Overview of Power Trading & Exchange

Perspective
In this presentation …

• Scope of Power Trading

• Types of Markets
• Emerging Scenario in Power Trading
• Power Exchange and Background
• Power Exchange Offerings & Benefits
• Price Determination Methodology & Congestion
Management
• Trading Snapshots and Membership Details
• Power Exchange Operations & Progress so far
• About IEX & its Promoters
 Growth in Short-term Power Trades
Source: POWERGRID

35 12000 Growth in number of participating utilities in STOA (CAGR 25%)

30
30 10000
24 9560 100
25 23 89
8000 90
Volumeof Tradein

20 17 80
BillionUnits

Transactions
71

Number of
5933 6000 70 64
15
3938 4000 60

Number
10 50 45 Number
5 2000 40
778 30
0 0
20
2004-05 2005-06 2006-07 2007-08
10
Financial Year 0
2004-05 2005-06 2006-07 2007-08
Volume No. of Transactions Financial Year

ENERGY TRANSACTED
Month wise T ransactions
3000
2691
1200
2500 2383
1100 1034
2068 2135 2021 1922 2032 N o . o f t ra n s a c t io n s 1000
997 980

2000 1861 900 868

1647 1675 807
773
1520 1510 800
662 674
MU

1500 700
600 537 542

1000 852 500 407 393

622 605 644 613 400
542 486 491
448 470 300
500 286 310
200
100
0 0
Apr- May- Jun- Jul-07 Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar-
07 07 07 07 07 07 07 07 08 08 08

M onths
M ONTHS
Same day + Day ahead
SAME DAY+DAY AHEAD FCFS+ADVANCE
 Growth in Short-term Power Trades Contd…
Source: POWERGRID

Nodal RLDC wise energy approved under STOA

UI Billed Amount

NERLDC, 153, 1%
9000 8368
ERLDC, 913, 3%
8000
SRLDC, 4723, 16%
7000
6000 5170
Amount (in Crores)

5000 4627

4000
2846 NRLDC, 16233,
3000 54%
2000 WRLDC, 7813, 26%
892
1000
0
2002-03 2003-04 2004-05 2005-06 2006-07
Year
 Power Markets … historical perspective
• Pre-1991 : Era of single-part tariff
– Bilateral transactions in radial transfer mode
– Very few one-to-one transactions (3-month /
year)
– Single-part tariff
• Between 1991-2002 : Era of two-part tariff
– Bilateral market in intra-region parallel mode

– Few transactions (month-wise)

– Two-part tariff June 27,2008 INDIAN ENERGY EXCHANGE
– CGS Share trades in form of
overdrawal/underdrawal
Post-2008 Multilateral Transactions
• Between 2002-2008 : Post-ABT - Era of real-
time pricing
– Real-time market
2002-2008 Post-ABT-Real-time pricing
– Multiple regions in parallel
– Large transactions – UI market Vs Bilateral
market Two-part tariff
– Trading on Day and ToD basis 1991-2002
• Post 2008 : Era of Multilateral Transactions
– Era of true competitive markets Pre-1991 Single-part tariff
– UI, Bilateral and Collective transactions
– Very large transactions Market Reform
– Trading on hourly basis
 Generation mix in Electricity markets

Short-term market
Long-term market (92%)
Central
State Sector
Pvt Sector
generation
Sector generation
Generation 46 %
37 %
9%

5% 3%

UI market

Short term
trading market
Emerging Scenario… more competitive

Present
Earlier Electricity
Electricity
Market
Market

Long-term : PPA Long-term : PPA

Short-Term Short term
Bilateral Markets
Bilateral Markets For Non-standard contracts

For Standard contracts

Common Electricity
Nation-wide choice,
IEX
Marketplace (PX) better price, payment security
UI/Real-Time  UI/Real-Time
Very short-term requirement
 Why Power Exchange?
Regulatory Perspective:
“ Electricity Act, 2003 allows development of power market
(Section 66 : Appropriate Commission shall Endeavour to promote development of
market (including trading) in power in such a manner as may be specified and shall be
guided by the National Electricity Policy… ) ”

“National Electricity Policy(2006) allows Appropriate Commission to make

necessary regulations for Px.”

Participant Perspective:
• Power Trading is not the core competency of the Captive Plants & the O A Consumer.
• Much needed requirement of competitive price is fulfilled.

• The Industries can hedge risk pertaining to their volume as power being the
crucial input.
 Background……

Application filed with FMC for futures trading in electricity - 19th March 2005

Gazette Notification issued for Futures trading in Electricity – 9th January 2006

CERC guidelines for setting up and operation of IEX – 6th February 2007

FTIL filed application for grant of permission for IEX – 15th March 2007

Received CERC’s approval for IEX - 31st August,2007

CERC Accorded approval to commence operations- 9th June 2008

IEX Commences Live Trading- 27 th June 2008

What is Power Exchange ?

