IEXNSEJanuary 30, 2023

Indian Energy Exchange Limited

8,373words

126turns

11analyst exchanges

9executives

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Management on call

Satyanarayan Goel

CHAIRMAN AND

Vineet Harlalka

CHIEF FINANCIAL OFFICER

Rohit Bajaj

HEAD, BUSINESS DEVELOPMENT – INDIAN ENERGY EXCHANGE LIMITED

Aparna Garg

HEAD, INVESTOR RELATIONS

Amit Kumar

HEAD OF MARKET OPERATIONS

Sangh Gautam

CHIEF TECHNOLOGY OFFICER

Samir Prakash

CHIEF HUMAN RESOURCES

Aditya Wali

INDIAN ENERGY EXCHANGE LIMITED

Sumit Kishore

AXIS CAPITAL LIMITED

Key numbers — 40 extracted

9.7%

ry continued with a strong H1 2022- 23. The country registered a broad-based economic expansion of 9.7% during this period and was placed among the fastest growing economies of the world. Recently, Ind

6.8%

e country, electricity consumption in India for Q3 FY23 stood at 343 BU, which is a YoY growth of 6.8%. Key contributors to this demand increase were states like Rajasthan (16.4% YoY), Karnataka (12.5

16.4%

ich is a YoY growth of 6.8%. Key contributors to this demand increase were states like Rajasthan (16.4% YoY), Karnataka (12.5% YoY), Gujarat (8.1% YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% Y

12.5%

6.8%. Key contributors to this demand increase were states like Rajasthan (16.4% YoY), Karnataka (12.5% YoY), Gujarat (8.1% YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% YoY). Installed capacity

8.1%

s to this demand increase were states like Rajasthan (16.4% YoY), Karnataka (12.5% YoY), Gujarat (8.1% YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% YoY). Installed capacity in India achieved

7.6%

ase were states like Rajasthan (16.4% YoY), Karnataka (12.5% YoY), Gujarat (8.1% YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% YoY). Installed capacity in India achieved 410 GW as on 31st Decem

6.9%

(16.4% YoY), Karnataka (12.5% YoY), Gujarat (8.1% YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% YoY). Installed capacity in India achieved 410 GW as on 31st December 2022. In line with the coun

410 GW

YoY), Telangana (7.6% YoY), and Andhra Pradesh (6.9% YoY). Installed capacity in India achieved 410 GW as on 31st December 2022. In line with the country’s commitments towards arresting climate change

168 GW

hange and evolving into a net-zero emitter by 2070, the installed capacity for renewables grew to 168 GW. This growth of green energy is expected to help India attain its vision of achieving 50% of its

50%

w to 168 GW. This growth of green energy is expected to help India attain its vision of achieving 50% of its entire energy consumption from non-fossil fuel sources by 2030. In the quart

293%

e of e-auction coal continued to be high. While the quarterly average price premium declined from 293% in Q2 FY23 to 242% in Q3 FY 23, it was considerably higher as compared to 35% for the special for

242%

continued to be high. While the quarterly average price premium declined from 293% in Q2 FY23 to 242% in Q3 FY 23, it was considerably higher as compared to 35% for the special forward e-auction pric

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Guidance — 20 items

Satyanarayan Goel

opening

“Implementation of GNA will remove regulatory arbitrage which has led to the temporary shift in Volume from DAM to DAC and will be more conducive towards further market development within the country.”

Satyanarayan Goel

opening

“We are confident that ICX will go a long way in helping achieve India’s target of reducing the emissions intensity of its GDP by 45 percent by 2030 to limit global warming to 1.5 degrees Celsius.”

Satyanarayan Goel

opening

“With gradual improvement in domestic production of coal and an improvement in coal inventory, we expect a rationalization of power prices on the Exchange, and the volumes to improve.”

Satyanarayan Goel

“So going forward, we will see how the growth happens in this market.”

Satyanarayan Goel

“And next year particularly, Government of India has fixed a very high target for coal production which is 1 billion ton for the country as a whole and if that happens, I'm sure e-auction coal prices also will cool down and our clearing price will also come down and then you will see good traction in this market.”

Sumit Kishore

“So, what do you expect over the next few months on the liquidity aspect and how do you expect exchange prices to pan out over the next six months?”

Satyanarayan Goel

“But I'm sure going forward, when coal production improves, availability in the e-auction market where e-auction price was only 35% premium in FY '22, it should come down to that level.”

Sumit Kishore

“So would that be a reasonable expectation to have over the next three, four months or based on how things are going right now, you expect that liquidity will be tight for some more time?”

Satyanarayan Goel

“They have already issued the GNA regulations where they have addressed this issue and there will be no double charging.”

Satyanarayan Goel

“Only thing is that GNA regulations will be implemented after finalization of the grid code and transmission charge sharing regulations.”

Risks & concerns — 12 flagged

Improving coal inventory and further reduction in e-auction coal prices is expected to result in a decline in power prices on the Exchange and provide further cost optimisation opportunities to Discoms and Open Access consumers.

