Indian Energy Exchange Limited (IEX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q2 FY '21 Earning Conference Call, hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Abhishek Puri from Axis Capital Limited. Thank you. And over to you, sir.

Thank you, Janice. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Indian Energy Exchange Q2 FY '21 Earnings Conference Call. So we have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, the non-Executive Chairman of Board, Interim Managing Director and Chief Executive Officer; Mr. Vineet Harlalka, Chief Financial Officer; and the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. So over to you, sir.

I welcome you all to the quarter 2 fiscal year 2021 earnings call of IEX. I hope all of you, your teams and families continue to stay safe and healthy. While we are still coping up with COVID pandemic, efforts are being made across the country to revise the economic engines and cautiously moving towards the business as usual. As a critical part of the energy and power sector ecosystem, the exchange continues to be committed to facilitate the distribution utilities and industrial consumers in procuring 24/7 power in the most competitive, transparent and efficient manner. The quarter 2 of the fiscal year 2021 has been significant one for IEX. During the quarter, we witnessed the launch of yet another new market segment, which is Green Term-Ahead Market with continued momentum on our customer outreach efforts to disseminate awareness and build capacity through various webinars as well as one-to-one digital engagements. We upgraded the technology platform to support the green markets. We further strengthened our subsidiary, IGX, through equity infusion as well as filed application for approval with the PNGRB, the gas regulator. With these and many more initiatives, we could achieve and sustain a positive momentum in terms of our business and financial performance, even during these unprecedented times. We acknowledge and thank our members, clients, employees and all our energy ecosystem partners for their continued support. Now I'll talk about economic and industry update. Overall, the second quarter of fiscal 2021 saw a significant relaxation in the lockdown restrictions across the country. We saw a sharp recovery in industrial activities in the month of August and September 2020, which is evident from the fact that the manufacturing PMI for the month of September 2020 rose to 56.8% from 46% in July 2020. Notably, September '20 -- September witnessed the highest manufacturing PMI numbers in the last 8 years, which is an encouraging sign for the economy. With an increase in economic and commercial activities, power demand also returned to pre-COVID levels in September 2020. India witnessed 4.6% year-on-year increase in the national energy consumption. However, due to slump in the months of July and August, overall national energy consumption declined by 0.5% in quarter 2 on year-to-year basis. India's total installed power capacity has reached 373 gigawatt as on September 30, 2020, an increase of 3% on year-to-year basis. In line with the national vision to increase the share of renewable energy and its efforts to fulfill its commitment under Paris Agreement 2016, the renewable energy capacity has registered at a rate of 8% growth. As on 30th September '20, India's installed renewable capacity has now increased to 89 gigawatt and constitute about 24% of the total installed capacity. On the regulatory front, during the quarter, Uttar Pradesh Electricity Regulatory Commission issued Draft Merit Order Dispatch and Power Purchase Optimization Regulations 2020, aimed at improving the efficiency in generation and power procurement in the state. The regulation rightly recognizes the exchange-based short-term power market as a possible avenue for power purchased by distribution companies and for efficient and cost-effective optimization while meeting the state's overall demand-supply situation. Similar such regulations are also -- are already in vogue in the states of Delhi and Maharashtra and serve as a precedent -- precedence for other states in pursuing an efficient Merit Order Dispatch for procurement of electricity. As regards to the gas industry, PNGRB issued final gas exchange regulations on September 28, 2020, which is a significant development for the gas markets in India. It will mobilize the market and should hopefully accelerate the pace of gas trading. Financial and business performance. On a stand-alone basis, the quarter witnessed 4.9% year-on-year growth in revenue from operations on account of an increase in volume. However, due to a decline in treasury income, overall revenue increase was -- increased in quarter 2 by 0.8%. Profit before tax increased by 1.5% on year-on-year basis from INR 60.65 crores to INR 61.56 crores. This is profit before tax. PAT at INR 46.7 crores was down by 4.4% as compared to INR 48.82 crores in quarter 2 of FY '20. Last year, PAT was more because of onetime tax benefit of INR 3.7 crores. The electricity volumes on the exchange witnessed an increase of 13.2% year-on-year increase in quarter 2 and stood at 16.486 billion units as compared to 14.56 billion units in quarter 2 of FY '20. The REC trading could not take place during the quarter, owing to a stay order from Honorable APTEL. And hence, the total volumes, including REC saw 3.8% year-on-year growth during quarter 2 of FY '20 -- '21. The day-ahead market on the exchange continued to see robust volumes on the sell side. With sell-side volume of 2.2x of the cleared volumes, the market witnessed average clearing price of INR 2.53 per unit, a very competitive price. And last year, during the same quarter, it was INR 3.15 per unit and a decrease of almost about 20% in the clearing price. And this enabled the distribution companies and industrial consumers to take significant cost advantages by purchasing power to the exchange. Attractive prices also led to 40% year-on-year increase in the open access volumes on the exchange platform. The real-time electricity market, which was launched on June 2000 -- on 1st of June also continued to witness robust volume and traded 2.350 billion units of volume in quarter 2. On a cumulative basis, market crossed the milestone of 3 billion units on 6th of October, this month. Quarter 2 initiatives. We are pleased to inform you that in line with our efforts to commence trade in the long-duration delivery-based contracts, we have filed a petition with CERC for its approval. Simultaneously, the exchange is working towards ramping up its market operations, business, communications and technology infrastructure to support commencement of trading in the new market segments. During the quarter, we launched a new market segment, Green Term-Ahead Market, on August 21. The market witnessed an encouraging response from the participants with cumulative credit volume of 75 million units. On average day, we trade almost about 1,000 megawatts during the peak hours. On the first day of the launch of GTAM, we -- there was participation of only about 6 participants. And today, we are seeing participation of almost about 40 participants on daily basis. And average volume is about 8 to 10 MUs per day. IEX continues to strengthen IEX platform -- the IGX platform through various capacity building initiatives and investments. We have also filed applications with PNGRB for the authorization and being a regulated entity would bring in more credibility in the platform, enabling greater penetration of the gas market. We continue to undertake various policy and regulatory advocacy, market development as well as customer outreach initiatives with an aim to build the pickup of positive trade momentum. While COVID-19 has adversely impacted the energy and power sector, a favorable policy and regulatory framework could unleash transformation in the sector. We feel time is opportune to establish a new market-based energy order, which is forward-looking and consumer-centric for India's economic growth. IEX is committed to support this transformation and ensuring reliable energy and power procurement in the more sustainable, efficient and flexible way. Thank you. I and my colleagues would be pleased to answer your questions now.