Voluntary

On-line
Delivery…

National
•Spot
Standardised •Intra-Day
Automated •Day-ahead
Contracts
•Forward
•Weeks
•Months
Electronic •Futures
Central
Counterparty

Exchange as Organised Marketplace Power-specific

 Broad Features of IEX

• National level power exchange.

• Day-ahead Market
• Closed, double-side auction
• Contracts
– Hourly Contracts
– Portfolio Bids and block bids
– Standardized block bids
• Evening Peak, Base, Off-peak, Day Off-peak, Night Off-
peak
• Uniform pricing
• Regions as bid areas – likely congestion at inter-regional level
• IEX Time-line - Consistent with RLDCs’ time-line.
Main functions of an Exchange

• Self Regulatory Organisation.

• Price discovery.
• A contract for Purchase and/or sale of electricity as prescribed by
the Exchange and permitted by CERC.
• All transactions in Contracts shall be cleared, registered and settled
by the Exchange.
• Exchange to prescribe trading days & trading session.
• Exchange to act as a legal central counter party.
 Power as Commodity & its effect on PX
designs

• Needs to be consumed • Day-Ahead Market

instantly
• Number of suppliers and • For inducing competition :
consumers at bulk level ‘Closed double-sided
are limited. auction’ in place of
continuous trading.
• Packaging not possible. • Delivery through ‘balanced
Ownership cannot be schedules’
identified
• No quality issue of • Supply from different
delivered commodity sources are clubbed.
• Transportability issue • Deliveries subject to
transmission availability
 IEX Offerings…
A Complete Electricity Marketplace
• Day Ahead Market (Presently)
• Future extensions…
– Continuous Trading
– Week-ahead, month and quarter ahead markets
– Bilateral negotiated market (long term contracts upto 1 year)
– OTC Clearing

Years/Months ahead Day ahead Real time

National Wholesale Market System Operation

Long/Short
Long/Short Term
Term PX-
PX- Day
Day Ahead
Ahead Schedules Balance
Balance Ancillary
Ancillary
Bilateral
Bilateral market
market Market-UI
Market-UI Services
Services
Auctioned day-ahead market

• Nation-wide, on-line, automated

• Double-sided auction system
Demand • Hourly day-ahead contracts (MWh)
Price Supply
• Portfolio bids
• Physical delivery based
• Central counter party: IEX
clearing price
• Equilibrium price for each hour
(Rs./MWh)
• Hourly volumes/prices published

traded volume Quantity

2,500.0 MWh Eur 40.00
5
35.00
2,000.0
30.00
4
1,500.0 25.00
20.00
3
1,000.0 15.00
2
10.00
500.0
5.00
0.0 1
0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Benefits to Participants
 No need to search for buyers and sellers, thus eliminates search
cost
 Reduced Transmission Charges. For instance, if any entity is
connected to regional grid, needs to pay only 3 Paisa/ Kwh.
 No need to book the transmission corridor as well as to deal with the
system operators like NLDC,RLDCs,SLDCs.
 Sell / Buy all across the nation.
 Payment made to the sellers on advanced basis.
 No need to negotiate for the prices unlike in Bilateral Contracts.
 IEX is acting as a counterparty, thus a participant need not to
assess the risk profile of the other participant.
 Sellers will receive the payment on D+2 basis i.e. Two days after the
participation on IEX Platform by 2.00 P.M
 Cost Benefit Analysis

• Total MUs Traded: 216 MUs (~30MW for 300 days)

(A) Bilateral trade

• Transaction charge @ 4 paise per unit: Rs 86.4 Lakhs………..(A)

(B) Power Exchange Trade

Fees payable for Membership
• Admission Fees (one-time): Rs 25 Lakhs
• Annual fees: Rs 5 Lakh
• Transaction charge @ 1 paise per unit: Rs 21.6 Lakhs
• Interest foregone @ 10% p.a Rs 2.5 Lakhs

Total Cost incurred : Rs 54.1 Lakhs………..(B)

(C) Savings
• Gross Saving (A-B): Rs 32.3 Lakhs
 Bids by Suppliers

 Stipulate the participant's obligation to

Price
produce electric power at the price not
lower than the declared one and in the
volume not over the declared one;
 are submitted for each hour of the
500
operational day and for each of the
400 participant's supply point groups.
300  Submission of price-accepting bids (with
price increase with
production growth the minimal price) is possible.
0