— Satyanarayan Goel

However, due to a decline in traded volumes, revenue for Q3 FY23 witnessed a de-growth of 10.3% on YoY basis.

— Satyanarayan Goel

But, at the moment, because of the uncertainty in the availability of coal and very high e-auction price, since the prices are higher it is difficult to say about the volume growth in this.

— Satyanarayan Goel

So there is going to be a lot of pressure on the coal-based power plants.

— Satyanarayan Goel

But first one or two years could be difficult for us.

— Satyanarayan Goel

So, it will be very difficult to say how will be the distribution of volume under the different segments.

— Satyanarayan Goel

So does that risk still remain that the transaction charges would drop or would be half?

— Yash Nerurkar

So, until order is issued, it is very difficult to say what is going to be the final order.

— Satyanarayan Goel

There is a joint working group, the joint working group has to approve the contract for the derivatives because in electricity, we have a spot market also and the regulator wants to be sure that there is no adverse impact of those derivatives on the spot market.

— Satyanarayan Goel

So for next year, it will be difficult to give a number, but certainly, it should be in the range of 50 million MMBTU.

— Satyanarayan Goel

So it will be difficult to make any guess on that.

— Satyanarayan Goel

So the pressure is on the domestic coal- based power plants, and that is why all these problems are happening.

— Satyanarayan Goel

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Q&A — 11 exchanges

My first question is how has been the traction in long term duration market? I think we have started two contracts monthly and any day single sided. Can you please comment on that?

Satyanarayan Goel

Yes, we introduced long duration contracts in the month of July. And there is very good response from the market. I think by now we have conducted more than 50 auctions. But since the price discovery in this auction is on the higher side because of supply side constraints as you are aware, many of these auctions have not resulted into a contract. Still, we have done more than 1-billion-unit transaction during the six months in this segment. Are we seeing any green shoots in this particular segment? Given that we are entering into the summer season? See, invariably in the long duration contract

My first question is, there has been a slight easing of supply-side constraints, but we have not seen a meaningful improvement in liquidity on the exchanges so far. October was better in that respect, but then November and December sequentially saw a worsening of liquidity and high exchange prices. January also the exchange prices so far are north of INR 6.0. So, what do you expect over the next few months on the liquidity aspect and how do you expect exchange prices to pan out over the next six months?

Satyanarayan Goel

Yes. There has been significant improvement in coal production in the country. But you know, when a crisis happens, always rationing is done. And this time, Government of India, what they have done is, they have increased supply of coal under the PPA. So those states are able to get coal for running their own power plants. So, a good part of the demand is met by PPAs. PLF of the coal-based power plants increased almost by 6%-7% as a result of that. Availability of coal in the market, which is the e-auction market, is still low and the e-auction price is still very high. It is still about 240%-

Sir, my question is currently 85.9% is our long-term PPA. And after 25 years of completion, there will be no renewal. So what is the other option for a company to buy power other than exchanges?

Satyanarayan Goel

The present companies who have long-term PPAs, after 25 years, they are free to sell their power in the market. And then they have the option to sell the power under the bilateral contracts, maybe on a medium-term basis or short-term basis, but the Exchange is the most flexible option where they can depend -- because after 25 years, the plant also gets aged and their performance also deteriorate slightly. So, depending on the availability of the plant, they can utilize the capacity on the exchange platform because we have both the Day Ahead market and RTM market, and we also have long- duratio

So I had two questions. One is from a business perspective. You have introduced many new products in the past, say, few quarters. So going forward, what would be the revenue composition like, say, from a year or two from now?

Satyanarayan Goel

There was a time when DAM constituted almost about 90% of our volume -- 90% of our revenue. Today, DAM is only about 50% of our volume and RTM has become 26%. So taken together is about 78% DAM plus RTM. And in fact, DAM plus RTM is the most competitive market as far as the Exchange is concerned. So volume in these two segments will continue to lead other market segments. But we also expect long-duration contract volume to pick up in future. As I told you, whenever the coal price will come down in the international market and in our domestic e-auction market, in the LDC market also, there will

I have two questions. First question was regarding power derivatives. While we understand it's going to come on another exchange, but it has implications for IEX as well. So I wanted to understand if there are any updates on that front?

Satyanarayan Goel

Power derivatives have not been introduced yet, because this will be introduced in the SEBI regulated exchanges. I think NSE and MCX are working on this. There is a joint working group, the joint working group has to approve the contract for the derivatives because in electricity, we have a spot market also and the regulator wants to be sure that there is no adverse impact of those derivatives on the spot market. It is in an advanced phase and maybe in the next one or two months, we will have derivative contracts in the market. The second question I had was regarding RECs. You mentioned the ne

Yes. Sir, what would be the IGX share in the total gas volumes of the country?

