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

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q2 FY '24 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore. Thank you, and over to you, sir.

Good afternoon, everyone. On behalf of Axis Capital, I'm pleased to welcome you all for the IEX Q2 FY '24 Earnings Conference Call. We have with us the management team of IEX represented by Mr. S.N. Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Executive Director, Business Development Strategy and Regulatory Affairs; and Ms. Aparna Garg, Head of Investor Relations and Corporate Communications. We will begin with the opening remarks from Mr. Goel followed by an interactive Q&A session. Over to you, sir.

Good afternoon, friends. I welcome you all to the IEX earnings call For quarter 2 of FY '24. With me today on this call are Mr. Rohit Bajaj, our Executive Director of Business Development, Strategy and Regulatory Affairs; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations & New Product Development; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali. Friends, the Indian economy continues to be the world's fastest-growing major economy. The recent success of India's G20 Presidency and the G20 New Delhi Leaders Declaration has further raised India standing as a global leader. Some more important achievements during the India's G20 Presidency included the creation of the Global Biofuel Alliance, which aims to share knowledge, technology and finance to develop and introduce cleaner fuels and the finalization of India, Middle East Europe economic corridor agreement. The summit demonstrated to the world that India is not only emerging as a world leader but also becoming a voice of the global south to achieve the goal of inclusive development and tackle challenges of climate change through global cooperation. Moving on. The Indian economy is sustaining its growth momentum together over the past 2 years. In the face of global headwinds, India's GDP for first quarter FY '24 grew at a rate of 7.8%, the highest among major economies. This growth momentum has been on the back of an expanding service sector, private [indiscernible] and increased capital expenditure. At 57.5% in September 2023, India's manufacturing PMI remains [ expansionary ] for the 27th straight month. The quarter 2 FY '24 [split ] came in at 57.9% compared with 55.9% in quarter 2 of last fiscal. Reflecting the country's healthy demand environment, the service PMI cooled off slightly from a 13-year high of 62.3% in July to 61.0% in September. Printing at quarter 2 FY '24 number of 67.1% compared with 55.7% same period last year. In this backdrop, the World Bank estimate of India's economic activity for the current financial year is on track to grow at a rate of 6.3%. Turning to power sector update. On the power sector front, in electricity consumption in India for quarter 2 FY '24 stood at 435.8 BU, a growth of 13% on a year-on-year basis. Our demand was higher than anticipated for the Monsoon months with peak power demand touching nearly 240 gigawatt in September first week. States like Maharashtra, Uttar Pradesh, Gujarat, Madhya Pradesh, Karnataka and Tamil Nadu witnessed soaring demand this quarter. In the previous quarter, we cooler ambient temperatures had kept demand for power sectors and -- power sector lower than anticipated. By the end of quarter 2 of FY 2024 India's total installed capacity stood at 425 gigawatts, out of which 179 gigawatt of -- was contributed by renewables. India remains on track to attend its target of achieving 50% of energy consumption from non-fossil fuel source by 2030. On the fuel side, India's coal production increased by a robust 16.2% on a year-on-year basis to reach 205 billion tonnes in quarter 2 of FY '24. For the period April to September, coal production was up by 12% on a year-on-year basis to 428 million tonnes. Coal dispatchers through the power sector increased by nearly 11% year-on-year basis during quarter 2 FY '24 to 181 million tonnes. E-auction coal premium has also continued to decline since the beginning of this financial year. The premium declined to about 100% in September '23 from 276% in September '22, and a peak of 425% in May '22. The average imported coal price of 4,200 GAR coal also continue to be lease at USD 56 per tonne, lower by 35% over the same quarter of last fiscal year. Imported gas price has reduced by nearly 60% year-on-year basis to USD 16 per MMBtu average -- average coal inventory stood at nearly 13 days during quarter 2 FY '24, higher than 11 days, which was there are in the last -- quarter 2 of last fiscal. The improved supply side scenario resulted in increased sell liquidity button, unexpected surge in power demand has kept the prices higher on the exchange. The average market clearing price in the DAM market during quarter 2 of this year was INR 5.88 per unit compared with INR 5.4 per unit in the same quarter last year, higher by near 9% over the last year and 9% over the first quarter of this year. With supply side volumes continuing to improve and robust power demand volume on Exchange are expected to grow going forward as well. Regulatory and policy initiatives, let us now talk about that noteworthy regulatory updates and policy initiatives introduced by the government in quarter 2 FY '24. The CRC has notified Indian Electricity Grid Code, the sharing of Interstate transmission charges regulation and long-awaited GNA regulations. The salient features of these regulations are: the long-standing anomaly in transmission charge between collective and bilateral transactions has been corrected, which will facilitate movement of volume from BSE market back to DAM market. Since sellers will no longer be required to pay interstate transmission charges. Under IGC, generators with long-term PPA would also be able to sell their surplus power, which is not requisition by the Discoms. In that they had market without consent of buyers. To improve availability of sell in the market on 5th September '23, government has director generators with PPA to offer in exchange the URS power under Day-Ahead Market also. Generators would now be allowed to meet their commitment in case of unit shutdown or forced outage by purchasing power through the