Functioning of Power

Exchanges

www.iexindia.com
Markets
Market

“Market is a mechanism for matching supply and demand for a

commodity through the discovery of an equilibrium price”

Requisites for Creation & Classification of Markets

Quality Date of Delivery

Quantity Mode of Settlement

Price Conditions to Contract

 Commodity
“A basic good used in commerce that is
interchangeable with other commodities of the same
type”
Characteristics
• Product should be essentially uniform across producers
• Often used as inputs in production of other goods and services,
i.e. large scale utility
• To be traded on an Exchange, a commodity must meet specified
minimum standards, known as Basis Grade

Eg: Grains, Gold, Oil, Natural Gas, Foreign Currencies, Electricity etc.
• Electricity is a flow, rather than a stock
• Cannot be metered perfectly
• Storing potential energy is expensive
• Flows on transmission lines are constrained continuously
by operational limits and environmental factors. Imbalances
can injure or destabilize transmission links, electrical systems require
continuous balancing of demand and supply
Advantages of an Organized Power Market

• Market Participants can efficiently manage their portfolios by choosing

different products available under long term , medium term and short term
duration.
• Provides an exit route for PPAs.
• Efficient Market provides transparency and which may lead to easy
financing .
• Markets are driven by the force of economies i.e. demand and supply and
hence the prices are derived.
• Market Participants e.g. DISCOMS may reap benefits of real time balancing.

6
Indian Electricity Market
Market Remarks
Open Electricity Energy
Market

Long-Term Market PPA

OTC Forward Market Bilateral
Power Exchange Day-Ahead Market/Term-Ahead
Market

Derivative Market No
Indian Power Market: Present Status
Long Term Power Purchase Agreements
7 Years and Above 90%

OTC
Medium Term Licensed traders
3 months - 5years 4%
OTC Intraday- 3 months
Short-Term Exchanges
Intraday - 3 months 1. Intra-day
2. DAM 3%
3. DAC
4. Daily
5. Weekly

Balancing Market
Unscheduled Interchange 3%
Real Time
Market Development Milestones

2005 IEX Conceptualized Power Exchanges (PX)

• CERC issued staff paper on PX

2006 • Created awareness among Stakeholders
across the country

• CERC issued guidelines for setting PX

2007 • IEX got in principle approval
•
June 2008 • Day Ahead Market (Collective)
commenced upon approval from CERC

• Term Ahead market for Forward

Sep 2009 electricity contracts started

• Renewable Energy Certificate (REC) trading

Feb 2011 commenced

July 2015 • 24*7 Term Ahead market for started

Functions of Power
Exchange
Competitive Wholesale Market

All other
IPPs Generators
Captives

Power Ex Traders

Distribution
(DISCOM)

Consumer Consumer Consumer

Transmission * Arrow represents Contract

(non trading entity)
Role of Power Exchange
► A neutral and easy access to the marketplace

► Standardized Contract

► Offers “law of One Price”

► An automatic interface.

► Clearing & settlement of deals

► Security by being a safe counterpart

►Information dissemination among the participants

PX Characteristics

Easy Automated live trading system

Access

Anony Closed bidding environment

mous

Demutualised, with oversight committees set by regulator.

Transp
Easy Access Standardised risk management, with regulatory oversight.
Anonymous arent
Transparent Trade results made public
Reliable
Secure
Disaster Recover site
Reliable
Established C&S, with no defaults till date

Terminals connected through MPLS and SSL only.

Surveillance room with necessary security (Separate network,
Secure Restricted biometric access, Video & Audio recording).
Periodic IT system audit for data security, data integrity and
operational efficiency. Automated audit trail
IEX Self Regulating Institution

• Due diligence before Membership

• Networth Criteria
• Security deposit & Margins
• Voluntary participation
• IEX Counterparty
• SLDC Clearance
What benefits does the power exchange provide?

Nation-wide
voluntary access

Delivery Based
E-trading
contracts

No counterparty
Robust Platform
risk
Understanding exchange mechanism

Bidding and
Matching

Risk
Management

Congestion
Treatment Management
of losses
and charges
 Power Exchange- Operations

Surveillance Function:
• Performed from a secure
‘Surveillance Room’ with
restricted access
• Surveillance Committee
reports to CERC quarterly

• Results
C&S Function:
displayed on
• Separate
trading
Clearing &
terminals
Delivery cells
• Market
• Risk Mgmt.
results,
Committee
including
reports to
curves
CERC half
published
yearly
online
• Monthly
report to CERC
Inside IEX
• Surveillance department of IEX is under continuous online CCTV
monitoring and recording

• All Telephonic conversations are recorded with no out going facility

• The Heart of the exchange i.e. Surveillance room, is secured by limited

and authorized access and that too with Biometric sensor access

• All authorized persons of Surveillance room are not allowed to use any
communicating medium (mobile phones)

• All process flow is documented in the form of check lists which is

authorized by HOD.