[Operator Instructions] The first question is from the line of Mohit Kumar from IDFC Securities.

Congratulation on good set of numbers. Sir, 2 questions. Firstly, sir, what is the expected time line of power market regulation? And does the launch of TAM require only CERC approval or it requires the power market approval and Supreme Court judgment? That's the first question.

Yes. Power market regulations, I mean, we were expecting them to be issued in the month of September. But then as you are aware, regards to the Supreme Court order, 2 of the members are now on leave. So the quorum is not available in CERC. So only when member of law is appointed and other members are allowed to function, I think then they will take up this PMR activity. So nothing can be said right now when the PMR will be issued. As far as long-duration contracts are concerned, we have filed our application with CERC for approval, but CERC will take up the approval only after the jurisdiction issue is settled by the Supreme Court. So we have filed this petition basically to save some time, the procedural aspect of the time. Otherwise, CERC will give the approval only when the Supreme Court issue is settled.

When do you expect Supreme Court approval to be in place, sir?

Very difficult to say. I mean the application in the Supreme Court was filed by -- for the joint application of the parties who had filed the case, which is SEBI, CERC, Ministry of Power. And it was done about a year back. And during this COVID time, unfortunately, only urgent matters are being taken up. So this hearing is getting postponed. And the hearing was to happen on 8th of October. It has now been shifted to December first week.

Okay, sir, my second question is on the gas...

This has been getting shifted from the last 7, 8 months. So we can't really say whether it will happen in the month of December or not.

Yes, sir. Understood, sir. Second one, sir, gas volumes, of course, last quarter was very muted. How do you think gas volumes in the next few years? And do you think these -- all the enablers for creating a gas trading market are taking shape? And if you think that -- can you just update on all the enabling regulations, which can materially increase trading on the gas exchanges?

See, when we started electricity exchange in 2008, at that time, all enablers were there in place for doing -- for starting the electricity exchange. Enablers like, we had a system operator, which is NLDC, RLDC and SLDCs. There was deviation settlement mechanism, which was in the form of UI. We had open access regulations by CERC. There's non-discriminately open access to all participants. So there was no taxation on interstate sale of electricity. So all these issues were settled, and trading of electricity became a reality from day 1 when we launched this IEX. In case of gas exchange, we knew that many of these enablers are not in place. But then even to get these enablers in place, there's a lot of policy advocacy to be done. But we want this exchange. Some activities are happening, but then transaction in a big way will happen only when these enablers are in place. First thing is power market -- gas exchange regulations. We launched the gas exchange on 15th of June. In the month of July, the draft regulations were issued. And after the public hearing, the final regulations were issued on 28th of September. So that is one enabler, which is now in place. PNGRB again has issued regulations -- I mean, draft regulations for the access code and also to issue regulations for the transmission -- gas transportation tariff. And they are again coming out with a simplified gas transportation project number, which is required for the exchanges. So that is another activity, which is work in progress. We -- gas is unfortunately not under GST. So different states have got different taxations on the gas. And because of that, it is very difficult to have -- very difficult to introduce standard contracts on the gas exchange. We are working with the government. What we understand is that government has already deferred decision to the GST Council. Hopefully, that should also happen in the next couple of months. System operator, that also really is already working in this area. They have -- in one of the office, all pipeline metering systems are -- I mean all those activities have been provided. All the energy systems are available now with them. They are also going to do this -- in fact they are getting from the other pipeline operators. And I think system operator also will be operational maybe in the next couple of months. So these all -- on all these enablers, it is work in progress. It may take another 5, 6 months. And only thereafter, we will see gas trading in a big way. Even if you look at the infrastructure part of it, gas, LNG terminals, regasification terminals, today, we have practically only 2 regasification terminals which are operational, which is by Petronet and Shell. Petronet terminal is overbooked, operating in both the 100% capacity under the long-term contracts. Shell terminal, they are also practically operating at 100% capacity. So if you want to develop the market, I think we need more terminals, so that there is spare capacity available for the traders who want to bring cargo and sell in the market. A lot of activities are happening on the regasification terminals. I understand that work is happening on 5, 6 terminals and maybe 2, 3 terminals will get commissioned in the next 1 year. Pipeline, we see -- a lot of work in the eastern and southern part of the country is happening there. So we should see an interconnected gas pipeline network in the country, the way we have for the electricity. And that will be the time when we will have real good volume on the gas exchange. So what we are doing at the moment is the investment in the gas exchange and creating all these enablers. And I'm sure about one thing, that opportunity in the gas exchange is much bigger than what we are doing in electricity. Because in case of electricity, 90% of the transactions are happening under long-term contracts. The short-term market is very small. In case of gas exchange, already, the short-term market is -- almost about 15%, 20% of the transactions are happening through the short-term market-based spot contracts. And going forward, most of the incremental quantity is going to happen under the spot contracts. So the opportunity for the gas exchange is much larger.

[Operator Instructions] The next question is from the line of Nikhil Upadhyay from Securities Investment Managers (sic) [ Securities Investment Management ].

Am I audible?

Yes.

Yes. Sir, my question is on the RTM market. So the earlier idea was that when we will launch the RTM market, there will be a shift of the market from the DSM to the RTM. Just wanted to know -- but what we have seen is that the RTM has cannibalized the TAM market. So how are you seeing -- is there a shift which is happening from DSM to RTM? And how are you seeing the scale-up in the TAM market? That is one. Secondly, on the long-dated contracts, can we talk of volumes of 20 billion units and on the Green TAM and all, do you see there could be similar cannibalizations which can happen from our existing volumes?