exchange. Buyers will be able to use their GNA optimally as transmission charges in collective transactions will be applicable only for the biquantum in excess of GNA, which will facilitate buy on the exchange as the working capital requirement will be reduced for participation in DAM and REC. Interstate transmission charges and losses will only be applicable on buyers, which will provide level playing field for all generators irrespective of their location and will facilitate competitive -- competition on the exchange platform. The overall philosophy of transmission planning has changed, efforts are made to enable transmission capacity additions, which will secure a congestion-free transmission system and reduce volume loss to the -- due to congestion. These regulations will also facilitate energy transition in a big way by providing flexibility to thermal generators to replace their brown power with green power. Introduction of RE aggregators and an activity to aggregate 50-megawatt RE capacity, all this will be for Green markets on the exchange platform in future. In other CEA has issued the first amendment to the procedure for cross-border trade in electricity. The amendment allows for cross-border trade of power through the real-time market operated by the power exchanges, which is expected to increase cross border volumes on the exchange. In addition, final guidelines for resource adequacy planning were issued by Ministry of Power in consultation with electricity authority to enable adequate generation capacity to meet projected demand in the country. The source adequacy creates the basis for capacity contracting and can lead to opportunity for IEX to introduce capacity contracts such a market -- such a market will also help in increasing sell-side liquidity. The Ministry of Power issued guidelines for tariff-based competitive bidding process for procurement of [ firm RE power ] wherein developers have been provided flexibility to supply up to 5% of the contracted power by purchasing from the exchange. Guidelines on dispatchable RE power for energy storage. These guidelines now allow generators to supply excess power from the RE plant to any third-party or a power exchange without requirement of NOC from the buyer. In June this financial year, the Ministry of Power shared a letter with CERC directing it to look into the market coupling for the Indian power sector. The CREC subsequently raised a -- released a staff paper on market coupling and others. A detailed reading of the staff paper explains the advantages, disadvantages and execution challenges of market coupling. The commission has yet to take any view on this -- view on implementation of market coupling. We have also submitted our suggestions, explaining why market coupling should not be implemented. We do believe that current market operations of IEX will continue on this method. In a strategic move to promote a circular economy and one that aligns with IEX commitment to sustainability and decarbonization and in harmony with India's net-zero commitments, IEX acquired a 10% stake in Enviro Enablers India Private Limited. This deal will augment the value offerings of EEIPL's material waste platform, which brings together all stakeholders with different sectors. Material waste platform holds significant potential to enhance the scientific processing of waste across India and establish a circular economic for a wide range of waste materials. I'm happy to inform that we had introduced -- we had launched the IEX Academy this year in June to create a pool of skilled professionals for capacity building in the power market. In a span of less than 3 months, we have seen nearly 250 enrollments across programs. In line with our aim to provide seamless experience to our customers, the last quarter witnessed onboarding of numbers -- onboarding of members to the great place trading platform and to the automated bidding API for DAM and RTM. Recently, we also launched high-priced DAM market. With this, we will be able to facilitate imported coal-based and gas-based power plants to be able to offer high cost power for up to 90 days. This will ensure there is enough sell-side liquidity available during crisis period. The product would also provide sell revenues to battery energy storage systems, power plants on the exchange. In terms of business performance, IEX achieved 26.5 billion units of traded volume across all segments during quarter 2 of FY '24, registering 15% on a year-on-year basis growth. So in Electricity segment, particularly, the growth was above 17%. IGX generated total volume of 195 lakh MMBTU during quarter 2 of FY '24, a jump of 262% over the same quarter last fiscal. The volume jump was largely on the back of increased domestic gas volume and decreased gas prices compared with spot prices. The profitability of IGX for quarter 2 FY '24 increased to [ INR 7.85 crores ] from INR 2.42 crores in the same period last fiscal, an increase of about 224%. Let me now summarize the financial performance of the company in this quarter. On a consolidated basis, revenue for quarter 2 of FY '24 increased [ 16.9% ] on year-on-year basis to INR 133 crores from INR 113.8 crore in last year. Consolidated PAT during the quarter came at INR 86.5 crores, higher by 21.5% on year-on-year basis from INR 71.2 crores in quarter 2 of FY '23. With improving coal production, inventory and easing coal prices, we expect rationalization of power prices on the exchange and volumes to improve in the coming quarter -- coming months. Based on [ CEA ] staff plan, power consumption in the country should increase by more than 100 billion units annually till 2030. And this presents an opportunity for IEX to tap into incremental volume, annually. IEX will continue to introduce innovative products and market segments to strengthen its existing product portfolio. We have been exploring options to extend term-ahead market contract up to 90 days -- from 90 days to 1 year to provide better optimization opportunities from this. We will continue to work with ministries, regulators, system operators and our partners and clients and all other stakeholders to accelerate India's sustainable energy transition. Thank you, friends. And now, we can now have question-and-answer.

