While energy consumption was flat YoY in September at 114.5 billion units (BU), coal shortages meant merchant power was in higher demand. This resulted in higher volumes on the Indian Energy Exchange (IEX), where power is traded. Around 55 per cent of merchant units are traded on the exchange (the rest are placed under bilateral agreements, etc).
Q1FY22 saw around 41 per cent YoY rise in trading volumes and unit prices shot up. That was on top of an excellent FY21, where a record 74 BU were traded on IEX. The IEX traded 8.99 BU during September 2021, with 59 per cent YoY growth, across all market segments. In Q2, July-Sep 2021, the market traded a volume of 25.86 BU, a 57 per cent growth YoY across all segments.
The highest growth came in the real-time (RT; Same-day) electricity market which traded 1.84 BU in September. The RT market traded 5.29 BU during Q2, which was 125 per cent YoY growth. Apart from the crunch caused by coal shortages, the growth may be attributed to distribution utilities and power-intensive industries opting to balance power demand in real-time.
IEX generates revenues from two main sources. One is transaction fees, which contributed 83 per cent of total revenues in Q1, 2021-22. The other is Admission and Annual membership fees, which contributed 5 per cent of revenues. Other Income has a consistently high contribution of over 10 per cent across the past three years.
In financial terms, the Q1 saw sequential (QoQ) growth of roughly 3 per cent of revenues at Rs 102.9 crore (Q4, 2020-21 revenues of Rs 100.3 crore) with an EBITDA of Rs 86.7 crore (Rs 83.9 crore) and PAT of Rs 62.1 crore (Rs 61.5 crore). The extremely high Operating Margin is worth noting – essentially expenses remain roughly the same whatever the transaction volumes.
Looking forward to the medium and long-term, the IEX reckons there could be an incremental rise of another 100 BU per annum traded by 2025, given expected rise in demand by around 40 per cent and the gradual phasing out of 41GW of capacity from plants, which have PPA (Power Purchase Agreements). This would mean more demand for merchant power and it implies over 18 per cent CAGR in trading volumes. The Draft National Electricity Policy 2021 (NEP) also targets increasing the share of spot power markets to 25 per cent by 2023-24.
The IEX holds 53 per cent stake in the Indian Gas Exchange (IGX) and it has sold 31 per cent stake in IGX to the NSE (26 per cent) and to ONGC (5 per cent) for a total of around Rs 22 crore in March 2021. Adani Total Gas, Torrent Gas and GAIL already held around 5 per cent stake each in IGX.
The stock market performance of IEX has been extraordinary with 250 per cent return in the last 12 months and 17.7 per cent return in the last month. At the current market price of Rs 696, it has a trailing PE of 90, so it’s clearly a momentum trade.
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