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

Good afternoon, ladies and gentlemen. I'm Bharti, moderator for the conference call. Welcome to Q1 FY '22 Earnings Call of India Energy Exchange hosted by Axis Capital Limited. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Sumit Kishore of Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Bharti. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for Indian Energy Exchange Q1 FY '22 Earnings Conference Call. We have with us the management team of IEX, which is represented by Mr. Satyanarayan Goel, Executive Chairman-cum-Managing Director; Mr. Vineet Harlalka, our Chief Financial Officer; and Ms. Aparna Garg for Investor Relations. We also have the entire management team. We will begin with the opening remarks from Mr. Goel, followed by an interactive Q&A session. Over to you, sir.

Good afternoon, dear friends. I welcome you all to the Q1 FY '22 earnings call. Present with me today are Mr. Vineet Harlalka, Mr. Rajesh Mediratta, Mr. Rohit Bajaj, Mr. Amit Kumar, Mr. Sangh Gautam, Madam Shruti Bhatia, and Aparna Garg. I hope all of you, your teams and families continues to be safe and healthy. The second wave of COVID-19 is almost behind us, after again May were harsh times for all of us. The second wave has left a mark on India's macroeconomic indicators during the quarter. However, it is heartening to now see that things are getting better. There is a significant reduction in number of active cases and a considerable pickup in the pace of vaccination drive by the government. During these trying times, team IEX has been working at its best to ensure uninterrupted 24/7 access to the exchange platform and provide the industries and distribution utilities round the clock access through power exchange, facilitating them power procurement in the most flexible, transparent and reliable manner. As another significant achievement, IEX successfully commenced the much-awaited Cross Border Electricity Trade in its day-ahead market. Nepal is the first country who has commenced trade with our platform from 17 April, 2021, and is participating regularly. We are in discussion with Bangladesh and Bhutan, and I'm expecting them -- they will also start to trade shortly. In line with our customer-centric approach, we launched Phase 1 of the web-based platform for the market participants providing anytime, anywhere secured and easy access to the platform, besides benefits such as data insights, online client registration as well as the operational and financial reports. We also implemented Mixed-Integer Linear Programming, MILP-based, price history algorithm in collaboration with Insight, a European technology company, to provide the global first-in-class trading algorithm to our participants and support introduction of complex bid orders to meet the requirement of dynamically changing sector. The real-time electricity market has been seeing a significant growth and making a meaningful contribution and has been able to establish a great value to the power market within just about a year of operation. The market requires very high technological expertise as it operates 48 half yearly -- half hourly auctions each day, following the very stringent time lines of 15 minutes for bid collection, price discovery, interaction with NLDC and confirm their availability. I'm pleased to update that we have significantly upgraded our system, allowing this market to operate with nearly 100% availability. With our first work creating a reliable real-time market, RTM has now become a key differentiator for the business, contributing more than 20% of the total electricity traded on the exchange platform during this quarter. Additionally, the DISCOMs and open access consumers have been proactively leveraging the RTM market to become -- to balance real-time demand/supply variation, planned and unplanned outages and support during the extreme weather events. Recently, the coastal distribution companies, who were impacted by the cyclonic disturbances, contacted and they have -- could significantly regarding the real-time market to support their power supply to affected areas. It clearly underlines the growing significance of the market in enabling distribution utilities and industries in addressing power demand/supply uncertainties in the most competitive and reliable manner. Similarly, the green market has recently seen a greater traction among the market participants. This market is now positioned as a key avenue for figuring renewable energy in a flexible manner and at the most competitive price. Very soon, we will also spend another green offering by launching green day-ahead market in addition to the existing thermal market. As per recently published data on power market for fiscal year 2021, our efforts -- with our efforts, the exchange market grew by 41% on year-to-year basis in FY 2021, whereas the bilateral market declined by 25% during the same period. Further, the Indian Gas Exchange has also been seeing great enthusiasm and uptake in volumes as well as participation. In fact, the volumes that have -- that were achieved during the last year we are now trading in 1 month. And we are also seeing an increasing trend every month. With growing momentum, appreciation among market participation -- market participants, and several key policy and regulatory initiatives such as discussion on gap under GST, constitution of independent transmission system operator and rationalization of gas pipeline service, we are geared towards developing a vibrant gas market in the country. As on yet, we are also working to develop other new market segments such as long-duration contracts, the integrated green day-ahead market as well as the ancillary market to expand and develop India's power markets in integrated and holistic way. I will now share with you an overall economic and industry update and how it played out for our business. While the industrial and economic activities showed growth momentum in the early part of April '21, overall the quarter remained challenging due to second wave of COVID-19 pandemic. In April 2021, the manufacturing PMI stood at 55.5. In June it came down to 48.1. The impact of pandemic was also seen on the services side as the services PMI declined from 54 in April 2021 to 41.2 in June 2021. Despite the partial lockdown during the quarter, the electricity consumption showed a significant growth from the quarter and registering a growth of 17% that is 340 billion units during this quarter with the revival of economic activities. The industrial states such as Gujarat, Maharashtra, Punjab, Telangana and Tamil Nadu were the key differentiators and contributed to this growth. The country saw its highest ever peak demand of 191 gigawatts in June, and this peak demand reached another high of 200 gigawatt in the month of July. As on June 2021, installed capacity of the country has reached 384 gigawatts and -- with an increase of 3.5% on a year-to-year basis. The renewal energy capacity addition has now reached to a level of 97 gigawatt with an increase of 10.4% in 2021. The fast-paced growth in renewable capacity underlines the gradual energy shift that has been underway and an increased impetus on building a decarbonized and sustainable energy economy. On the policy and regulatory front, the Electricity Amendment Bill 2021 that aims to de-license power supply, allowing