[Operator Instructions] The first question is from the line of Damodharan from Equitas Capital Advisors.

Three questions from my side. So one is, you spoke about GNA getting implemented in October. If I look at the share of the day ahead continuity market, that has already come down sharply in September. So what is the reason for that? And given that GNA has been implemented now, where do you the share stabilizing? So -- on a sustainable basis. So that was one. Then if you look at the mix of volumes. Term-ahead markets has seen a very sharp growth. So what is the reason for that in the last quarter. So that is one question. And If you look at, I mean, CERC had I think given a deadline for October 15 to give all the comments and suggestions by all market participants. So now what are the next steps that the CERC will take to whatever the decision is on market coupling. So that's one question. And the last one was, I mean, if I look at the share of bilateral trade in overall volume, that has also gone up over the -- over the last 3 or 4 months, I mean, the data is there till July on the CERC. So if you can throw some light as to what's the reason behind that? So these are my questions.

Yes. First thing, you asked about GNA. Yes, GNA has been implemented from 1st of October. And in the first 2, 3 days, we saw very positive development after implementation of that GNA. . The CERC volume had reduced -- but subsequently, in the month of October, you can say right from 5th of October to 15th of October, the demand was very high in the country. And exchange clearing price was almost INR 10 throughout the stage. And when you know, you have this kind of price, then buyers -- they try to get into bilateral market to ensure availability of power so they contract in the bilateral market or the BSE market. So that shifting of -- I mean, the impact of GNA was not really positive during those days. But then subsequently, when the prices started going down, the supply side scenario improved. We are again now seeing that good volume is happening in that Day-ahead market of exchanges. And our overall volume growth for the month of October because of GNA implications has been almost -- in electricity has been almost about 20% now. So that's a positive development. And I'm sure in the coming months, the growth will be better. Your second question was that our market share in the second quarter was lower. See, the reason was basically the second quarter, as I told you, the demand increased by almost 13%. And because of the high demand increase, many of the distribution companies, they contracted power through the bilateral contracts. And in fact, bilateral contracts volume increased by almost about 25% during this quarter. So substantial volumes were shifted to the bilateral contracts because of which the DAM volumes reduced and our market shares was lower. But I'm sure in the coming quarter you will see good increase in the market share. Coupling. Yes, CERC had issued a discussion paper. It was issued on 21st of August. And I'm sure, you must have gone for the discussion paper and the reading of the discussion paper indicates that CERC has not taken any view. They are neutral in the paper. They have listed out advantages, whatever we can achieve. But the disadvantages and the challenges of implementation of coupling are more than -- and they have highlighted all those things. What we understand is that participants have submitted the comments on that and CERC is just compiling their comments. They have not taken any view on that. Bilateral volumes, yes, they have increased, as I told you, because demand for power was very high, and many distribution companies got into a bilateral contracts. So now I think demand has reduced slightly -- it is not 5,200 million units per day. Per day has come down to almost about 4,300, 4,400 million units per day. So our clearing price is also down to almost about INR 5. So we should see good volume that they had in RTM market.

Sure. And any update on, I mean how CERC will arrive at a decision or when or how long will it take for that to happen?

There is a lot of echo is there. Can you repeat the question?

Sorry. Sorry. Am I audible now?

Yes.

Yes. So any update on how long will it take, I mean this process of CERC compiling comments and...