150 250 Volume

18
 Bids by Consumers

Price  Stipulate the participant's obligation to

consume electric power at the price not
* over the declared one and in the volume
not over the declared one;

400
 are submitted for each hour of the
operational day and for each of the
300 participant's supply point groups.
consumption increase with price
decrease  Submission of price-accepting bids (with
the knowingly high price) is possible.
50 100 Volume

19
Price Calculation Algorithm ….each hour
Price(Rs./kWh) 0 1 1.1 2 2.1 2.5 3 3.1 4 4.1 20
Portfolio A, MW 20 20 20 0 0

Portfolio B, MW 60 60 40 40 40 40 40 20 20

Portfolio C, MW 40 20 0 0 -40 -60 -80 -81 -120 -120

SUM, Purchase 120 100 80 80 60 60 60 40 40 20 20

SUM, Sale 0 0 -40 -60 -80 -81 -120 -120

Net transaction 120 100 80 80 20 0 -20 -21 -80 -100 -100

250
5
Price

4 Purchase 200
4
Sale
MCP: 3
Price ($/MWh)
Price ($/MWh) 150
3 Rs./kWh 2.5
2.5
Rs/kWh 100
2
2
50
1

MW 0
40
80 120 -150 -100 -50 0 50 100 150
60 MW -100 150
MW balance
balance
MCV (Market clearing volume):
 Congestion Management : Market Splitting

area 1 area 2 area 1 & 2

price price price

MWh MWh MWh

Needed capacity for exchange between the areas

in order to achieve the same price in both areas
Courtesy Nordpool Consultancy
 Congestion Management : Market Splitting
area 1 area 2

price available needed price

capacity capacity
(exchange volume) available
area surplus capacity
at price for
MCP area 2

Systemprice
price for
area 1

available (exchange volume)

capacity area deficit
at
available needed
MCP
capacity capacity

MWh MWh

Courtesy Nordpool Consultancy

Source: POWERGRID - NRLDC
IEX Bid Areas
Snap Shot (IEX Trading 9th Aug- 9th Sept 2008)
Prices at IEX (till 9th Sept 2008)
VOLUME at IEX (till 9
th
Sept 2008)
IEX Prices Vs Avg UI rates( till 31st Aug 2008)
MCP Curve for typical day (6th Aug,08)

MAX
(8749.31)

MIN
(7107.5)
Volume And Price: Peak Hours
Volume and Prices: Non Peak
Volume at various MCP (till 6th Sept 2008)

(31 %) (27 %)

(20 %)

(12 %)

(6 %)

(2%) (2 %)
Who Can become Members of IEX ?
Entities eligible for Membership:

 Inter-State Generating Stations (ISGS)

 Distribution Licensees

 State Generating Stations

 IPPs
 CPPs and IPPs
(with consent from SLDC)

 Open Access Customers

(with consent from SLDC)

 Electricity Traders / Brokers

 IEX Membership Category

Proprietary Member (*) Professional Member

(right to trade and clear on its own account) (trade and clear on his own account & on behalf of its Clients)
Electricity Trader
Generator
Financial Brokers
Distribution licensees
 IPPs, CPP’ & MPPs
Open access consumers

Grid-connected Client (*) Trader Client

(is eligible to trade in electricity
(eligible to buy or sell electricity and is
under the Electricity Act, 2003
connected to the grid.)
and has a legally valid power
purchase/sale agreement,
Generator
which gives the Client the right
Distribution licensees to purchase and sell electricity )
IPPs, CPPs & MPPs
Open access consumers

* Denotes that foll. Entities requires Standing Clearance from SLDC

Experience so far …
• Membership Registration… in progress
• Training of Members 16-25th January 08
– Training to Exchange Members, CERC Staff, NLDC,RLDCs,RPCs,
SLDCs,SERCs and other interested participants

• Mock Trading
– First : 15th -23rd February 08
– Second : 17-20th March,2008
– Third : 26-28th April,2008
– Fourth: 21st May,2008
– Fifth: 14th June, 2008
• Exchange Commenced Live Trading from 27th June, 2008
IEX Time Line: consistent with ISGS &
Bilateral

10:00 12:0013:00 14:00 15:00 17:30 18:00

RLDCs/SLDCs
to incorporate
NLDC to Collective
Market confirm Transactions in
Participants to acceptance.
PX to send files
the Daily
place their Bid
NLDC to check to SLDCs for Schedule
for congestion. scheduling
PX to send
In case of
provisional
congestion shall
unconstrained
solution to
intimate PX PX to send Scheduling
regarding to the Request to NLDC
NLDC and flow
period for based on margin
on TS as
congestion and
informed by specified by
available
NLDC NLDC/SLDCs
margins