• Concurrent Audit of the checklist by internal auditors

Settlement Account Mapping & Client Fees Recovery

All new settlement Instruction to Recovery of client

account details banks for fees based on
received from mapping the instruction from
membership settlement membership
department are account for ABB/ department
confirmed with the ABF files based
clearing banks on whether it is
before updating in member or client
the back office settlement
software account
 Bank Blockage (DAM)
In this case balance will be blocked by the bank at 9.00 am
and will be unblocked after the final pay in is done by 3.30
pm. Based on balance communicated exposure for bidding
will be determined in the trading system. With this facility
member would not be required to keep additional margins
with the exchange.
Margining
Component
Initial Margin (TAM)
This margin provides the exposure to be given to a respective member,
before a member wants to trade on IEX’s platform he needs to provide 5%
of his trade in cash as initial margin.
SpecialMargin(DAM&TAM)
The Exchange may collect any ad hoc margins from time to time in case if it
feels that the available margins collected by the exchange are inadequate
due to variation in the prices in the Market
7 Days Average Turnover(DAM)
Exchange on daily basis compute minimum margin that
should be available. This will be average value of trades of
respective member for last seven day, In case if the average
value is more than the available initial margins with the
exchange then member has to bring the difference in the
form of additional deposit .
Basis Margin (TAM)
Basis Margin will be computed as a percentage of the
traded value as per the risk curve defined and will be
collected in different trenches as per the contract
specifications. Only the buyer Members will have to pay the
Additional Margin to the exchange based on their trade
confirmation. Member will have to make available the
Additional Margin before the end of the trading day
Risk Management in DAM/TAM
Proprietary/TradingLicensee Professional Members
Members
Initial Margin Basis/Additional Initial Margin Basis/Additional
Margin Margin
Day-Ahead Margin equal to Last 7 Days Average of As per Bank Balance including Hair Cut
Market Buy turnover Factor
TAM-Intraday 105% of order - 105% of order Value -

TAM-DAC 100% of order - 100% of order Value -

Value
TAM-Daily 5% of order Value 50% of Trade 5% of order Value 50% of Trade Value
Value
TAM-Weekly 5% of order Value 50% of Trade 5% of order Value 50% of Trade Value
Value
REC 100% of order - 100% of order Value -
Value
Member Client Credit facility can be provided by No credit or funding facility by Professional
RMS Trader Member to their clients Members to their clients
Timelines for payment of Charges: DAM/TAM

• Application Fees is paid in advance = T

• NLDC Scheduling & Operational Charges is paid on T+1
NLDC • Transmission Charges CTU is paid on T+1
Charges

• SLDC Scheduling & Operational Charges is paid on T+1

• Transmission Charges STU is paid on T+1
SLDC • Area Transmission Charges (ATU) is paid on T+1
Charges • Area Load Dispatch Centre (ALDC) is paid on T+1

• Application Fees/PoC/SLDC/RLDC charges is paid on Within 3 working days of

Acceptance
RLDC
Charges

T = Trade Date
 Intra Day
REC

Product Portfolio
Products on IEX
Delivery-based Contracts

Day-Ahead Closed , Double-sided Auction

Market 10-12 am bidding
Each 15-min block , 0.1 MW min NOC required
since June,08
Day-Ahead Contingency – Another window 3-5pm
Term-Ahead
Market
Intra-Day - for the same day starting 2 pm
Daily- for rolling seven days (delivery starting after 4 days)
since Sep,09
Weekly- for 1 week (Monday-Sunday)

Green Attributes as Certificates

Renewable Energy Sellers : RE generators not under feed in tariffs
Certificates Buyers: Obligated entities
since Feb,11 1MWh equivalent to 1 REC

Next… Energy Saving Certificates

Auction Continuous
 Contract Characteristics
TERM AHEAD MARKET

Contract Day Ahead Intraday Day Ahead Daily Weekly

Characteristic Market Contracts Contingency Contracts Contracts

0400-2400 From 4th day

Delivery Next day For next day For next week
Hrs same day to next 7 days

Closed Continuous Continuous Continuous

Auction Type Open Auction
Auction trading trading trading

Block of Hours Block of Hours

Contracts 15 min Hourly Hourly
(Fixed) (Fixed)

Trade All Days; All Days; Wed & Thurs;

All Days All days
Availability 1500-2300 1200-1500 1200-1600

Financial Pay-In- D-1; Pay in: T+1 Pay in: T+1 Pay-In- D-1; Pay-In- D-1;
Settlement Pay Out – D+1 Pay out: T+1 Pay out: T+2 Pay Out – D+1 Pay Out – D+1

T = Trade
D = Delivery
Salient Features of REC Mechanism

Participation Voluntary
REC Denomination 1 REC = 1 MWh
Validity 1095 Days after issuance
Categories 1. Solar REC 2. Non-Solar REC
Trading Platform Power Exchanges only
Banking/Borrowing Not Allowed
Transfer Type Single transfer only , repeated trade of the same certificate is not
possible
Solar RECs Floor Price: Rs 1,000 /MWh
Forbearance Price: Rs 2,400/MWh
Non Solar RECs Floor Price: Rs 1,000/MWh
Forbearance Price: Rs 3,000/MWh
Penalty for Non-compliance ‘Forbearance’ Price (Maximum Price)
Price Guarantee Through ‘Floor’ Price (Minimum Price)
 Future products of IEX
■ Presently there is no long duration contract or futures in the
Futures Electricity Market
contract ■ With the enactment of the proposed Electricity Bill 2014,
trading in long duration contracts through the Exchange will be
possible.