Yes. RTM market, initially, we thought that a substantial part of the DSM will get shifted to the RTM market. But actually, what has happened is our intraday TAM transactions, they have now reduced practically to 0 and the transactions have got shifted to the RTM market because that makes a lot of sense also. Now distribution companies can buy on a real-time basis and at a competitive price. At the same time, in fact, the volumes in the RTM markets are much more than what we used to do in the TAM market. So good part of the volume is also the additional volume for the exchange. Because of competitive price, many of the states are replacing the high variable cost power by purchasing power in the real-time market. We are working with the states. We are doing analysis of the power drawn by the states under the DSM, what kind of penalties they have paid, what kind of -- at what rate they have overdrawn the power and does it make sense for them to purchase power through that, replace that DSM power by the exchange power. We are doing all that kind of analysis, trying to impact with the states. And I'm sure it will take some time, but even some shifts from the DSM to RTM should also happen.

Okay. And secondly, on this long-term, long-dated contracts and the new products which we are launching, where we believe the volumes of 20 billion units, additional volumes come up, do you see there is a risk of cannibalization of existing volumes there as well? Or how do you see...

In the long-duration contracts, I don't think there is a risk of cannibalization of the TAM market because TAM market is -- on day-to-day basis, it is a difference in the demand and supply of the distribution companies, which they purchase from the market. Long-duration contracts will be basically getting volume from the bilateral market. Today, bilateral market, our volumes are also about 40 billion units. So maybe a part of those volumes will get shifted to the long-term contracts.

The next question is from the line of Devansh Nigotia from SIMPL.

Sir, my question was relating to long-duration contracts, where earlier, you highlighted that you will be looking for reverse auction pricing structure, which is basically similar to what is actually happening right now in DEEP platform. So -- and I think there are no transaction charges on DEEP platform as of now. And we will be taking transactions, standard INR 0.02 per unit. So I mean what will be the value proposition that we'll be offering, for which volumes on bilateral will shift on our exchange? So if you can just throw some light on that.

See, on the DEEP platform, it is only discovery of price, which is happening. Once the price is discovered, then the DEEP platform will indicate who are the sellers who are going to sell power at this stage. And it is up to the distribution companies to enter into agreement with those sellers. And then future delivery, financial and physical settlement is happening between the DISCOM and the sellers directly. So DEEP platform is only during price discovery. After that, the role is over. In case of our long-duration contracts, there are going to be auction mechanisms. There's going to be another matching mechanism also. But under the auction mechanism also, we will do physical and financial settlement also. We will take open access and ensure there is supply of power into the contractors, supply to the distribution company and payment to the generators on daily basis. So that is the value add which we are going to provide.

Okay. So responsibility of the payment and delivery of the volumes, which is the edge...

Change will be counterparty to all these contracts.

Okay. And in the case of REC, I mean, there were -- there was this news flow where the APTEL has actually concluded that REC trade can now continue. So if you can just reclarify on that? And when can we see REC volumes back on the exchange, if you have any visibility?

APTEL has not concluded that. APTEL has concluded the hearing. Order is as well. We are expecting orders in this week, so that REC trading can happen on 28th of October. That is what we are expecting. Because market participants, they have all requested the APTEL that for 3 months, the hearing has not happened. So there should -- it should order before 28th, so that the trading can happen on 28th of October. So we are waiting for the order.

Okay. And if you can just throw some light on the increase in employee cost by -- I think, it has increased by 10%. So if you can just divide it between increase in number of employees and increments that we have given, if any, and other income? I mean it's -- normally, we do a run rate of INR 11 crores and it's been INR 8.5 crores. So if you can just elaborate on these 2 differences.

I will request Mr. Vineet Harlalka, our CFO, to respond to your question.

Thanks. First of all, I'd like to answer on the treasury income. You rightly said treasury income during the September 2019 quarter, we had around INR 11 crores. And in the June, it was around INR 13 crores on a consolidated basis. But if you look at the trend in the interest rates, the interest rates had fallen significantly. And in the June what happened because of the first quarter when the interest rates were reduced significantly by the RBI because of the COVID thing, so there was a lot of mark-to-market gain which we got in the first quarter, which is in the range of around INR 5 crores. And if you look into the -- overall our treasury side, which is in the range of around INR 500 crores, and if you compare the lower interest rate in comparison to the September 30, the net impact is around INR 5 crores. So because of the lower interest rate, that is the impact. But June was an exception quarter because of the mark-to-market gain what we have because of the lower interest rates. So this was the one factor I have been taking care of the treasury part. Now if we look at the manpower cost, manpower cost has increased 10%. But if you look into the launch, there were a lot of new contracts we had launched. Our team has a 24-hour market and others for which we needed manpower and the annual increment impacts were there. And there was a lower interest rate, so there was some add-on provisions for the gratuity and the provisioning of the actuals for the year. These are the basic factors. But looking at the overall structure of the site, I think now we have reached the level where we were going to sustain on this call for at least for the near term.

Okay. Okay. And what would be the average yield on the bonds right now? Or our treasury income...

Average yield, we are getting from the overall, the September quarter this year, we had around 5.6% of the average gross yield.

Okay. Okay. Okay. And if you can just elaborate more on Indian Gas Exchange, where there were -- where we were trying -- there was a debate around the percentage of ownership that we want to retain. And we even made an application for that. So what is the current status where GAIL was a prospective buyer with whom we could have sold some stake. So if you can just reclarify a bit on that?

Yes, GAIL was interested in taking 26% equity and come as a strategic investor in the company. But PNG regulations provide that members can only have 5% equity in the company. So GAIL is the largest seller in the company -- in the country. And they are also our members. So I think they will be able to take only 5% equity in the company. We are in discussion with them. And we are also discussing with a couple of strategic investors who are large players in the gas sector for investment in the company. This is basically to get more value for this initiative. Otherwise, as on date, it is IEX which is holding 100% equity in the company.

The next question is from the line of Lavina Quadros from Jefferies.

Great set of results. Just 2 questions from my end. Sir, one is October, what volumes I'm seeing on your website, it indicates very strong growth. So I just wanted to understand, are there any one-offs or maybe it's just a low base effect? That's one. And secondly, sir, any color on states that are contributing? I mean any -- within all your states, any particular state that has increased contribution or someone that's reduced?