multiple distributors in the same area and giving consumers the option to switch power suppliers, is expected to be introduced in the monsoon session of the parliament. This bill will promote competition and efficiency in the distribution sector and in turn lead to financial viability of the distribution companies. Recently, the cabinet approved reform-based, result-linked power distribution scheme of INR 3.03 lakh crore outlay for 5 years. A significant part of this outlay is earmarked for replacement of existing 25 crore meters by smart prepaid meters. Smart metering system will ensure proper energy accounting, billing and collection, leading to improvement in DISCOM financial health. Further upgradation of distribution infrastructure will reduce the AT&C losses in the sector. Government has also issued draft National Electricity Policy 2021, which stipulates intention of the government to increase the share of spot market to 25% by the year '23-'24. The draft NEP underlines the most pertinent issues of the power sector with key focus on areas such as promotion of clean and sustainable generation of electricity, development of adequate and efficient transmission system, revitalization of distribution at utilities as well as development of efficient power markets through an increased role of markets. Additionally, the government continued to focus on initiatives to further deepen the power market. In its draft regulation, CERC has proposed a mechanism which allows load dispatch centers to procure power to be used for ancillary services through the electricity exchanges for overall grid stability. The Ministry of Power issued a discussion paper on MBED with a proposal to give -- go live to exchanges from 1st of April 2022 with NTPC generation capacity. MoP has also issued the waiver of ISTS charges for green market for trading through the exchanges in GTAM and GDAM market. This will make trading of green power more competitive and further deepen green market. MoP also issued an order on PPA relinquishment allowing DISCOMs to exit from PPA on completion of 25 years of useful life, which will lead to the demand, which was served by the PPA to be met by the exchange. Even the generation companies will sell their power post PPA at the market and further deepen the market. These initiatives will create an efficient power sector in the country, improve financials of the distribution companies and further deepen the power market. Our financial and business performance. On a stand-alone basis, revenue for the quarter grew by 27.1% on a year-to-year basis from INR 80.54 crores in quarter 1 '21 to INR 102.38 crores in quarter 1 of FY '22. The PAT grew by 48.4% with PAT margin of 62.1%. During the quarter, electricity volume on the exchange grew by 42.9% on a year-to-year basis, and it was 21.266 BUs. The significant growth in volume was driven by substantial increase in electricity consumption as well as the competitive price restored on the exchange platform, besides other factors such as availability of adequate domestic pools and vibrant performance of the new market segments, that is RTM and GTAM. The real-time markets completed 1 year of its launch on June 21. It has been one of the fastest-growing market segments in the exchange. The market saw an exceptional performance throughout the quarter and traded the highest ever volume of 1.726 BU in the month of June 2021. Currently, RTM traded 4.635 BU at an average price of INR 3. It is very heartening to see that a very short -- in a very short span of time, the market has become most dependable platform for the distribution utilities and industries in managing their close to real-time demand/supply variations. The quarter also saw green term-ahead market recording the highest ever monthly volume of 414 MUs in June 2021. Cumulatively, market traded 937 MUs and has already surpassed green volume achieved in FY '21, which stood at 785 MUs. An operational green term-ahead market at IEX has allowed solar and wind rich states to sell excess energy in the market for the other states to meet their RPO. Industrial consumers are also increasingly buying green power from the exchange. The market has been successfully enabling their participants to procure delivery-based solar and nonsolar renewable power in a flexible way at a competitive price, thus greatly contributing towards the national renewable energy aspirations. The Cross Border Electricity Trade has generated increased interest from the market participants from the neighboring South Asian countries. Nepal has already started formations on the exchange trade part from 17 April, 2021. And since then, it is participating regularly in the exchange trade from -- and has recorded 778 MU of generation. We are in discussion with Bhutan and Bangladesh, and we they also expected to join shortly on the exchange platform. This exchange will help in developing an integrated South Asian regional power market and supporting efficient and sustainable growth for the energy sector in the entire region. Fiscal 2022 started with a challenging note with surge of COVID-19 across the country. However, the spread has been resilient and the economic fundamentals are strong. India's GDP is projected to grow at a rate of 9.5% in FY '22. The electricity consumption is also expected to see good growth during this fiscal. We believe that energy markets are pivotal to -- pivotal in transforming India's energy economy, and IEX is committed to play important role in facilitating the much needed efficiency, competitiveness and sustainability in the energy ecosystem. As the government is working towards creating a favorable policy and regulatory environment to transform the energy sector, we will continue to collaborate with the government and other industry stakeholders to realize this vision. Recently, on our 30th anniversary on 28th June 2021, we launched IGNITE India's energy dialogue on vibrant power markets with some of key leaders such as [ HSE Power ] Principal Secretary, [ Anwar Hussain ], Chief Regulatory Affairs from CERC besides several leaders from industry and overseas to discuss the power -- to discuss the way forward on developing India's power market. As a technology-led company, we will continue to make investments to strengthen and advance our technology infrastructure. As mentioned earlier, we will continue to build upon our recently introduced initiatives such as number API for all market segments, upgrading the web-based interface to also provide online trading, availability of analytics and data insights to the market participants and also introduce a new mobile app. These measures will enable us to make the overall trading experience seamless and intuitive to besides positioning exchange as a best-in-class technology platform. With better availability of domestic coal, conducive policy and regulatory framework in place, growth momentum in the existing market as well as the upcoming new market segments such as long duration contracts, derivatives, green day-ahead market, ancillary market and integrated day-ahead market will make the power markets much more dynamic than before. Further, there are also discussions to introduce capacity market to ensure we sold 30% in the sector. Along with this, with increasing volumes from gas exchange, we are very positive about the growth potential of the company. Thank you.