■ Tradable Certificates under the PAT (Perform, Achieve, Trade)

ESCerts Scheme of BEE, a Market based mechanism designed to
enhance energy efficiency in energy intensive industries.
Regulatory Boost for Power Market
Development
• EA 2003 and enabling provisions on Power Market
The intent and object of the EA 2003 is to develop power
market through increased competition, more players and
protect consumer interests
• Development of Power Market – EA 2003, Section 66, “The
Appropriate Commission shall endeavor to promote the
development of power market…”,
• Suitable safeguards to prevent adverse effect on competition
• Recognized Trading as a distinct activity. Defined under
section(2) (47): “Purchase of electricity for resale thereof”

28
CERC Open Access Regulation

 Products (2004):
• Long-Term Open Access>25 Years; Nodal Agency-CTU
• Short-Term Open Access<1 Year; Nodal Agency-RLDC;
FCFS Basis
New Products Introduced in STOA (2005):
• Advance Scheduling up to 3 months in advance
• First-Come-First-Served basis
• Day-Ahead
• Intra-Day
 2006-2007: Discussion Process for
Establishment of Power Exchange
 CERC Staff Paper (‘06) on “Developing a common platform
for electricity trading”
• One PX or Multiple PX, PX to be voluntary or Mandatory, Price
Discovery and Congestion Management was discussed with
international experiences of power exchanges.

 CERC guidelines in Feb 2007 for grant of permission for

setting up and operation of Power Exchange.
 CERC Open Access Regulation, 2008
• Regulation covers only Short-Term Open Access Transaction
• Transactions Categorized as Bilateral and Collective (thru Power
Exchange)
• Nodal Agency for Bilateral- RLDCs; Collective-NLDC
• Transmission Charges moved from “Contract Path” to “Point of
Connection” for Collective Transaction
• Both Buyers and Sellers of Collective transactions to bear
transmission charges and absorb transmission losses
• SLDC Consent mandated along with Application
Establishment Process of IEX

• IEX made an application for grant of permission to setup

a Power Exchange in March 2007.
• IEX received an in-principle approval from CERC on
August 2007.
• IEX commenced its Day-ahead Market operations from
June 2008.
• IEX commenced its Term-Ahead Market Segment in
Sep’2009.
• IEX commenced its REC Segment in Feb’ 2011.
Features of Power Market Regulations, 2010

Role of PXs defined and norms for setting up and operating PX

• Procedure for application, eligibility criteria, shareholding pattern, Net worth, risk
management by PX,

CERC approval for setting up a PX and oversight for contracts offered

Objectives for PX

• Ensure fair, neutral, efficient and robust price discovery

• Provide extensive and quick price dissemination
• Design standardised contracts and work towards increasing liquidity in contracts

Defined principle of price discovery for the exchange

• Economic principle of social welfare maximisation

• Closed double sided bidding, uniform price discovery, market splitting for congestion
management
Regulatory Environment for PXs
• Prudential norms for PX
• Norms for shareholding pattern
• Governance structure
• By CERC • Principles of Market Design
• Power Market • Registration
Macro Regulations, 2010 • Clearing Corporation
• Market Oversight
• Approval or Suspension of Contracts
• Settlement Guarantee Fund
• Exit scheme
• Periodic reporting

• Membership norms
• By PXs (self • Risk Management Mechanism
Micro regulation) • Contract Specifications
• PX Rules and • Matching mechanism
Byelaws, as approved • Clearing
by commission • Penalty for Contractual Deviation
• Grievances redressal mechanism
1) National Open Access Registry

• Integrated IT based system, with national reach, to facilitate

NOAR

communication for Short term Open Access among Consumers,

Applicants, LDCs, Traders , Power Exchanges, RPCs and ERCs
• Central, online clearing for all STOA Applications & Approvals
• Depository and repository for OA approvals by SLDCs and ATC
for inter state transmission
• One-click access to all stakeholders
• Eliminate need for separate clearances for each transaction
• Live Regulatory Information access to ERCs
• Modeled on the concept of depositories in capital market
Thank You for your attention
www.iexindia.com

Best Power Exchange in India

– Enertia Awards ’14, ’13 &’12
– India Power Award 2014
– Power Business View 2014

Inc India Innovative 100 Award for

‘Innovation in Product and Technology’

Best Performing Power Exchange –

Power Line Awards ’13 & ‘12

Best E-enabled consumer platform –

India Power Awards ‘09