October is not one-off. Even September, we had volume growth of 45%. Even in the month of May, also, we had, I think, similar kind of volume growth. So yes, one is base effect also. Other is, in fact, in the month of October, the per day average volume itself is quite significant. RTM market is also giving almost about 25 MU per day. Green Term-Ahead Market is another 7, 8, 10 MUs per day. So I think overall, volumes are good in the month of October. And I'm sure going forward also as the demand of electricity -- consumption of electricity keeps on increasing, the volume on the exchange should also be good. Significantly better than last year.

And sir, on the states, any color over there? Any states which are contributing with an increased share?

This is participation of all states, participation of all states. I mean large states, definitely buy rate for them is more like states like Maharashtra or Tamil Nadu, Telangana, Punjab. Punjab, because in the case of Punjab, the demand is higher during this particular season. So they have bought large quantums of power. But then by -- more or less spread over all the states, except for the [indiscernible] comparatively is much lower.

The next question is from the line of Ankush Agrawal from Stallion Asset Management.

Just 2 questions. Firstly, if you can give like how much of -- how much percentage of total short-term market is currently addressable by the IEX? And by what time do you expect it -- expect like a level wherein IEX would be able to enter the entire short-term market, like we are looking to launch new products in terms of long-term contracts? So will that be able to give you product portfolio that would be able to address the entire 100% of the short-term power market, if you can clarify back? That would be the first. And secondly, in some of your presentations, I have seen a mention of you looking to market banking contracts as a new product. So just one clarity on here. Is the banking contracts volume which is being currently undertaken by DISCOM, is it separate from the short-term power market? Like is it over and above the short-term power market? Or is it included in the short-term power market? Yes, that would be it.

Yes. I mean today, short-term market is almost about 11% of the total generation. And IEX share -- exchange share out of that used to be almost about 35% to 40%. But I'm glad to share with you that this year, in the first 6 months, our share has been 50% out of the short-term market. There's a significant increase in our share. So that is one thing good, which has happened. Second is when we introduced these long-term contracts, see, the short-term market is consisting of exchange, bilateral transactions, DSM and the banking transactions. So when we introduced long-duration contracts, with that, our reach will be from -- increased from 50% to maybe about 70%, 75% of the addressable market. And with the real-time market, we are also trying to get some volume from that DSM market. Banking transitions, it may not be possible for us to introduce an equivalent of the banking transaction. But then we are working with the states that they can sell power on the exchange platform and maybe bank that money and use that money to buy power when they need it. So this side of financial products also, we are working on that. I think with all these things, whether we will be able to get the entire short-term market or not, difficult to say. But then, yes, addressable market price will increase to 11%, 12% in the next 2 years.

Okay. So just 1 clarification on this. So with long-duration contract, you expect the total addressable power market or the short-term power market would be 70%, 75% for IEX. And with some variation of the financial contract, which would be similar to banking, you expect the total addressable market to be 100% or high for short term?

Yes. Yes. Yes. Out of that, how much we are able to get...

Yes. How much IEX will gather, that would be a separate thing. But the addressable market would be 100% post that?

Yes. Yes. You're right.

The next question is from the line of Abhishek Puri from Axis Capital.

Sir, on the REC market that you mentioned earlier, if it starts from now, would it mean that the demand which is not met for the last 3 months will be pent-up demand? And -- or is it already met elsewhere and we will not see the volumes coming in -- the lost volumes, I mean to say, the last 3 months volume?

No, the demand is not met. There is no other product available to meet the demand. They will have to meet the demand in [indiscernible]. But because of pandemic, many of the states are giving a carryforward provision to -- I mean, benefit to the distribution companies. Some of the state regulators are doing that. So whether the REC volume will be similar to what we did last year, I think it will depend -- we'll have to wait and see in the next couple of months. But with the reduction in the REC price, CERC has revised the forbearance price and the base price from INR 1,000 and INR 2,400, which is now down to INR 0 and INR 1,000. So the REC prices are expected to be significantly lower. And with that, we feel that purchase by industrial consumers and captive industries will be -- could be significant.

Okay. And this is the exact case why APTEL case was there, right? Because the REC owners had questioned a reduction in rate?

Yes, you are right.

Okay. Okay. So secondly, in terms of the DISCOM short-term open access notification, what is the status now? When will -- is it stuck because CERC has not started functioning?

No. The transmission charge-sharing mechanism, you're talking about that?

Yes, sir.

That will be effective from 1st of November. The order was issued by CERC much earlier. It is NLDC, which is working on the transition of charges. And what I understand, it will be effective from 1st of November. There's not going to be any change in that. It is all the administrative activity now.

Okay. The notification is already out on this.

Yes. Notification is already issued out earlier.

Okay. And my last question, sir, is on NTPC is participating and you're looking at the constitute and they're participating in RTM, but they don't participate in DAM, any specific reason why you think they are not -- they have started in RTM, but not in DAM?

See, in case of NTPC, the entire power is allocated to the states. So states have right to settle their power. States have rights to restore that power on the [indiscernible] with 1 hour -- 1.5 hour notice. But in case of real-time market, as per the regulations which are issued, the underproduced power can be sold by them in the RTM market. So that is the flexibility which they have in the real-time market. And that is why they're able to sell power in the real-time market.

Any regulation, which is pending to get them to the DAM market also? I think there were some -- the STED status was...

Yes. Yes. I mean we were doing the policy advocacy, but all underproduced power on day-ahead basis should be allowed to be sold in the DAM market. That will bring a lot of liquidity in the DAM market. But unfortunately, that has not been so far accepted by the regulator and the government.

The next question is from the line of Suraj [indiscernible].

Sir, my question is regarding your market coupling. Is there any update on the draft paper that was issued like 2, 3 months back?

Yes. Market coupling was an enabling provision, which was introduced in the draft market regulation. And there was a public hearing on that. I'm sure you are aware about what was the view of different participants. We also presented our case. And whatever discussions we had during the presentation and subsequent to that, so we understand this is an MBED provision. And maybe this has come mainly because of the MBED, where in 2018 when MBED discussion paper was issued, market-based economic dispatch paper, if you want to mandatorily do all transactions through the exchange for the 100% of the power generators in the country, then I think you'll need 1 price to settle that. And that is why you need market coupling. So therefore, it -- as a concept, this concept was introduced. And MBED provision was created in that MBED paper. I don't think anything is going to happen in the near future. And I really don't know whether it will be treated as a part of the final regulations or not.