Thank you, sir. Can I open the floor for question and answer, sir?

Yes, yes.

Please.

[Operator Instructions] First question comes from Mohit Kumar from DAM Capital.

Congratulations on a very, very good quarter. So my first question is, what are the kind of opportunity will arise from ancillary services? In the sense, is it possible to put some number to it?

Ancillary services through the exchange -- it is expected that this could be about 3,000, 4,000 megawatts. But then the use will be depending on the real-time conditions and role of exchange will be only to collect the bids, fax the bid and pass it on to the NLDC. It is NLDC who will have to, depending on the requirement, use this capacity.

Okay. Secondly, sir, what will be open access volumes in RTM market? And when can we expect the GDAM to be launched -- GDAM market to be launched?

Open access volume in the RTM market is very less. It is mostly the distribution company who do the transaction. But I think it is about 5% to 10% only in case of open access. And GDAM, we have already filed our petition with the regulators. In fact, there was a hearing in the CERC today only, and we are expecting that by end of August we should have the approval from CERC and we should be able to launch it by end of August.

Sir, last question. Has there been any incremental discussion in the last few months, apart from the discussion paper floated by the Ministry of Power?

The last paper is by Ministry of Power. And on that, they have invited comments from the different stakeholders. But what we understand from the different stakeholders that distribution companies and generator in particular -- they are not very comfortable with this discussion paper and have expressed their apprehensions and their concerns to the Ministry of Power.

Next question comes from Bharani from Spark Capital.

Sir, you just mentioned that there have been some concerns raised about the MBED. Could you just highlight these concerns, sir?

No. No. Some of the concern these states have raised are basically, again, their right to recall power, right to reschedule the power during the day, depending on the demand/supply variation. That is 1 big flexibility, which today states have, and that will not be there. And further, the states -- many states have contracted PPAs paying capacity charges and they will have to continue to pay capacity charges, whereas the states who have not signed PPA will enjoy that power without paying capacity charges. So there are -- I mean, concerns have been raised that they should first look at the resource adequacy, maybe introduce capacity markets kind of concept and then talk about MBED because MBED is something that can be introduced only when we have all other enabling provisions there in place. The settlement mechanism itself is a very, very complex process. How the disputes between the generator and DISCOMs will be resolved? There are a few things which we understand they have raised. But only when these things again come for discussion, we'll come to know about that.

Sure, sir. So you're mentioning that you need a capacity market instead of this MBED mechanism. Can you highlight the...

No. No. Before the MBED, there should be a capacity market and ensure that each state has adequate contracted -- adequate capacity to meet their demand.

Correct. So that's what I'm saying. So could you elaborate a little more on how this capacity market will be structured? So there will be only capacity contracted and the price will be discovered in the exchanges. So how exactly it works, sir?

Normally, capacity market is -- it's a mandatory market. The regulatory commissions in each state, they are supposed to assess the demand for the next 5 years. and then see what kind of capacity is contracted and what kind of capacity is required -- further required. And then they will ask distribution companies to contract capacity for the next 5 years accordingly. Normally, this kind of contracting -- capacity contracting is done through the exchanges. But then this also can be done through a bidding route.

Right, right. So this, if it all happens, will be for incremental capacities requirement?

Right.

My next question is on the integrated DAM market. So I'm just trying to understand what will be the need that this will solve which the existing DAM market is not addressing?

See, as you have seen in the electricity market, DAM market is not the price discovery. It is a price matching.

No, I meant the DAM, sir. So integrated DAM, so what is the need that it is going to solve, which the existing DAM market is not solving? So who will be interested to buying -- yes, sir, go ahead.

The DAM market, it is the price matching what takes place. In the day-ahead market, it is a price discovery what takes place. Participants are both comfortable with the price discovery process, because price discovery process is a more transparent process. Distribution companies -- they want from the regulatory point of view the DAM market. They prefer DAM market. And that is why in the conventional electricity also the volumes are more in the DAM market than in the TAM market. And in the DAM market, these are collective transactions. You are basically acting as an aggregator, both on the sell side and the buy side. So this is a more efficient market. And that is why government is also saying that we should introduce DAM market. So that green generator -- they have a comfort that, yes, there is a transparent market available.

Correct. But there is already a mechanism for them to do that through the GTAM market or GDAM market, right? So just trying to understand how this product will be...

Present mechanism is only through the GDAM market, government ahead market, where somebody can sell power for the full day or mainly for full week, but there's no DAM market at the moment. DAM market, one can sell power for any particular time block, on day ahead basis. And in the DAM market, generator will be able to sell the power as per the forecast of the generation. And similarly, distribution company will be able to buy power basically based on the demand. They don't have to buy a constant power throughout the day. So DAM market provides more flexibility.