See, I can tell you the process part of it. Based on amendment they will have to compile the comments, take a decision -- commission will have to take a decision based on the comments. They also do consultation. There is special advisory committee of estimations, they do consultation in that also. And based on all the inputs, commission will take a view on that. If the view of the commission is that we should go ahead with the coupling, then draft regulators will have to be prepared. And when they prepare the draft regulations, they will also indicate why they are going -- why they intend to go ahead with coupling. The statement of regions also will be there. And then they will invite comments on that. After the shift of comments on that, they will then, again, see whether they want to go ahead with the coupling or not. If they want to go ahead with the coupling, they will issue the final regulations. And then the activity for implementation of coupling will start. So this process of finalization of regulation itself may take 1 year time. And after that, implementation of coupling is getting a software, customizing the software for the Indian conditions, putting in place at the clearing and settlement mechanism. So all those things -- I mean, it might take anything between 1.5 to 2 years' time for implementing coupling after that.

The next question is from the line of Mr. Sumit Kishore from Axis Capital Limited.

My first question is in relation to the long-duration contracts. What is the total volume handled by IEX LDC in the second quarter, in the first half of the year. And what is the market share composition in LDC and how much does IEX have?

Yes, Kishore, Rohit will respond.

So in first half, total volume done in LDC is -- 3.6 billion units. But if we talk about specific months, it was more in September where we did more than 1 billion units. And October, it is more than -- it is about [ 1.7 billion ]. So it started on a smaller note. And if you look back, last year, total volume done in LDC was 1.4 billion. So as compared to 1.4 billion, we have done in the first half itself 3.6 billion and a lot of traction is there. These distribution companies are finding it very attractive to source power through LDC contract. And we are seeing a lot of transactions are happening. There are -- we have applied more than 300 -- gave us options in this particular segment. And wherever rates were suitable distribution company went ahead and sourced its power. So started on a little slower note, but now picking up very fast.

Okay. And -- so what would be IEX share. So in first half, you've done 3.6 billion units? How much was the total LDC traded?

Total number is not readily handy with me, but our share was close to 60% in case of LDC contracts. Now lets say close to 7 billion unit was all done in the LDC contracts.

My next question is that you have been seeing a high demand environment, although there has been easing of supply side constraints, it's been price discovery has been in the vicinity of INR 6. So -- and the exchanges have not been able to gain market share. Market share has moved towards bilateral. So would you like to comment on how the medium-term situation will evolve because, India seems to be headed into a situation where we could have tight liquidity continuing? Or is that around assessment?

So see, our reading is the situation that we are seeing where there is a huge supply side constraint. This is temporary. What we have seen is, in the last 3, 4 months, there is a lot of softening in the prices, particularly coal as well as gas. And because of that, improve -- there is some improvement in the liquidity. Demand increased in a couple -- some months was more than expected. So that has taken away whatever additional supply was brought in the market. But going forward, we expect that some more capacity is going to get commissioned. There are projections -- it says that 9,000 megawatt capacity will come in next 5 to 6 months. So this will give us a lot of support and reasonable capacity as you all know, it continues to getting added in the system. So whatever shortages we are seeing now, deficit -- we are seeing now will get covered eventually in coming months. And with that situation will only improve. And we expect prices to be in a decent level. So this is our reading of the situation. And as this will happen, we expect more liquidity or more buyers will start to come on the day ahead and RTM market, which is the most preferred option for any state because there the prices recovery is more efficient. It is the most competitive market segment that are available. And we have seen historically prices are lowest at this particular segment. Sure. And finally, how do you see the share of overall short-term markets moving over the past couple of years. And has it been as per your original assessment, exchanges within the mix have been falling short because of bilateral markets going faster. How do you think that the next couple of years are likely to evolve. So the short-term markets overall and exchanges within the short-term market?

So if you see last 5 years' data, you will find that short-term market is growing very fast. In fact, CAGR growth has been more than 20%. And within the short-term market, exchanges are the ones which has been growing at the fastest pace. So this has been the historical trend. There are some aberrations, the point Mr. Goel explained, the point that I was sharing, because of some uncertainty in availability, some sudden increase in the prices, there was small shift that happened within from exchange to bilateral market. We have seen that in quarter 1, the shift was there -- but as the stability will come, as the situation will stabilize, which again it has already started with increase in gold production, with increase in more generation getting onboard. We expect, again, the things would be aligned and exchange would be the fastest-growing segment within the short-term market. But one more point here is, since no long-term PPAs are being signed today, not -- earlier distribution companies were not taking, now many generators are also not interested to lock their power under long-term PPAs. So which means that going forward, there would be this merchant capacity, which is present now will not go away and more capacity will come in terms of distribution companies getting more power under the long-term PPA, which are the plants which are going to get commissioned together, this will create more liquidity on the sell-side, which will help exchange market to grow.

The next question is from the line of Vikas Jain from Financial Quotient.