Source: POWERGRID - NRLDC

Treatment of Losses
• Both Buyers and Sellers to absorb losses
– Buyer
• draw less than Contracted Power
(Contracted Power – losses)
– Seller
• inject more than Contracted Power
(Contracted Power + Losses)

• Average Transmission Losses of the Region

where the Entity is geographically located
• Additional Losses for Wheeling, if necessary
– To be notified in advance by NLDC
– Only for Injection
Treatment of Losses… for buyer
• NR (Regional) Loss: 3%
• S1 (State) loss: 1%
• Buyer X bids for 100 mw at its respective regional periphery

NR S1 X
100 MW 97 MW at
Loss Loss (Buyer)
S1 96.03 MW at
at NR
periphery Buyer End
periphery

3% 1%
Treatment of Losses… for seller

• SR (Regional) Loss: 3%
• A1 (State) loss: 1%
• Seller Y bids for 100 mw at its respective regional periphery

SR A1
103.09 MW 104.13 MW Y
100 MW at Loss at state Loss Injected by
(Seller)
periphery seller at its
regional end
periphery 3% 1%
Trader Station screen
 Challenges Ahead
• ‘True’ Open Access for all State utilities
– Resources are waiting at the sidelines for true
Opening up of State boundaries
– All embedded generators are almost captive to the
State
• CERC Staff paper on ‘Price caps’
About IEX

Promoters

Joint Equity Partners:

Domain Expertise: Technology :

About IEX

Membership of
Association

Strategic Alliance
About Promoters … Financial Technologies

 Listed on BSE and NSE with USD 2.5 billion group market value.
 8th in NASSCOM top 10 Indian software companies
 FTIL has a 85% market share in Brokerage solutions running
250,000+ trading licenses.
 No. 1 leader in Market Infrastructure Projects with unmatchable
track record in executing mega projects in time and profitable within
1 year of operation.
 MCX: Project completion - 12 months.
 DGCX: Project completion - 9 months.
 IBS Forex, NSEL, NBHC among several others
 India (NSEL, NBHC, SNX), Asia (GBOT) & Africa initiatives
 An Overview
 Demutualised, Independent & Electronic (Commenced Nov 10, ‘03)
 No. 1 Commodity Exchange of India with 77% market share in 2007 and 88% market
share (Jan-June 2008) among National Exchanges
• Average daily turnover – USD Billion 2.5 in over 60 commodities
• Highest Daily Turnover - USD Billion 4.9
 Operations from over 600 cities with over 1800 members & 42000+ Trading stations
with connectivity through VSAT, Internet, leased line, CTCL etc.
 First Indian Commodity Exchange to become Associate Member of FIA
 Eight largest commodity exchanges globally (in terms of contracts) in less than three
years
• No.1 in Silver futures trading globally
• No.2 in Natural Gas & Copper futures trading globally
• No.3 in Gold & Crude Oil futures trading globally
 MCX: Conforming To Best Practices

• Accredited with ISO 9001:2000.

– The ISO 9001:2000 certification is an international standard that defines
good management practices spelling out quality and trust.

• The world's first and only multi-commodity exchange to have

been accredited with ISO 27001:2005 certification
– ISO/IEC 27001:2005 (formerly known as BS 7799-2:2002) is a
benchmark that calls for standard requirements of a robust Information
Security Management System.
 Annual Growth of MCX

80 800
Million Lots

Turnover in
Volume in

USD Bn
60 600
40 400
20 200
0 0
2004 2005 2006 2007 2008*

Million Lot s US $ Bn * Jan to June’08

 Market Share of Total Indian
Commodity Market Turnover

12%
33%
40%

88%
77%
60%

Jan-Dec 2006 Jan-Dec 2007 Jan-June 2008

MCX Other National Exchanges
 Commodity Mix & Lots Traded

30
Jan-Dec 2006 Jan-Dec 2007 Jan - June'08
25

20
Lots Traded (in Million)

15

10

Bullion Base Metals Energy Agri

About MCX – Energy Market Share
INDIA
Energy
MCX
98%

Other
National
Exchanges
2%

Crude Oil Global Market Share (in Natural Gas Global Market Share (in
Contracts Traded - 2006) Contracts Traded - 2006)

MCX ICE MCX

3.03% Others 2% 8%
0.09%

ICE
48.44% NYMEX
47.14%
NYMEX
TOCOM 90%
1.30%
 Thank You
[email protected]

Indian Energy Exchange Limited

10th Floor, B Wing, Statesman House,Barakhamba Road
Connaught Place,New Delhi- 110 001
Phone: 011-43004060 Fax: 011-43004015
www.iexindia.com