Okay. Sir, I will take this offline. My final question is on the derivatives product. Now what will be the kind of arrangement we will have with, say, MCX, say commercial...

Mr. Bharani, sorry to interrupt you. You may join back the queue for your further questions, sir. Next question comes from Mr. Sumit Kishore from Axis Capital.

My first question is the peak demand of 200 gigawatt in July was during the afternoon time. Entire commercial demand may not have come back. Traction demand is lower than pre-COVID levels. How would you read this peak demand number? And how would you see the -- what would be your expectation for fresh peak demand through the balance fiscal FY '22, sir?

Peak demand in the month of July, which has crossed 200 gigawatt, was on a particular day. And -- but what I'm seeing is the demand is remaining at a very high level regularly. So the power consumption is increasing, and power consumption in the first quarter has increased in the country by 17%, though it was in a low base because last year we had lockdown. But we are seeing now also there is a good increase in the power. And as far as peak demand is concerned, in the month of September, when hydro that receives and it is a high humid environment and the agriculture demand is also there, it may cross even 200 gigawatts. It may be something around 210, 215 gigawatt.

Okay. So what would be your update on the time line for launch of LDC contracts and resumption of trading in REC versus what you communicated to us post the March quarter result?

Long-duration contracts, I'm really unable to say any time line because the case is pending in the Supreme Court. There is nothing to be done in that case. It is only a 1-day hearing because the government of India has already filed affidavit that the government of India has decided about the jurisdiction. Supreme Court only has to basically adopt that and issue a clarification. But unfortunately, because of the COVID, only urgent issues are being taken up. This matter has not come up for hearing. And I think it is almost about 1.5 years now, and nothing has happened on this. So we were very hopeful last year only, but I'm sorry, I'm unable to give any time line on this. And your second question...

Should we factor in LDC for the balance fiscal FY '22 or the last quarter? Or should we completely rule it out?

I think last quarter will be fair estimation.

Okay. And on resumption of trading in REC, sir?

Yes. REC trading in the first week of July, there were a few [ VAs ], but then nothing concrete. Ministry of Power has been made a party to that because there was a discussion paper issued by Ministry of Power also on the REC, floor and forbearance price. So I think next date of hearing is sometime in the month of August, so only after we get the order. As of now, it looks that it may be sometime only in September, not before that.

The order will come in September, but trading can resume only after how many months from the order?

No, no, once the order comes we will start resuming the trading from the next day itself. But the point is you can't really say anything about the order is authorities -- when they will issue the order. It is expected that, that also will come sometime in the month of September. But whether it will come or not, I can't really say that.

[Operator Instructions] Next question comes from Kunal Thanvi from Banyan Tree Advisors Private Limited.

Congratulations on a good set of numbers. I hope that the IEX is doing well and safe. I have one question around the RTM market. We always have the sense that we have long back heard of to take care of the DSM mechanism that is there in the short-term market. When we look at the FY '21 numbers for the short-term market that we see that the bilateral volume performed well and the DSM volumes has fell down to the last year level itself, whereas we have seen a significant rise in the RTM volumes. Like how should one read into this? Like we've been asking this question for a while now, but not being able to get a grip over it. Like is it that we have gained market share from the bilateral market? Like how should one read into the growth in the RTM market whereas first DSM volumes are still lying around where it's [ gotten to point of monetization ].

Yes. RTM market was not for replacing the DSM alone. That was 1 intent. But otherwise, the intent was basically to meet demand variations on the real-time basis. And this demand variation on real-time basis is happening because of the renewable generation and also offers of units or things like that. So see, in the earlier system, after the day-ahead market, there was no other opportunity for distribution company to purchase power. Now they have another option at a level on real-time basis. And they are using this market very effectively to manage their demand/supply variation. As far as DSM is concerned, I think on that front, we also did some analysis and regulatory commissions also have done some analysis. And what we have come to a conclusion now is that since the DSM rate is the average rate of day-ahead market, there is no incentive for distribution companies to not to withdraw from -- or withdraw from the grid and buy from the RTM. DSM rate is almost same as the day-ahead market rate. That is why now regulatories, what we understand, reviewing this DSM mechanism and maybe the DSM rates will be made as final rate, so that there will be incentive for them to buy power in the RTM market than to overdraft on the grid. So only when that happens, maybe the DSM volume will start shifting to the RTM market. One thing to state here in the RTM is that they have -- DSM market also, the draw is beyond a particular limit then there is a penalty. So at least those quantums have reduced significantly.

Okay, sir. So like is it right to assume that the RTM market is -- that there is -- in terms of the potential of RTM market as a model, is this not restricted to 23 BUs, which is like say BSMs which is -- BSM plus the other short-term market that we see on an overall basis is what RTM is trying to target? Is that understanding right?

Yes, yes, yes. RTM market is not limited to the DSM volume. RTM market is going to meet the requirement of distribution company on the real-time basis and also take care of the demand/supply variations and renewable energy variations. So I'm sure volume in this market -- the opportunity is much larger. DSM -- reduction of DSM is one component of the DSM market -- RTM market.

Sure, sure. So that was my first question. The second question is in terms of the new financial -- new avenues. We have been -- first, the LDC and REC is something that has been stressed from the regulatory perspective. Apart from that, like do we have any plans for new products in the coming fiscal apart from the GDAM which you have already disclosed? I mean color on that.