And many thanks for the detailed summarization of what we have done at IEX. My first question was on market coupling, but I think that has been answered very fairly by the management team. So just wanted to know about the PAT level figures for IGX and ICX for the Q2, if any?

Yes. For IGX, our profit has been around INR 7.8 crores in second quarter, which is almost about 260% of what we did in the second quarter of last year. The volume growth in case of IGX in the second quarter was significant. ICX, we have not launched yet. So ICX, we are only doing the development activities at the moment. As of now, there is no revenue, except for the treasury income, which is very...

Besides from [ ICX ] operations might be expected to get commenced.

ICX, I think will need some more time because government is also coming out with their CCTS, carbon credit trading scheme and there are some changes what we are expecting with respect to the amended scheme compliant market. So we are analyzing all that, and then we'll launch it after analyzing all these things.

Okay. Just one more clarification, sir. So this IEX would have voluntary and involuntary, both the credit market being summarized into one, right.

Voluntary compliance market will be operated by IEX. Basically, that will be a regulated market, regulated by CERC. So all CERC regulated exchanges will be able to offer the compliance market of carbon credits. As far as voluntary market is concerned, there is no clarity about that. Our intention is to launch the ICH, International Carbon Exchange for the voluntary market so that we are able to get that voluntary market share. But whether that market also will be regulated or not, still the clarity is yet to come on that.

The next question is from the line of Arul Selvan from Independent Advisors Private Limited.

Can you hear me? Am I audible?

Yes.

Yes, please. Go ahead.

I just have a few questions. The first question here is regarding the market share of IEX in the different segments. I believe the slide in the Power point presentation which had all these market shares was not given this time. So could you please help with that?

Okay. What else?

Okay. The next question here is -- just one question about this relationship between the high-priced power and bilateral trades. So could you please help me understand that. What is the incentive for the third parties to transact in the bilateral markets when prices go to double digits on the exchange.

Yes, is it okay? I mean...

Yes. Those are my 2 questions.

Anything else?

No. Not as of now.

Okay. So let me tell you about the market share. When in the collective transactions, which is our Day-Ahead market and the RTM market, our market share continues to be almost about 99.9%. Okay? Long duration contracts, which are daily, weeky and monthly contracts, our market share is almost about 55%. And in that, they had contingency market. The market share is close to 40%. And with the implementation of GNA, the BSE volumes are expected to go down. So overall market share will improve.

And have they gone down in the month of October? The total volumes of electricity traded on the BSE versus...

You are right. You are right that the volumes traded in the month of October have significantly gone down with respect to September. I believe in the month of September, the average daily volume was close to 50, and it was close to 25 in the month of October. And in the month of November, I'm sure what is happening is that, hardly nothing. In the single-digit BSE volumes are happening. Question about -- bilateral transactions had expect that market. This market transactions will happen mainly when the crisis is there and the coal-based power plants are not able to meet the demand. So you have to get the power from the gas-based power plants and the cost of generation is something around INR 13, INR 14, INR 15. So we are not seeing much transactions in that market because distribution companies are not willing to buy power at that high price. But when there is crisis, very high demand, there is a tendency on the part of distribution companies to purchase power in the bilateral market, even by paying slightly more premium so that they are assured of power supply. Because of the exchange platform, if they are purchasing power in the Day Ahead and RTM market, then they are not very sure whether on that particular day, they will get the power or not. That is why we have seen in the past also, whenever the demand is very high, the bilateral undertones increase. And now for the month of, you can say, November, December, January, February, when the volumes or demand is slightly lower with respect to the summer months, the bilateral transactions will go down.

Okay. Okay. I'm little bit surprised, you're saying that when the prices are high, the consumers are not -- the discoms are not willing to purchase on the exchange because there's not certainty that they will receive the electricity. Is that the case?

See, when the price is high, it means that the demand is high and supply is not commensurate with the demand. That is a high demand period. And during the high demand period, some of the discoms who are -- who wants to ensure 24/7 supply and who wants purchase power at any cost, they pay premium over their market price and purchase power in that bilateral transaction.

So the only question -- one thing there is, is there a material difference between the high power, the high-price segment which we've launched recently and the bilateral market, is there a difference in terms of the availability of power versus or the ease of convenience or the transaction charges. I'm just trying to understand in what way is the bilateral market better than the exchange market?