Satyanarayan Goel

So as of now, IGX share is only about 1%, 1.5% only. This would be based on the third quarter, 24 million MMBTU would be 1%, 1.5%? Yes. And what would be the Q3 profit from IGX, would it be around INR 12 crores, Yes. You're right. So would there be any one-offs in this current number? Also would we be posting this kind of numbers? And if the volumes expand further, what kind of profitability can be expected over a year? Are there any one-offs in this current number on the profitability side? No. This quarter, volume is mostly driven by domestic ceiling price gas sold by Reliance and ONGC and t

Sir, over the past few days, we have seen the INR 12 price cap being hit during the morning and evening hours during many time blocks. So, sir, what is generally the view on this price cap, will it continue? Will it be changed because it is hurting the DISCOMS a lot and hurting our volumes as well? And do you see the international coal price moderating a bit, do you see supplies from imported coal-based plants increasing and there being some near-term relief on prices?

Satyanarayan Goel

Yes. Price cap of INR 12 is expected to continue for some more time. CERC has already issued that this will continue till further orders. So which means that they they don't expect revision of this upward in the near future. But let me tell you one thing, with INR 12 price cap, we don't see any impact on the volume because whatever sale is available in the country, the marginal cost of that is much lower. Even domestic coal-based power plants, there also the cost despite high e-auction price is about INR 5, INR 5.5. Imported coal plant, the cost is about INR 6.5, INR 7. So INR 12 is much highe

I wanted to understand if once we get approval order from CERC on the transaction charge, do we have any idea on the frequency of the approval, which is needed or is it only whenever a new product is launched?

Satyanarayan Goel

Invariably, these kinds of approvals are one time approvals. And thereafter, if conditions change, if regulator feels that there should be a re-examination of that then we can do. In fact, the next best example is the trading margin. CERC had notified trading margin in 2010. And in 2020, they reviewed that and issued an order wherein they revised the trading margin upwards after 10 years. So it is not on a yearly basis. Once this approval is there, I'm sure it is going to be there for a pretty long time. Okay. So I was checking because for trading, there was a cap and explicit approval for eac

Sir, firstly, on IGX what will be the overall traded natural gas in India?

Satyanarayan Goel

So far, the natural gas traded is almost about 36 million MMBtu and a very large part of which is domestic. What is the total Indian consumption, not what IGX is doing. Total gas consumption in India is almost about 160 MMSCMD, which is million cubic meter per day, 160 million cubic meter per day. And out of that, 50% is produced domestically. Okay. So out of this, what would be the addressable opportunity for IGX in the short-term traded gas, which is traded from traders or, something like that? IGX this year is doing almost about 1.5% of the total gas consumed in the country. Okay. But what

You're right. Arul Selvan So my basic question here is that how exactly the current market players are trading in this segment, if it's not really through the exchange platform. Is there some other platform or is it just a traditional bilateral contract way?

Satyanarayan Goel

Most of the trading in this market is happening through the DEEP platform. Where the reverse auction happens for price discovery and most of the trading happens through the trading companies or directly through generator companies. Arul Selvan Okay. So now when long-duration contracts are introduced for, let's say, progressively longer duration than right now, we have if I'm not mistaken, six months, right? That's the longest duration that we have right now, right? Right now, we have contracts for delivery up to three months. Arul Selvan Three months, sorry. Yes, we're talking to regulators fo

I would like to thank all of you for being part of this call today. Friends, higher input costs continue to impact our volumes. Going forward, with the increased coal production target for which has been fixed at 1 billion tonne for the FY’24, we expect reduction in input price, lower clearing price on exchange and increasing optimization potential for DISCOMs and Open Access users. And I'm sure this will support better volumes on IEX platform. IEX has always remained committed to positively contribute towards a sustainable Indian energy sector. Thank you.

Management

Speaking time

Satyanarayan Goel

Moderator

Bevam Modi

Ankush Agrawal

Sumit Kishore

Mohit Kumar

Vineet Harlalka

Yash Nerurkar

Anshuman Ashit

Lavanya T

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Opening remarks

Sumit Kishore

Thank you, Darwin. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q3 FY '23 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. S.N. Goel, Chairman and Managing Director, Mr. Vineet Harlalka, CFO, Mr. Rohit Bajaj, Head of Development, Ms. Aparna Garg, Head of Investor Relations and Corporate Communications. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.

Satyanarayan Goel

Good afternoon, friends, and welcome to the Earnings Call for Quarter Three of Financial Year 2023. Let me begin by wishing all of you a Happy New Year. With me today on this call are Mr. Rohit Bajaj, Head Business Development, Mr. Vineet Harlalka, our CFO and Company Secretary, Mr. Amit Kumar, Head of Market Operations and Product Development; Mr. Sangh Gautam, CTO; Mr. Samir Prakash, CHRO, Ms. Aparna Garg, Head of Investor Relations and Communications and Mr. Aditya Wali. At the outset, India’s commencement of the G-20 presidency on December 1 marks a significant milestone towards undertaking a leadership role on the global stage. It also brings an opportunity for India to showcase its sustainability roadmap. On the economic front, India’s post-covid economic recovery continued with a strong H1 2022- 23. The country registered a broad-based economic expansion of 9.7% during this period and was placed among the fastest growing economies of the world. Recently, India’s manufacturing Pu

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