The new product is one is long duration contract that I told you maybe in the first -- last week -- last quarter of this year. It may happen. GDAM should happen in the month of August, last week of August. Then REC trading that should resume from September and ESCerts trading also should start from August. Now ESCerts trading happens once in 3 years time. So it is due this year. So on that also discussions are in the advanced stage now, and we are expecting trading to start in the month of August. And in addition to this, we are continuously working on our existing these 2 new products, which is RTM and the GTAM market and the parts of our trade. So I'm sure in these markets also, it should be significant increase in the volume.

Sure. A follow-up on that. On the first rate market side, like selling through some further kind of opportunities we see next 3 to 5 years, like -- because what we understand is that only day-ahead market product is what seems to be greater fit for that particular category. So what -- how should 1 look at that particular market from a 3 to 5 year perspective?

I mean I couldn't get your question properly. Are you talking about long-term market for 3 to 5 years contract?

No, cross-trade market, cross-border market, what -- how should one look at from a 3 to 5 years opportunity?

Okay, okay. The cross-border market, we are expecting in the next 5 years, the volume in this market should be something about 8 billion to 10 billion unit kind of thing. It also depends on the transmission capacity between the countries. And between India, Bangladesh, India, Nepal and India, Bhutan. India, Bhutan, of course, there are no issues. But in India, Bangladesh, India, Nepal, the transmission is constant up there. There we have limited capacity. Whereas the demand in these countries is more. So it seems like capacity building is happening in the transmission sectors. I think in the next 5 years, this market should be about 8 to 10 BUs.

Next question comes from Devansh Nigotia from Securities Investment Management.

Congratulation on good numbers. Sir one here is in case of...

Mr. Devansh? You are not audible, sir. Can you repeat your question? Mr. Devansh? Hello, sir?

Can you hear me? Am I audible?

Yes, sir. You're audible.

Yes. Sir, in case of PPAs, which are completing 25 years and are expiring, so do we have any kind of quantum on the volume -- on the power volumes, which will be without PPAs, let's say, over next 1 or 2 years? Do we have any kind of numbers?

Yes. I mean what we have seen from the newspapers and from our discussions, many states are willing to exit from the gas-based power plants because these gas-based plants are more than 25 years old. Quantum of domestic gas availability is very low. Import of LNG gas is very costly. So these plants are operating at a PLF of hardly about 20%, 25%, and the states have put their capacity charge for the full 100% capacity. That is why the states have now -- because since 25 years data is over, they want to exit from those plants.

But sir, any kind of...

There are 1 or 2 thermal plants also where the variable cost is high and 25 years is over. So our estimate is it could be about 4,000 to 5,000 megawatt capacity.

Okay, 4,000 to 5,000 megawatts. And in case of ESCerts, what would be our expectation in terms of volumes? So 1,300 MU was -- which was done 3 years back, but...

ESCerts volume -- ESCerts should be about 3.5 BU.

Okay. 3.5 BU.

35 lakh units.

35 lakh units?

35 lakh.

Okay. Okay. And sir, in case of green term-ahead market, I mean the volume has been very robust over the last 1 month. So some soft points if you can give both on the demand side and supply side. What are the things that are happening that has really changed the scale of volume? And how should 1 really look at this number going forward?

The green market is active because, during this time, wind generation is very high. That is 1 reason. And the power, which is being sold in the green market, is sold by the distribution company. The states who have contracted green power more than their RPO obligation, RPOs -- they were backing down those plants. Now they are selling that power So it is good for the generator. They are not being asked to back down. And it's good for the states because they are now able to get additional revenue by selling the power in the market. So these trends should continue for the next 4, 5 months till the wind is high -- wind generation is high. And from October, it will be mainly solar.

Okay. Okay. So April to September would be the main season for wind and solar will be throughout the year?

Yes. Yes.

Next question comes from Prithvi Raj from Unifi Capital.

Question for the long-duration contracts. So how are we planning for the margin mechanism here?

We have designed the margin mechanism, where we will take margins maybe for the open access charges and then maybe for 2 days of margin for the transaction, and then they will have to pay every day basis depending on the quantum of our delivered. So it is a margin mechanism, which has been developed and which has been put up to the regulator also for approval.

Okay. So you collect margin on a rolling basis for your trade...

Yes, yes, rolling basis. Yes, yes, on rolling basis. You can't ask them to book in advance.

Nice. And second on the GDAM that's launched, sir, what can be the volume potential here?

Very difficult to say that because in the green market, it is only the states who are selling it. There are a couple of generators also, but the renewable power merchant capacity quantity is very, very low at the moment. But looking at the rate of the last 1 year, I think the rate is around INR 3.20 for the solar generation and it is around INR 3.90 for the wind generation. So looking at these rates, maybe generators will now also go ahead for setting up merchant capacity. So I think this market will need some time to develop.

Next question comes from Bharat Sheth from Quest Investment.

Sir, recently, there is one more player has been allowed to open the exchange. So can you throw some light on the competitive scenario that may emerge post that player starts operating?

First of all, let me correct you. There is already one more player who is there in the market.

One more is there or one more is allowed?