The next question is from the line of Aniket Mittal from Motilal Oswal.

Sir, my first question is on the open access front. If you could just let me know what sort of volumes -- of your total volumes is coming to open access for 2Q and 1H? And this is a note on that note typically, what's happened is over the past 1 year, we've seen an uptick in open access volumes. But whenever such a situation has happened, the states have sort of increased the additional surcharges, especially given that the power demand situation is pretty low. So based on your assessment, how are sort of states also reacting to this? Or are they increasing the surcharges for open access?

Yes, our open access volume, there has been significant increase in open access volume during these last 6 months, almost -- increase of almost about 40% in that, mainly happened -- hello, can you hear?

Yes, yes, I can hear you.

Yes. Mainly, this happened because of the low clearing price. Our clearing price during this time was about INR 2.50 against INR 3.15 in the last year. So the increase in open access are mainly account of the low clearing price. States, they are still not encouraging open access. The tariff barriers and non-tariff barriers are still being created. We are working with the states. We are working with the state regulators, but the process is in a very limited manner. Open access volume today is about 23%, 24% of the total volume.

Okay. So this is for 1H or 2Q, I'm just trying to understand for the 23%, 24% number?

Aniket...

This 23%, 24% number, is this the number for 1H that you're giving?

Yes. First half is 26%. And if you look at second quarter, it's about 36% -- 32%.

Understood. And sir, my second question is probably just to hop a bit more on the DSM, RTM dynamics over here. So obviously, DSM still continues to have a 2% market share of the overall volume. So -- just so to understand from your medium-term perspective, what is required for IEX to get that shift from DSM to RTM? Is there a low amount of participation that we are still seeing on RTM? Is that the reason why -- or is there a thinking now that the one-hour time frame actually may not be sufficient? Maybe that one-hour time needs to, over a period of time, come down for that shift to happen.

We are working on that. If you look at the DSM price, the DSM prices are linked with the DR price. So the DSM -- I mean with the reduction in the clearing price in the day head market, the DSM rates also have reduced. So it becomes the final rate only even there is a overdraft beyond the limit, beyond the specified limit. So we are doing these calculations for state by state, what is the quantum of forward call beyond the limit, what kind of rate penalties they have paid under those overdrawals, and whether there was an opportunity for them to optimize and how they could have done that. I think these kind of analysis and investments to the states over the period of time, then only, we will be able to get the volumes from the DSM to the real-time market.

Sure. So still, you can see increased participation coming from DISCOMs, institutional investors.

Yes, the participation is, today, almost every day, more than 400 participants participate in the real-time market.

Okay. Okay. And just one last question, if I may. If you could just provide an update on how GTAM is progressing? What sort of response are you seeing on that especially in terms of participants? And also with the REC in place, how does that dynamic growth rate?

When we started GTAM on 21st of August, the volume was 0.2 MU. And these days, we are seeing almost about 9 to 10 MU per day. There is significant -- the participation has significantly increased. Almost every day, 40 participants participate in this market. We are seeing generator selling power. And good thing is you know the distribution companies, the distribution companies like Andhra Pradesh, Karnataka, which have -- Telangana, which have larger renewable portfolio. Power availability is more than the RT application of the state. So there's still that excess power on the states right now, that green power and take advantage of that. Because the clearing rate in the green market is almost about 70%, 80% more than that rates cleared in the conventional market. So they get that premium by selling power in the green market. Earlier states were backing down the green generators when the demand was less. Now they have a market to sell that power instead of backing down the generators. So this is a very big development and very positive for the renewable generators also and for the states also.

The next question is from the line of [indiscernible] PPFAS Mutual Fund.

So the first question which I had was on REC. So like I heard in the call that there was -- like you weren't able to trade and in the REC the volumes were low. So could you throw some light on this? That's my first question. And secondly, I just wanted to understand the difference between Green Term-ahead Market and the REC market, like what are differences and which market like what addresses which market? So if you can just throw light on these 2 questions.

Yes, Green Term-ahead Market, you are purchasing electricity and also the green attribute of electricity. So you are meeting your energy demand, and at the same time, you are also fulfilling your RPO obligation. In the REC market, you are only buying the green attribute. For example, a industry, which has got its own captive generation, there is an RPO obligation applicable for that industry. So since they have already met them as a requirement from the captive generation, they will have to buy REC from the market to meet the RPO obligation. But if there is a state which is wanting to purchase power and also have to comply with the RPO obligation they can purchase green power to meet both of them.

Okay. And sir, about the REC certificates. Like there's a volume. So what exactly happened above -- the prices were lowered by the regulator?

No, the volume is not there because transactions are not happening because of the active stay order. I'm sure this month, the order should come, and we should see transactions in the REC market also from 28th of October, which is the last Wednesday of the month. So we should see transactions in the REC market on October 28.

The next question is from the line of Sumit Jain from ASK Investment.

Sir a few quick questions. Any update on CEO search? What were the admission and annual fees for Q2? MCX has tied up with mjunction for coal exchange. Now in energy markets, IEX clearly has the lead and monopoly in spot transactions. So will it be too much to expect now that we've launched a gas exchange to also take on something like a coal exchange or IEX is going to have an answer in that segment as well? And if you can quickly elaborate on the states that you just mentioned, that is Maharashtra, et cetera, on the draft merit dispatch? What exactly that it is? And what impact it has on the power market?

Yes. Yes. So first is CEO search? That is what you asked?

Yes, yes, yes.

I think Board is working on that. I will not be able to tell you anything beyond that. But there is no -- I mean uncertainties as far as the company is concerned, we have somebody who's looking after the company who was with the company for a long time. So don't worry about that. There will be no vacuum as far as the CEO is concerned. Mjunction and MCX, it is very difficult to say what kind of a coal exchange they are talking about because what I understand about exchange is, the exchange, which is doing price discovery and also physical and financial settlement. Physical and financial settlement can be done for a commodity, which -- in which there is no issue regarding quality and quantity. If you look at electricity or the gas, these are measured by meters, automatic online measurement of the quality and quantity. And it's the same gas which is flowing through the pipeline. In case of coal, I'm sure you are aware what kind of coal we have and what kind of issues we have in the coal market. So whether it's going to be a coal exchange or it is going to be a reverse auction mechanism, what we have on the DEEP platform. So I'm not really aware what is their business model. Your third question is regarding annual fees, this fees is for quarter 2, is INR 4.46 crores. Anything else?