See the point is -- let me first clarify one thing that on the exchange platform, we have also bilateral contracts. These contracts are for weekly, fortnightly, monthly basis for delivery of power up to 3 months. But in all these contracts, the filling price INR 10. If somebody wants to buy power, he's not able to get power within that. If we want to buy gas-based power, then we will have to go to the big [ DAM ] market. Whereas in the bilateral transactions, even the coal-based power plant domestic coal-based power plants also supply power and the rate would be INR 7, INR 8, INR 9. So bilateral transactions, there is no segregation of actually a DAM market high-price market or the normal market.

The next question is from the line of Viraj Mithani from Jupiter Financial.

I have 3 questions. My first question is on carbon exchange. When you talk about the international trading on the carbon exchange, what will be the benchmark we'd be using? Would it be a Paris-based benchmark or the U.S. based? Any thoughts on that? And can you give more color in terms of the volumes we can attract in days to come since we have signed this 2030 Paris accord and world is going green. That is my first question. My second question is, suppose if the coupling is implemented, then what are our plans to mitigate that, how are we getting prepared for that? And my third question is, how are we placed against the competition? That's it from my side.

I'll request my colleague, Mr. Amit Kumar, to respond to this question.

So that's on the -- in terms of carbon exchange, as we mentioned that we intend to operate it in the voluntary carbon market. And the way in the voluntary carbon market the trade happens in that there are global registries, which are available, like Verra, gold standard, which basically register projects and they certify projects for issuance of carbon credits. And those carbon credits, which get issued by these global registries, Verra and gold standard and there are a few registries as well. They are basically then eligible for trading in the voluntary carbon market. So basically, once we commence our operations, we will have integration with these registries so that the project developers whose projects are registered for trade issuance, they will be able to list those credits for sale on our platform and the buyers who want to buy these carbon credits to do offsets, they will come and buy these credits from our exchange platform. So that is how basically the voluntary carbon market operates, and that is what we intend to tap in from an international perspective.

What is the benchmark, will there going to be on certain benchmark, right, either by the Paris or the U.S. or India or something?

The registries for different projects, they have the methodologies defined. So like for forest projects Verra will have a methodology defined, the project, especially for forestry projects that meets the requirements of the methodologies that are defined within Verra, those projects, once they apply for registrations, Verra will approve those projects. So each registry for the different types of project because carbon credit ,it has to be for commodity -- so there are different factors like you have nature-based carbon credit, [ cookstove ]. Then you have the carbon credit for renewables. For cookstove, there is a set of methodologies that each registry will define. Now project for it to be accepted for approval for credit issuance, they have to be aligned to the methodology that, that registry has defined. So that is how basically we update issuance and the project approval work in the voluntary carbon market.

There 2 questions are.

Can you speak the question, please?

My next question was if the coupling is implemented, how are we prepared to mitigate that issue?

Yes. First of all, implementation of coupling itself is doubtful. No view has been taken by the CERC so far. And we don't think, based on our interactions that coupling is going to get implemented. In any case -- and then I respect your question, if coupling is implemented, we are already working on the different strategies to create a strong customer connect. And you must have seen that in the last 2, 3 years, we have done a lot of development on our technology platform also. We have a strong integration with our customers through the API system and we are also providing value-added services to our customers. The data analytics which we are providing. I think all these things are giving a lot of value to the customers. And relationship which we have built with the customers over the last 15 years. I'm sure with all that, we should be able to maintain our market share.

And sir, how would we are placed against the competition? I guess we are the largest exchange so far, right?

Yes.

Okay. And how are we placed -- we -- are the competitor gaining more ground against us? Or we are still performing better than them. If you can give some light on that?

As far as the collective transactions are concerned, which are the collective transactions in any exchange platform, which is the day-ahead Market and real-time market; in these 2 segments, our market share is 99.9%. And if you look at the volume in these 2 segments, it is almost about 75% of the total volume affected on exchange platform. So in this 75% volume, our market share is 100%, you can say. So rest of the 25%, which is consisting of BSE market, TAM market, certificate markets, all these things, our market share is close to 40%, 45%. So you can say, as of now, our market share is about 85%, 86%. But going forward, it should improve further.

The next question is from the line of Devesh Agarwal from IIFL Securities.

My question is around the supply side. You did mention that the supply is likely to improve going ahead. But I just wanted to understand better in terms of what is giving you that comfort. And secondly, given that we will be entering in the state elections and then union elections. Would not SCED wanting to sign short-term bilateral contracts to ensure that the supply is intact during this election period?

Yes. I mean, liquidity as of now in the market is very good. We are getting every day close to 300-plus MU on the sell side, whereas demand is only for about 200 MU, 225 MU. And so there is more sale available than might requirement. And I'm sure this situation is going to continue for the next 3, 4 months. From March onwards, when the election fever will catch up, some of the discounts may get into a bilateral mode, who are politically -- because this is a very politically sensitive issue. So it's very difficult to make any comment on that. But yes, some of the discounts may get into bilateral contracts also.