One more is allowed now. Don't worry. From the last 13 years, we were still in the markets, and we have more than 95% market share. So see, at the exchange, our job is to create value for the participants. Our job is to innovate, provide new products, interact with the customer, understand their needs and provide new products to meet that requirement, provide efficient technology platform. And this is something what we have been doing in the last 12 years. And because of that, we have ensured the customer loyalty. And I'm sure this will continue in the future also, and we will be able to maintain that customer loyalty.

Okay. Sir, on this intercountry, that is Nepal, Bangladesh and Bhutan, so this market we -- are we expecting to operate both the sides, so India selling as well as buying? Or it will be one side? And what will be the payment mechanism to ensure that this business continue on a longer term?

This payment mechanism is in rupee because they have to appoint a India agent to do transactions on their behalf. And second is, in case of Bangladesh and Nepal, since these countries have deficit of power, mostly it is buy by them. And in case of Bhutan, since they are thrust with power, maybe it is going to be sell back.

Okay. And our rate will be the same, I mean, charging INR 0.02 both the side?

Yes, yes, yes. Our fess is same.

Next question comes from Swarnim Maheshwari from Edelweiss.

Congratulations for a good set of numbers. Two questions. Sir, first, on the REC side. Now assuming that this year also no trading happens and we actually pass over to FY '23. So do you think that the bunching up of trade will happen for FY '21 as far as for FY '22? And you can see something like 12 billion to 15 billion units of volume in FY '23? Or is there a case that the -- for participants to actually go for their RPO obligations, they have already started sourcing through your GTAM product and going forward GDAM also?

First of all, I'm not willing to assume that the trading will not happen in this year. I told you, generators have filed present application with APTEL. And they are going to give them matter, and I'm sure the orders should come in the month of September. So we will have good 6, 7 months for trading of RTM market. And we should see good volume growth in this market. But in case, by any chance, if the order don't come, then yes, this RPO obligation will get carried forward and obligator entities are supposed to meet that requirement. Part of that requirement is also much to the GTAM market. But what we are seeing in the GTAM market, it is a different set of buyers. So maybe the utilities who were buying RECs, some of them are also participating in the GTAM, but then we have also new participants in the GTAM market.

Okay. So you mean that in GTAM or GDAM, the set of buyers is not the ones really looking for their RPO obligations?

Not the same, not the same. Part of buyers are also to meet the RPO obligations, but there are new buyers also.

Okay. Got it. Got it. Right. And sir, just a very small observation. So we have given the segmental reporting. And I was just looking at the gas exchange revenues. So I was just wondering that why first of all, there will be revenues from gas exchange in 30th June 2020, which is Q1 FY '21, because we have not commenced the business at that point in time? And second, why will the gas exchange revenues negative in Q4 FY '21?

Can I ask my colleague, Mr. Vineet Harlalka, to respond to this question?

Yes. First of all, the exchange had launched in the June 2020. So 1 or 2 trades took place during that initial trade, so that had some revenue was deferring for the gas exchange in the Q1 of financial year '20. During the March Q4 of financial year '21, there was an execution entry was made because whatever the company was recognizing the efficiency of the member on the -- at the time of attrition which the auditor tested because the interest of that revenue recognition was deferred. So that was the entry when the closing of the account was at. So that one-time adjustment was there of INR 1.5 crores.

Okay. So the entry get rectified in Q4?

Yes. So the income earned by the exchange and the admission of the new number that got deferred to 3.5 years.

[Operator Instructions] And I request the speaker to increase the volume because the volume is very low. The next question comes from Sumit Jain from ASK Group.

Congratulations on a good set of numbers. Sir, my question is similar to what one previous participant asked you which is what would be the difference between -- because you mentioned in the press you'll be launching LDC, GDAM, integrated GDAM. So what is the difference between GDAM and integrated GDAM?

No, no, it is integrated market. Integrated market consists of first renewable generator and sell power in the GDAM market. And if the power is not cleared in the GDAM market, then he has the option to transfer it in the DAM market. That is why it is known as integrated market. So -- and it is -- GDAM is same. There is no separate GDAM market. GDAM is a part of the integrated market.

Got that. And what is the traction in our policy advocacy for where in solar power auctions a certain percentage can be allowed as merchant power because that will completely open up a new area for the exchanges and for the short-term markets?

We have been doing this policy advocacy. And in fact, if you see safety tenders, there they have already writing that generators can keep up to 15% capacity for sales to the market. There's a different story that the generators at the moment are not keeping in the capacity for sale in the market. But looking at the clearing price, which has taken place in the GTAM market, what we now understand that there are generators who are willing to keep some capacity for sale in the market also, as merchant capacity. And we are also working with government of India to bring new products to deepen this green market in the country. See, one of the products, which is popular in the Western countries, that the industries or the MNCs or the data centers, there are companies who are ESG companies. They want to go green. So their demand pattern is uniform, but the power available -- solar power is available only during particular hour or the day. And it is very difficult for these companies to go through the process of scheduling this power. So what they do is they get into a contract with the renewable generator that I'm committing you the rate under the PPA. You sell this power in the market -- in the conventional market. That is the day-ahead market or the RTM market. And if the rate is lower than the PPA rate, I'll pay the difference and you will give as a attribute of that, so that they can comply with their ESG requirement. These are the kind of products on which we are also talking to MNRE and Ministry of Power, and they are very receptive of this idea. So we are working on these kind of products. I'm sure in the time to come within the next 1 or 2 years, you will find good liquidity in this market also. So it -- matter takes some time to develop. So we will have to work on these kind of new products, first do policy advocacies and talk to the generators. And I'm quite hopeful that this market will be a good -- is a big opportunity for us and should provide reasonably good volume.

