Trading Trajectory: Rise in short-term prices and volumes

Rise in short-term prices and volumes

With thermal power plants facing a demand crunch and discoms not signing power purchase agreements (PPAs) beyond their baseload, the short-term power trading market has emerged as a necessary mechanism in recent years for sellers (including merchant and stressed power plants). In 2018-19 (till February 2019), the size of the short-term market stood at almost 123.5 billion units (BUs), accounting for a share of about 10.8 per cent of the power generated during this period. Of the total power traded, almost 93.24 BUs was traded through trading licensees under bilateral transactions and the two power exchanges, accounting for a share of 75 per cent.

A look at the key trends in the power trading segment during the past year…

Market overview

The total volume of short-term power traded in 2018-19 in the first 11 months till February 2019 was 123.5 BUs, a growth of 16 per cent over the 106.54 BUs traded in the corresponding period of 2017-18.

Of the total volumes transacted in the short-term market during the period under consideration, the volumes traded through trading licensees stood at 46.4 BUs, while around 46.7 BUs was traded on the power exchanges. Deviation settlement mechanism (DSM) transactions accounted for 23.58 BUs of volumes traded while bilateral transactions between discoms accounted for 17.46 BUs.

Power exchanges

During 2018-19 (till February 2019), an aggregate volume of 49.45 BUs was transacted through the two power exchanges in the day-ahead market (DAM) and the term-ahead market (TAM). The bulk of their trading was accounted for by the day-ahead market trade at 46.7 BUs while the remaining (2.67 BUs) was by the term-ahead route (that is, 11-day advances).

Player-wise, the lion’s share of 46,705 MUs in the DAM was traded on the country’s first and largest exchange, the Indian Energy Exchange (IEX). Meanwhile, the second power exchange, Power Exchange India Limited (PXIL) witnessed 76.25 MUs traded in the DAM during the year. In the TAM, almost 1,858 MUs was transacted on the IEX’s platform, while the remaining 814.51 MUs was transacted at the PXIL. Meanwhile, the average price of electricity traded through the exchanges was Rs 3.80 per unit during the first 11 months of 2018-19, as compared to Rs 3.45 per unit during 2017-18 and Rs 2.50 per unit in 2016-17. At the IEX, the prices ranged from Rs 3.31 per unit to Rs 6.13 per unit during this period, while at the PXIL, the price range was Rs 3.14 per unit to Rs 6.50 per unit.

Apart from discoms, a growing number of industrial consumers have also turned to power exchanges for their electricity needs over the years due to competitive prices being offered. In 2017-18, over 4,800 open access consumers procured power through the two exchanges, compared to around 4,357 consumers about five years prior.

At the IEX, around 4.7 BUs was procured in 2017-18 by around 4,248 open access consumers at a weighted average price of Rs 2.92 per unit. These transactions comprised around 33 per cent of the total volumes traded at the exchange. Around 6 MUs of power was procured by 559 such consumers at the PXIL during 2017-18, at a price of Rs 2.79 per unit. These transactions comprised around 1 per cent of the PXIL’s total transacted volumes.


During 2018-19 (till February 2019), around 46.46 BUs was transacted through traders, compared to 38.94 BUs traded in 2017-18 and 33.5 BUs in 2016-17.

As of February 2019, there were 37 registered interstate trading licensees, of which 22 were engaged in short-term trading. PTC India, with a 30 per cent share in volumes transacted through traders during February 2019, was the market leader. The other major traders were the Arunachal Pradesh Power Corporation, Manikaran Power, Kreate Energy, GMR Energy Trading, the Tata Power Trading Company and NTPC Vidyut Vyapar Nigam Limited.

In the 11 months of 2018-19, the average price of electricity transacted through traders was Rs 4.27 per unit, as compared to Rs 3.59 per unit in 2017-18.

REC market

During 2018-19 (till February 2019), around 11.2 million renewable energy certificates (RECs) were cleared through the two power exchanges. The total market clearing volume was 4.36 million for non-solar RECs, of which 3.4 million RECs were traded at the IEX and the remaining 0.96 million at the PXIL. The total market clearing volume of solar RECs traded was 6.8 million, of which 4.44 million RECs were traded at the IEX and 2.4 million at the PXIL.

Key challenges and the way forward

According to industry experts, the short-term trading through the power exchanges holds significant potential for future growth due to the changing discom requirements. With surpluses now being reported on the supply side, many states are realising that long-term PPAs are not required beyond the baseload. Therefore, discoms are increasingly opting for the short-term market and hence have not come forward with any PPAs during the past five years.

Going forward, banking on the synergies in its power exchange business, the IEX is also mulling over introducing a spot gas exchange trading platform for trading in natural gas produced by marginal fields. For the electricity market, some of the new contracts that are planned to be introduced by the IEX are the forwards and futures markets with increasing liquidity in the power trading market.

While the outlook for short-term trading remains buoyant, infrastructure constraints and congestion in transmission networks are some challenges. Besides, challenges in open access implementation have also hampered short-term transactions. Wary of losing their large customer base, discoms have imposed huge transmission charges on purchases from power exchanges, making such transactions uneconomical.

Going forward, improvement in the financial health of discoms through the Ujwal Discom Assurance Yojana translating into higher demand, regulatory intervention for minimisation of cross-subsidy/additional surcharge (for open access users), and introduction of new long-term products on the exchanges are expected to drive growth in the short-term market.