Again [ TAM tends to ] buy power for up to 3 months now. And going forward, we will launch up to 11 months also since GNA has been implemented and short term contracts can be -- are allowed to be -- can be done up to 11 months, so we will get approval and we will launch 11-month contract also. So we are also gearing up for this. We also understand there would be some tendency among some of the distribution companies to source power under bilateral. And since we have offering now -- earlier days, we had only TAM, which was up to 11 days. So situation is a little different, and we are gearing up to operate with other bilateral contracts.

Right. Rohit, just to understand better. You did mention that in the LDC market in the first half, you did 3.6 billion units. So if you were to divide this in 1-month or 3-month contract, where are we seeing most of the volume coming in. Where is the concentration of volume? Is it in like a 10-day, 15-day contracts or 1 month or 3 months?

So today, the concentration is up to 1 month. But recently or lately, I would say we have started seeing some activity in the second month also. So if I talk about H1, it was majorly first month -- but now some transactions are happening for December, January also, which means that it has extended to second also. And going forward, it can be -- we will have some more months. It would be third-fourth and hence...

And by when do we intend to increase the tenure?

Sorry, come again? We will release our review file in our petition with CERC in the next 10, 15 days for offering long duration contracts for delivery up to 11 months. And CERC normally takes about 2 months' time to approve that. So hopefully, by end of December, we should have approval and from 1st of January, we should be able to launch this contract for delivery up to 11 months.

Understood. And sir, any recent bilateral agreement that are being signed, if you can give some sense in terms of what is the price that is being discovered in the bilateral market versus the price that we see on the exchange platform.

So one thing is prices in the bilateral contracts are definitely more than the prices on our DAM market, DAM or RTM market. So that is why people only go to the bilateral contracts when there is a crisis and they want to just ensure availability of power at any cost. There are many instances where distribution companies purchase power in the bilateral market at a higher price. And on a real-time basis, because of the seasonal variations, the demand in that particular case was lower and they ended up being a selling power on the exchange platform at a lower price. Bought at a higher price in the bilateral and sold at a lower price in the Day Ahead market or RTM market. So distribution companies are also realizing it now that too much of reliance on the bilateral market is not desirable. And they are contracting maybe certain minimum contents based on their demand and supply projections.

Right. And the final question from my side sir, this government extended the Section 11 until June 2024. So does this scenario in any way help or hurt us in terms of volume?

See, Section 11 extension up to June 2024 will definitely ensure increased availability of power in the market. And if there is an increased availability of power in the market, then the desperate situation will not be there.

It is good for the sector. It is good for exchanges because overall liquidity on the sell-side would improve and we would be able -- together all of us would be able to meet the demand.

The next question is from the line of Mr. Nikhil Abhyankar from ICICI Securities.

Sir, can you just brief us on what product additions are we looking at in the next 6 to 12 months?

In the last 2 years, we have added many products and we did RTM market, and we launched green market, green term-ahead, green DAM, now and HP-DAM, HP-TAM. HP-DAM also was introduced in the month of October. And now we are going for the long-duration contract for delivery upto 11 months, that is also expected in the next 2, 3 months' time. So I don't think you can add new products every 2 months. There is a limit to that. Only thing is whatever the new products were introduced, we have to bring more liquidity in those products. So we are working in the market to bring like green market; green products, green DAM and green RTM, green TAM markets, there, the volumes are still not significant. I mean I think combined volume in a year is almost about 8 to 9 BU. So we have to bring more liquidity in the green market. A lot of activities are happening in there. So we are working with the generators. We are working with the states, also how to bring more liquidity in this. The government also, we are doing the policy advocation with the government. The government has allowed that generators can -- I mean, you can purchase up to 5% of the power in a contract to meet your commitment from the green market. all this and they are also working on the CFD contracts for the green market. Virtual power purchase agreements are also now becoming popular. So all these initiatives are being taken to bring more liquidity in these markets.

Okay. Anything around power derivatives?

Pardon?

Power derivatives, electricity derivatives?

Power derivatives will be launched on the exchanges, which are regulated by SEBI. That in NSE or BSE. So there is a committee which is working on this. And I think they have still not come to a conclusion of launching derivatives at this stage because volatility in the market is too high at the moment.

And sir, you mentioned that LDC volumes are higher in the past 3, 4 months. And once we get the approval of LDC for 11 months, can we expect a large part of the bilateral contracts will shift to us?