And one last question is on other streams of revenues which globally exchanges pursue, which is basically you internally have a division which actually creates software and products for the exchange itself. That can be put in an entity -- a separate entity and can be monetized and also analytics products.

See, as of now, my software team is busy in developing products for my exchange business only. I mean in the last 1 year, we have developed new products for the RTM market, GTAM market, cross-border, and we are working on developing integrated market where we'll have GTAM and GDAMs together. Then we are also working on, I mean, this web-based platform, mobile app. So team is busy with developing these products. I don't think for the next 2, 3 years, they will have time to do work on this. This is a very, very specialized area. So we would like them to continue to do with this exchange development activities. You said about analytics. Today, we are doing a lot of analytics, but then we are providing these analytics to our sector participants free of cost basically to create awareness of the market, and it is a marketing activity. Maybe in future, when we find that, yes, there is a potential to earn some revenue out of it, we can explore that. But today, we are doing it free of cost, providing these analytics to the market participants and telling them how they can optimize their power procurement cost and how can they take advantage of the market.

Next question comes from Ronak Chheda from Awriga Capital.

I just have one question. It is partly answered. I'll just repeat myself. Sir, share of renewables is going up in the whole power generation sector going forward. How does this shift to a higher share of renewable will impact IEX business? You briefly touched upon this point, but if you could elaborate more, is it positive, negative or neutral, on par?

Every chain provides the opportunity, I believe in that. So shift to high renewable is also -- gives opportunity, and we are working on that, how to make use of that. As I told you, renewable itself is going to provide opportunity. We have introduced GTAM market. We are going to introduce GDAM market. We are working to develop new products in this market. And one thing is -- one thing what has happened is because of the high renewables, the pressure on that coal has reduced now. So the coal availability has improved. And auction rate for the coal has reduced. As a result of that, the rate in that market has reduced. So from that point of view also renewable is positive for the exchange.

Next question comes from Alok Ranjan from India Infoline Asset Management Company.

One clarification on the RTM theme that you were mentioning that the open access is 5% to 10%, and most of the volume comes from the distribution. And you mentioned that it's not coming majorly from the DSM. So I want to understand, is it coming within the short-term volume or it was outside the short-term volume earlier and new volume has got created into the short-term volume overall?

What -- I mean, based on the analysis, what we have done, what I find is that this is the additional volume where either the load shedding was happening or packing down was happening. So I think now there is a real-time market where this optimum utilization of these things are happening. Earlier if it's 200-megawatt or 500-megawatt unit rates, distribution company had no option to purchase power to meet the demand. Now they have a option available.

Got it, sir. Sir, if the overall -- especially in the slide number where you have given the total breakup of the -- how the units get distributed in the long-term bilateral. So 1 opportunity is the DSM, which is 1.8%. And within the bilateral, 3.4%, some opportunity is there for us in the near term. Then either the long term is there from where you are saying that 4,000 to 5,000 megawatt can come out of the PPA. Or is it like the new capacity addition that is happening, a major part is coming into the short-term market?

See, opportunity for the exchange is coming from one is that shifting is happening from the bilateral to exchange. Over the years, if you see, the volume, which was happening in the bilateral, is going down and exchange volume is increasing. The second opportunity is shift from the DSM in the real-time market. I'm sure after the revision of DSM mechanism rates, that will also happen. And third is the incremental demand. That is the biggest opportunity. If the demand in the country is increasing at a rate of 5%, which means that 70 billion to 75 billion units is additional demand, and a good part of this demand will come to the short-term market. And third is -- fourth is again exiting the long-term PPA after the useful life. So looking at all these things, I personally feel that every year there is opportunity in the market -- opportunity for the short-term market is about -- it can be about 50 billion units.

Got it. Sir, last clarification from my side. In our total volume, what is the direct industrial share? And how the trend is on that side?

This year, the industrial share is about 20%.

20% of the volume is directly purchased by industries, right, ACB or being in the company?

Yes.

And how it has -- how the trend it has been, sir, over the last, let's say, 2, 3 years?

Trend is share of industries is going down. And it is mainly because of the barriers, which has created by the state regulatory commissions. And to be precise, the share of open access consumers in this quarter was 15%, and last year it was 20%.

Next question comes from S. Ramesh from Nirmal Bang Equities.

On the gas exchange, can you share with us the volumes you are doing eventually what is the kind of market share you expect to get for volume share we have at exchange out of the overall gas consumption in the Indian market?

I think as far as the gas exchange is concerned, time has not come to talk about the volume on the exchange platform because volume, what is happening, is very, very small. What is more important is to create a framework for gas market. So we are working with the government and regulator to create that framework. And I'm happy to share with you that a lot of work is now happening for creating these enablers. One of the biggest enabler required is there is no system operator in the gas market. Like we have in the power sector, the SLDC, RLDC and NLDC. So now government of India has issued a discussion paper to create gas transportation system operator. Second is bringing gas under GST, so that you can have standard contracts across the country. On that also work is happening. It has been referred to GST Council. Third is rationalization of pipeline tariff. On that also regulatory commission is working. So I think -- and then fourth is infrastructure. A lot of RLNG terminals work is happening on that now. And what I understand, RLNG regasification capacity is going to be doubled in the next 2 years from 40 million tonnes to about 70 million tonnes in the next 2 years. And there are terminals which are under construction on the West -- East Coast and the South Coast. So these terminals will get commissioned and the pipeline also -- I mean, the Eastern side and the Southern India is under construction. So we will have integrated gas within the country. And with these enablers and the infrastructure in place, then I think we will see meaningful volume growth on the exchange platform.

