IEX’s Growth Momentum Continues in Q3 With 37% Volume Growth

The Indian Energy Exchange (IEX) has reported yet another strong quarter of operating results, growing both volumes and profitability. The firm, at the vanguard of the Indian energy trading market, that is expected to see high growth and innovations in the coming years, seems to be doing a very good job of its situation currently, even as competition, both existing (PXIL) and on the horizon in the form of newer energy exchanges, looms.

The national electricity consumption stood at 321 BU (Billion Units) during the quarter, registering a 5% CAGR growth over last 2 years.

In December 2021, India’s installed power generation capacity reached 393 GW seeing 4.8% YoY growth. The renewable energy capacity including large hydro reached 151 GW from 137 GW in the fiscal year 2020, achieving 10.5% YoY growth. The share of renewables in India’s total capacity base has increased to 38% aligned to India’s commitment at COP26 Summit in Glasgow, where an ambitious target of achieving 500GW of renewable energy by 2030 was announced.

BUSINESS AND FINANCIAL PERFORMANCE HIGHLIGHTS

On a standalone basis, revenue for the Q3 quarter for IEX increased by 32.4%, from Rs. 95.7 Cr. in Q3FY’21 to Rs. 126.7 Cr. in Q3FY’22. The PAT grew by 33% YoY from Rs 60.1 Cr in Q3FY’21 to Rs 79.9cr in Q3FY’22, with a margin of 63.1%. The company has announced an interim dividend of 100% per equity share.

During the quarter, volumes on IEX grew by 37% YoY with 27.6 BU volumes traded versus 20.1BU in Q3 FY’21.  The growth in volumes was driven by substantial increase in electricity consumption as well as resurgence of trading in REC’s and ESCERT’s.

The Real-Time Market continues to be one of the fastest-growing electricity market segments for IEX, achieving a growth of 70% YoY with 4.8 BU of volumes traded during the Q3 quarter.

The green market, including the day ahead and term ahead market, cumulatively traded 1.2 BU during the quarter, and contributed 5% to overall electricity volumes.

The return of REC trading continues to shine for IEX in Q3, with a total of 38.28 lakh certificates, and a total of 2.86 lakh Energy Saving Certificates traded during the quarter.

On 9-month basis, total volumes on the Exchange grew by 43.4% YoY with 74.9 BU volumes traded in 9M FY’22 versus 52.2BU in 9M FY’21. On a standalone basis, revenue for the 9M FY’22 increased by 37%, from Rs. 255.6 Cr. in 9M FY’21 to Rs. 350.1 Cr. in 9M FY’22. PAT grew by 48.1% YoY from Rs 149.7 Cr in 9MFY’21 to Rs 221.6 Cr in 9MFY’22, with a margin of 63.3%.

The Exchange is now gearing to launch the Longer Duration delivery contracts in electricity and renewable segment.

POLICY AND REGULATORY UPDATES

From the policy and regulatory perspective, on 16 December 2021, CERC issued the draft Connectivity and General Network Access (GNA) to the inter-State Transmission System Regulations, 2021. This initiative is expected to simplify the transmission access availability for the participants on the Exchange. Implementation of GNA is also expected to ease the participation on Exchange platform as decision to participate will no longer be contingent upon transmission access and charges. GNA will promote development of power market in the country.

Further, the resolution of the decade long-pending jurisdictional conflict between the CERC and SEBI in respect of jurisdiction of long duration forwards paved way for the introduction of much awaited long-duration delivery contracts on the Power Exchanges under regulatory jurisdiction of CERC and also the introduction of the electricity derivatives on the commodity exchanges under jurisdiction of SEBI. Electricity derivatives will smoothen out the price volatility and also buyers will be able to hedge their positions and take delivery in spot markets. This will lead to an increase in the Exchange transactions. Following this development, IEX has already applied for approval of longer duration contracts to CERC.

The Central Electricity Regulatory Commission also issued the draft Deviation Settlement Mechanism (DSM) and Related Matters Regulations, 2021, linking the DSM charges to the time block-wise price discovered on the Exchange. Implementation of this initiative will help to further deepen the real-time market.

The National Open Access Registry (NOAR) is also likely to be implemented in fiscal year 2022. NOAR will automate processing of open access and considerably reduce the lead time taken in the various procedures. This will also make the transmission allocation more transparent and efficient.