And finally, the draft merit order dispatch, which you said, UP has issued and Maharashtra and Delhi. They already have that in place. What exactly in terms of doing progress in the power market and what impact it has?

Let me briefly explain you what a merit order dispatch is. Normally, states are dispatching their power based on the long-term contracts, which they have contracted. So they try to meet the demand for the long-term contracts. And if there is a shortfall in demand, then they purchase power through the bilateral or the exchange. Now regulator in case of Maharashtra and Delhi, they have said very clearly that when you are cutting your merit order, you should also factor in the exchange clearing price. If exchange clearing price is lower than the variable cost of some of your plants under the long-term contracts, you should back down the power from those costly plants and purchase power from the exchange. That is a true merit order because you are replacing high cost variable power. Fixed cost is something which is cost you have to pay. But then at least you compare exchange clearing price with respect to the variable cost of different plants. And there are many plants in the country where the variable cost is much higher than the exchange clearing price. So if everybody starts doing merit order dispatch, then in that case, you will find that the objective of MBED will be automatically met through this merit order dispatch process.

Sure. And one quick question on MBED, in MBED you'll first look at sources where you have the cheapest cost of power, cheapest variable cost, you go then to the next source, then to the next source. That is the way you'll build the entire architecture at a particular point in time under an MCO. In that, pan-India level, they will be many. But you also have to honor the PPAs. So some of that saving will be passed on to the producers of power. But some of these savings will be retained at the national level. To that extent, if I have a PPA at a price that may not be the best price or remunerative price for the SEB, but I'll still get that price under that PPA, right?

Let me interrupt you for a discussion on MBED, we need one full good hour for that. I'm willing to spend time with you. But let me only say in brief, that with MBED, the intention is to dispatch entire power of the country to meet the entire demand of the country based on the most efficient manner. So it is a true merit order dispatch, which will happen under the MBED. It is very simple to hear. But if you want to implement this process, there are many complications. So all those complications will have to be addressed. You have to pay the capacity charges, you will have to pay for the energy charges on daily basis, and there is going to be contract for defense. So all those things will have to happen. I think it is as complicated as GST what we are doing now. So very difficult to implement in the country. You also need the consent of the states. So I think it will need time, not going to happen very soon.

The next question is from the line of Ankit Gupta from Alchemy Capital.

Sir, as per your volumes given, our pricing per unit comfortably relatively lesser than last quarter or even last year. Is there a pricing pressure or is the pricing displayed in some [indiscernible] market?

No, no, no.

Sorry to interrupt, but your audio is breaking up, sir?

Yes, yes, okay.

As far as the transaction fees is concerned, it is constant, it is same last year and this year. I don't think -- there is no change in that. There is no reduction or any incentive or DISCOM is that.

But our volume growth is 13%, but our revenues growth is only 5%. Then why is it so?

It is REC, REC volumes has not happened. You are seeing only electricity volume growth. You are not seeing REC, right? REC has not happened.

Yes, yes. Okay. Okay. And second, sir, what are gas volumes which we did this quarter?

Pardon?

Gas volumes, volumes in the IGX.

IGX volumes are very low, as I told you, that we are working with the government and regulators to put enablers in place. So all those things will have to happen. We are not really today worried about the volume. I think for the next couple of months, we'll have to work aggressively with the government to put these enablers in place. And thereafter, I'm sure there's also opportunity.

The next question is from the line of Pavan Kumar from Ratna Traya Capital.

Sir, REC volumes contribute what portion of our entire revenues?

REC volume constitute almost about 12%, 13% of our revenue. I mean, our volume, you can say.

Okay. Okay. And regarding the other expenses part, which fell down by 52%, is INR 8.5 crores other expenses, is it a sustainable kind of run rate?

I request Mr. Vineet Harlalka to respond to this question.

Yes, sir. Yes. Other expenses, if you look into it, there are -- the significant fall in reduction if you've se in the expenses in comparison to the Q1, mainly is because of the CSR expenses because of the INR 5 crore contribution in the PM CARES, which the company made during the Q1, that is a major differentiation. And secondly, because of the COVID restrictions, so a lot of the activities are on hold. So when the opening up happens, so some costs will definitely will go up on this side, but not significantly.

Okay. So any idea of what would be the sustainable run rate that we can take on this particular...

So if you look into the average, average, the other expenses will be in the range of INR 5 crores to INR 6 crores.

The next question is from the line of Saloni Jindal from Everyday Capital (sic) [ Compound Everyday Capital ].

Sir, I wanted to ask would market coupling will be a threat for the exchanges in the future?

Can you repeat the question, please?

So market coupling is introduced, will it be a threat for the company in the future?

Market coupling introduced? Yes. So the point is, when will market coupling get introduced? If they are introducing market coupling with the MBED, there is no threat. Because with the MBED, today exchange volumes are 60 billion units. After MBED, this will multiply by 25 times to 1,400 billion units. The entire generation of the country will have happen through the exchange. So I don't see any threat in that or any challenge in that. But in the existing market of 5%, there is no case for introducing market coupling. Tell me what advantage one is going to derive by doing the market coupling in the existing markets. Existing market is the voluntary market. MBED is going to be mandatory market. In the mandatory market, you need single price discovery. In a voluntary market, you don't need a single price discovery. We still have NSE and BSE, there is a price difference between the stock price between these two exchanges. We still have MCX and NCDEX. So these kind of variations will be there. I don't think regulators are thinking of coupling those markets. So existing voluntary market, I don't think there's any case for coupling it. And with MBED, we have no issues. In fact, it is a big opportunity for us.

The next question is from the line of Utsav [indiscernible]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] real-time market [Foreign Language] long-duration contract [Foreign Language] Over the years, we will see that. But then market size will increase for exchanges.

The next question is from the line of Kunal Gandhi from Banyan Tree Advisors.

Sorry, I joined late. My question would be repetitive -- may be repetitive. Wanted to understand and have a sense on what -- how should one read into the employee cost in this quarter? Like is it a one-off increase or it is on the -- it is a more sustainable run rate going ahead?