Sir, do you have to at least -- or first of all, the critical mass in terms of volumes and revenues. If you look at the current asset turn we see for your power business, would the capital investment be comparable for similar revenue? Or would it be different for the gas exchange?

Yes. As far as the investment is concerned, I think it is going to be the same kind of investment that we made in the power sector -- in the power exchange. Only thing is in power exchange over the year because of development of new products, there has been additional CapEx on the technology side. And then the team size is also much bigger because our interaction is with all the states now. So in the gas exchange, we have started the activity. Business development team is working on the business side, and then we have a policy advocacy and regulatory team, which is working with the regulator and the government for creating avenues.

Let me squeeze in one more question. Any thoughts on emission trading? Can we do just similar to what they are doing in Europe?

Pardon. Can you repeat the question?

Any thoughts on developing products, similar to the emission trading products you have in Europe?

Yes. Emission trading products -- this is something we have again, talking about it. We have analyzed different markets, which are operating in the European countries. But then again, this is something -- again, we are discussing with Bureau of Energy Efficiency to create this market. Let's see if there is opportunity for this market.

Next question comes from Praveen Kumar from Axis.

My question was looking at the cash and investment, the books of more than INR 400 crores, INR 500 crores. Could you throw some light on what is the plan to utilize the cash?

I mean as of -- last year we started the gas exchange. So there was good investment made in gas exchange. We are also looking at other opportunities. And otherwise, we will give it back to the investors. We have a policy of giving high dividend. We have also declared yesterday a final dividend. Earlier, we gave INR 2.5. Now it is INR 1.5, so total about INR 4 on INR 1 share.

Next question comes from Abhishek Puri from Axis Capital.

Sir, two questions. One, just to understand the GTAM opportunity better. You've explained some part of it, but you used to lose out in high wind season and whenever there is higher solar production because that excess electricity used to go waste and there was curtailment. Can that be traded back on GTAM? And is that opportunity pretty large? If you can spell out that amount that can come in here through GTAM. And second is you are getting a lot of levers, a lot of new products over the next 1 to 2 years, including derivative settlements, long-term GTAM. If you can spell out the opportunity and the size that you're looking for the exchanges in the next, say, 3 to 5 years period.

Abhishek, I will not like to make any estimate for the future, but I can only tell you one thing. Any new product, which we have introduced, has given us significant volume. RTM market, we introduced last year. In 1 year, I think we've got something about 12 billion units out of that. And this year, it is 1.5 billion unit every month more than that even. So this market should give us something about 18 billion to 20 billion units in this year. GTAM market...

Sir, which is why I'm asking, sir, because last year...

And we started in August GTAM market, we were doing just about 2 million, 3 million units in a day. In this month, we are doing almost about 15 million units a day. In the month of July, on a single day, we did a trading of 150 million units. So our job is to introduce products, interact with the participants, tell them what this product is, how they can benefit out of it. And I think -- I believe one thing in this sector, the opportunity side is very, very large. So our job is to tell the market participants. And I'm sure -- I mean, you have -- the kind of growth, which is happening, 40% growth. I mean, if you look at our third, fourth quarter and this quarter, continuously, it is a 40% growth. This is all happening because of the new products. And I'm sure the new products, which we are talking about, the long duration contracts of the GDAM, in this context also, there will be good volume growth. Difficult to make any estimate on that. But we are working on the product. We are working with the participants.

Sir, why I asked this question is because last to last year, when we had the analyst meet and we discussed about the opportunity in the RTM market, I think it was explained that 15 billion to 18 billion units. You have already crossed that within 1 year of the launch. And that's why just trying to understand if you have the same estimate for the other products that are coming in -- approximate number. I'm not -- we'll not hold you up for that. But as an opportunity size, what market you can address with those opportunities over, let's say, next 3-year period will help us model and understand the company's growth path better?

In case of long duration contracts, the market is the volume happening in the bilateral market. So we -- that is the addressable market size, which is something about 40 billion units. So it depends on how much of -- out of that we are able to get. And in case of GDAM market, GDAM market size is very, very high. I mean government of India is talking about creating 175 gigawatt by 2022 and 450 gigawatt by 2030. I think the -- revenue wise it's going to be very, very high in the country, and we should get good share out of that because now distribution companies are not preferring PPAs for the entire requirement. They are only getting into PPA for the baseload and rest is to the market. They want to prefer that. We will work on GDAM market to make estimates for the next 5 years, trying to sit in -- I haven't made any real estimate on that. We were more -- concentrating more on the product and interacting with the participants. But then next time, I'll give you some estimate on this also.

Ladies and gentlemen, that would be the last question for the day. Now I hand over the floor to the management for closing comments.

[Technical Difficulty] I think that is -- that opportunity for us to explain the market of the recent development, and it was a good interaction. We look forward to similar interactions in the next quarter. Thank you. Thank you very much.

Thank you, sir. Thank you, everyone. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.