a country that consumes 1.3 trillion Kwh of electricity a year, just 6% is traded over the exchange. Most of the electricity is sold by generators to buyers through long-term power purchase agreements (PPAs) that are typically spread over 25 years. Thus, though the market will grow on its own, there is additional propulsion in the form of the government whip.
• The government has now proposed a market-based economic dispatch (MBED), under which power supply will be routed through the market, and any difference between the market price and the price agreed under the PPAs will be squared up offline between the buyer and the seller. The idea is to deepen the market as well as provide a clear market-based price signal. This is a good step for IEX. Another driver is the longer-term contracts and derivatives trading in energy. A decision will be taken very soon. Whenever longer-term contracts – say, for three or six months — and derivatives are allowed, more players will jump to the exchanges. IEX’s blue ocean will hence get bigger.
• Thanks to its monopoly power, IEX is going from strength to strength on the financial front. During the last five years, its revenues have steadily expanded from Rs 204 crore in fiscal 2017 to Rs 317 crore in fiscal 2021, with the profit at net level inching up from Rs 113.57 crore to Rs 213.49 crore during this period. The company’s financial position is very comfortable, with reserves at the end of March 2017 standing at over Rs 500 crore – almost 17 times its equity capital of Rs 29.85 crore. Needless to say, a bonus issue is on the way.

Prospects for the company have got a big boost from the fact that the country is facing a severe coal crisis and the government’s intent to push ahead with reforms will change the dynamics in the nation’s power sector. Even as the share price has shot up recently, these stocks are worth accumulating at every decline.

PERFORMANCE INDICATORS (Rs. in crore)