Yes, there are 2 components which are one-off. But otherwise, also, there was an increase in employee cost because of launch of new products. So we had to -- we have taken additional manpower, but I think going forward, it is going to remain in this range.

Okay. That is INR 12 crores per quarter.

Yes.

Sure. And the second question was on Green TAM. So when we look at the volumes, this would be classified under the TAM itself, right? If I were to look at the -- if I were to track the daily or the monthly volumes, so it could be classified in the overall TAM, right? Or they would be -- in terms of cannibalization.

Cannibalization of TAM has happened because of RTM. So TAM volumes were fixed to the RTM. Green Term-ahead Market is a market for the green power. I mean you can compare it with REC, but in case of the green market, it's energy plus green attributes.

The next question is from the line of Swarnim Maheshwari from Edelweiss Securities.

Two set of questions. First, anything on the derivatives platform that we have planned as -- anything on the shape and the form of the derivatives platform?

Number one, derivatives in the electricity can be introduced only after the issue is settled by the Supreme Court. Because today, derivative will be regulated by whom? That is the issue under that case. So once Supreme Court disposes of that case, in fact, SEBI, CERC, Ministry of Finance, Ministry of Power they all decided these issues, minutes have been signed, and they have been filed with the Supreme Court that derivative will be set -- will be regulated by SEBI. And long-duration delivery contracts will be settled by -- will be regulated by CERC. So once that case is disposed of by Supreme Court, then SEBI will be able to introduce financial contracts for -- in electricity also. And this will be introduced on SEBI regulated exchanges. But you know the advantage of that will be that in electricity, if you see, there is a lot of volatilities in the price. So a user will be able to hedge his position in the derivative market and get delivery in the spot market. So a part of the bilateral contracts will then get shifted on the exchange platform.

Sir, the hearing was supposed to take place on 8th of October, but we haven't heard anything on that?

Before October 8 itself, and the hearing was shifted to December.

So this is postponed to December now, okay. All right. So sir, that actually means that we were looking to launch LDC by December end. So now that actually looks a bit doubtful.

Yes, yes. You're right.

Understood, sir. Understood. Just a second question, sir. This is actually on GTAM. Now sir, right now, we are at about 1 gigawatt. Now what according to you would be the changes required for the GTAM market to go from 1 gigawatt to something like 15-odd gigawatts? We do understand that there are new policies, which -- that is actually getting discussed with respect to higher capacity or higher merchant capacity allocation, so is it something like 80-20 with respect to new capacity, but can the existing capacities, can you see a ramp-up? Is it possible that from 1 gigawatt, which is 10 million units per day, can it go to something like 15-odd gigawatt over the next few years?

So one is in the Green Term-ahead Market, our volume -- our transactions are 1 gigawatt in the peak hours. The transactions mainly happening during the daytime. So average, if you look on daily basis, the volume is about 9 million, 10 million units. Today, there is no generator, which has got merchant capacity. The entire renewable capacity is tied up under the long-term contract. So the participation is more by the distribution companies, the distribution companies who have got surplus power generation, renewable power generation beyond the RPO application, they are selling for on the exchange platform. But then if you look at the clearing price of the GTAM market, this price is about the INR 2.40, which is a very lucrative price considering that price discovered under the bidding route for the renewable generators, which is around INR 2.50. So I'm sure, looking at this price, maybe in future couple of IPPs will set up capacity under the merchant route or they will keep 10%, 15% of their capacity for selling in the market and try to take advantage in this market. So this is how the market will get developed and ramping up from 1,000 megawatts today to maybe 10,000 or 15,000 megawatts will take some time. I mean we have created a market and people will now see what kind of value they can take out of this market and make investment for selling power in this market [indiscernible]

Right, right, right. So in GTAM, right now, we have more of buy flows rather than sell flows, is it?

Yes, yes, you are right. But on the sell-side, we are seeing active participation of the state distribution companies, which have surplus power. And today, it is Karnataka and Telangana who are participating, but in the near future, we are expecting even Andhra Pradesh or Gujarat or Rajasthan or Maharashtra who have large renewable capacities [indiscernible] market.

The next question is from the line of Ankush Agrawal from Stalin Asset Management.

Sir, just one clarification on my earlier question. So the banking contract value, the volumes in the current short-term power market annually would be somewhere around 30 billion, 35 billion. Is that understanding correct?

Banking transaction?

Yes.

No, no. Banking transactions volume are, I believe, about 10 billion to 12 billion units only.

Okay. Only 10 billion to 12 billion units?

Yes. The rest of the volumes are in the bilateral contracts.

The next question is from the line of Manoj Kumar from IDFC Securities.

So my question is on the RTM market. You explained about how RTM is cannibalizing other segments. But if you could throw more light quantitatively on what has happened -- what happened in this quarter and moving forward, what is your outlook on this?

see, RTM is not on account of cannibalization of the markets, the entire volume. But I told you that term-ahead market, a good part of those volumes are shifting on the RTM market. But if you look at the total volume that we have did in the RTM market, which is -- that is significantly more than what we did in the TAM market. So I think almost about 60% of the RTM market volume is additional volume which we have got. And quarter 2, RTM volume is how much for now?

[indiscernible]

We did about 2.35 billion units in the RTM market in second quarter. So I mean, RTM market is definitely going to give additional volume. What was your second question, please?

So this was like, quantitative light into like how much that is?

We are working with the distribution companies to shift the DSM volume to the RTM market. How can they take advantage of the real-time market to reduce their cost under the DSM. So we are working with them. Let's see what kind of success we get and how we are able to provide value to our distribution companies.

The next question is from the line of Rohit Balakrishnan from VRDDHI Capital.

Sir, I just had 2 questions. One was -- so while our share in the short-term market has increased over the last few years. But as an overall market, short-term market has been stagnant at about 10%. I mean this has been the case since our listing in 2008. So I just wanted your view what is going to change that and what is going to increase? I know we are introducing market products in the long-term market, et cetera, but just talking about short-term, what do you think can take this 10% to probably 15%, 20% and more, which is also seen in the advanced market? So that was the first question. And probably I'll also list my second question, is, you mentioned earlier to some -- to a participant's question that this market coupling is not a risk if MBED comes in. So if you can probably elaborate a bit more on that, that will be helpful.

Yes. Short-term market is hovering around 10%, 11% from the last, I think, 4, 5 years. Yes. But government is seriously working in creating more liquidity in the short-term market. There are a few things which are happening now. One is the long-term PPAs are not happening. So whatever is the incremental demand, whether it is met by the existing long-term contracts or it is going to come to the short-term market. So the short-term market volume with the increase in the demand is -- will definitely go up. It's unfortunate that last year, the increase in demand happened only by 1%. And this year, the demand increases. In fact, there is a decline in the demand. And we may end the whole year, maybe at the level of the last year or maybe lower than that. So that incremental demand has really not happened in these 2 years. That is why the volume in the short-term market has not increased. Second is the old plants are now getting phased out. Government has already decided that the old inefficient plants will be phased out because they are not complying with the environmental norms. So when those plants are phased out, these plants are supplying power under the long-term contracts. That demand also will come to the -- part of that demand also will come to the market. So I think these two, then cross-border transactions, which should happen any time, I mean, CERC has issued regulations. The procedure is to be issued by the CEA. I think -- I understand that is also under the final stages. So if that happens, that also will bring some volume to the short-term market. I think these are the drivers for increasing volume in the short-term market. This should take the market form 10% to 15% in the next 2, 3 years.

Got it. Got it. And sir, on the other question on market coupling, and you mentioned if MBED comes, and that's not a big issue. If you can just maybe explain in more detail?

See what I told is that in the present market model, which is the voluntary market, participants, there is no compulsion on them to purchase power from the market, from the exchanges. It depends on their demand and supply position. They can contract that shortfall through the bilateral market also or through the change. And they can purchase power from any of the exchange. It is a voluntary market. And it is only 5% of the total generation happening through this market. And IEX is already having 99% kind of market share in the day rate market and real-time market. So the competitive price discovery is already happening. I don't think we are going to get any additional value by doing market coupling in the existing model. And there's no need for doing market coupling in the existing model. But if you are going to implement MBED, in the MBED, entire power of the country is going to get dispatched through the exchanges. If that happens, then you need a formal clearing price. You cannot have 3 clearing prices of the 3 exchanges irrespective of the volume of those exchanges. So since you need a common clearing price, I think -- and market coupling makes some sense if you want to implement MBED. And if MBED is implemented, then the entire volume, which is 1,400 billion units in the country, the generation taking place, the entire generation will come to the market. So then there is no challenge. I mean we are doing today 60 billion units. And if -- even if we get 50% of the market share, it will become 700 billion units. So that is what my point is.

Got it. Got it. And sir, just one final thing on this REC, you said that probably at the end of this month, the trading should start. But given the price has been so low, so would you think -- I mean, it's now -- the generators would they -- I mean would they continue to -- like is there an alternative that they can -- because the price is not remunerative, what I -- is what my understanding is. So would want your view on and what will happen post even if APTEL comes out with an order...

The point is, existing generators who are selling in the REC market, in the green attribute electricity market, what option they have? They have no other option. They have to sell the green attribute only in REC market. Earlier also when the REC volumes were higher, the sales volumes were higher, the clearing price used to be in INR 1, INR 100 for 1 margin certificate. So at that time -- also they were selling it. And for new capacity, I mean under the bidding route, these IPPs are selling renewable power at a rate of INR 2.50. Solar and even in case of wind also, the rate is similar. Conventional power market clearing price itself is more than INR 2.50. On top of it, you are getting a premium of around INR 0.60, INR 0.70. So it makes a lot of sense for the green generators to set up some capacity for selling in the market also. So I think in future, irrespective of the price, there is value which they have in the -- either in the Green Term-ahead Market or in the REC market.

The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

Yes. And I appreciate you explaining each of the points in detail. I just have one question, which is based on the explanation you gave between the REC and the Green TAM. Now would it be possible that the people who are -- the generators who are selling on the REC, they can sell their generation and the REC both at the Green TAM market. So whole of the REC volumes can shift to Green TAM? Is it a possibility? Or would you say like the split could remain at 80-20?

It depends. Today, generators who have set up capacity under the REC market, they have contract with the state distribution companies for supplying power to the DISCOMs at the average cost of power purchase of the distribution company. Under green attribute they sell, they get REC for the green attribute and sell that REC. In future, it is a -- it is up to the IPPs, whether they want to sell power in the renewable markets, in the GTAM market or they still want to sell power to the distribution company and take REC for the green attribute. So looking at the market clearing price and the payment position of the distribution companies, I'm sure generators will be inclined to sell power in the green market as energy and get green attribute, and thereby, they will be getting better valuation and also the prompt payment.

Sir, just one last point, which I want to understand. So if we say a person is selling green REC on the REC platform and is selling power to the distribution company, the combined price that he is getting, would that be higher than what he is getting on the green TAM market as of now?

It depends....

Because that will define upon -- yes, sorry.

It depends at what time the contract was signed. If the contract was signed 5 years back. At that time, the rate for the renewable power itself was INR 5 per unit. But today, a state generator -- a state distribution company will not sign a contract to purchase power at a rate of INR 3 or INR 3.50. Under the bidding route the rate is INR 2.50. They like to purchase green power which has got basic -- both energy and the green attribute. So I think capacity addition under the REC market is not expected in future. Capacity addition will happen under the TAM market, green market now. I think it's going to be 4:00 p.m. Can we wind it up, 2 questions now. Last 2 questions.

Sure, sir. That was the last question for today, you may give your closing remarks.

Thank you very much for participating in this earnings call, and we have discussed, nothing more to say. I can only say one thing that last 2 quarters was a difficult time for us, for the whole country during this -- because of the COVID, there was contraction of demand in the country. And on exchange also, initially, we were apprehending that the volumes will also decline. But because of the very competitive clearing price, we could achieve a volume growth of almost about 13%. And we also ensured uninterrupted operation of the power exchange, ensuring safety of our employees by doing digital transformation of the operations. And going forward also, I mean, if we could achieve 13% kind of growth under difficult times, unfavorable conditions, I think going forward, when the economic activities are now improving, I'm sure that our growth will be much better. That's all. Thank you.

Thank you. On behalf of Axis Capital Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.