Sure. That is our efforts. That is the intent which we are going to offer these contracts and our then interactions with it will start impacting the distribution companies and generating companies to -- and ensure their participation in those contracts.

Okay. And sir, final question, we have around INR 1,400 crores of cash on our balance sheet, investments and cash -- so can we expect more buybacks going ahead?

We will take a call on that whether buyback or dividend, when we have a policy of rewarding our shareholders, and we give almost more than 50% of the profit in the form of dividend or buyback. So we'll continue to do that.

[Operator Instructions] The next question is from the line of Jateen Doshi from Axis Capital.

My first question is on E-certificates. So the cycle 2, is it over in October because we are seeing volumes coming off significantly. So we expect this cycle to over for this year or again when we can expect the next cycle to be?

Cycle 2 is over now. And we have to now wait for cycle 3.

And that will be in the next 3 years, right?

It depends on when [indiscernible]notifies that. Yes, we are expecting next year.

Next year, okay. And sir, on the [ LDC ]just want to reiterate, you said volumes in [ LDC ]in October is almost 1.7 BU.

Yes, yes.

The next question is from the line of Amey Kulkarni from Candor Investing.

I had a couple of questions. We had this proposal for gross bidding, and here also some of the repetitions you are seeing sometimes in 2021. Is there any rethinking update on this issue? And what is the progress with the transmission system operator for the gas sector. And a couple of -- just 1 or 2 more questions. Is there any update on the renewable contract [indiscernible] using the [indiscernible], which we call a Contract for Differences.

The first one is on the gross bidding. Gross bidding is basically optimization by distribution company. And this concept is more relevant when the prices are competitive in the range of maybe INR 3.5 to INR 4. But since for the last 2 years, our prices have been around INR 5, there is not a significant opportunity for gross bidding at the moment. In any case, the new GNA regulations and transmission charge sharing regulations, which have been issued by the CERC now. Under both regulations -- now gross bidding, it can be implemented. You don't need any separate approval of the gross bidding. It can be implemented by the distribution company pretty effectively and many of the distribution companies are already doing it. See, there is no extra payment to be made by a distribution company for the sale of power on the exchange platform now. So the distribution company has got a PPA with a generating company and under that PPA, they have power available, they don't need that power, they can schedule that power in the morning hours, submit bid on the exchange platform based on the variable cost of that. If that power is cleared, they can continue with the schedule. And if the power is not cleared, they can revise the schedule of the generator on the lower site. So all these flexibilities are there. There are no transmission charges to be paid for sale of power and no losses are accounted for that. So that flexibility we were looking for under the gross bidding petition, that has been already provided by CERC in the GNA in grid code, all these new regulations, which have been implemented now. And we find there are states like Punjab, MP, Haryana, Maharashtra, many of these states are submitting bids for purchase in power and sale of power both. And that is basically with the intent of doing optimizations in their power procurement costs. So we are working with the states now that how can they use the GNA provisions to effectively implement -- I mean, not in gross bidding, you can optimize your cost now which was the intent of the gross bidding. Second question was on the gas system operator. Yes. I mean, government, in fact, has mentioned in many of the forums that they are going to create gas system operators. But as of now, nothing has happened much on that. And your third question was about ?

CFD.

Yes. CFD contracts, yes, I mean, this issue is under discussion, which is, in fact, I will say that final stage of approval but only they are looking at taking a view that if at all there is a gap in the contractor price and the market claimed price, how to fund that -- so once they decide about that, they will approve that contract. Otherwise, our modalities are already discussed and finalized.

So just 1 last point. The distribution companies went buy under the LDC contract, the long duration contracts. Suppose the extended notes says 11 months, do the distribution company needs approval from the regulator for the prices discovered in these contracts? Because they are [indiscernible]regulatory approval is not required.

Yes. For the LDC contracts, they normally take approval from their respective state regulatory commissions.

Before bidding itself?

In many of the states, they have given a certain limit up to this price like a distribution company can purchase the power. But if the price is more than that, they can take the approval and doing such approvals don't take much time. But yes, regulators are also aware about the market connection.

The next question is from the line of Dhruv Muchhal from HDFC Asset Management Company.

Just 1 question. Somebody who is a buyer who is buying from the green exchange green products. Does he have to pay transmission charges or that is also waived for you? for the buyer?

As per the new GNA regulations, sellers, whether they are from green plant or whether they are from the coal-based power plant, no seller is required to pay any transmission charges.

And sir buyers?

Transmission charges are to be paid by the buyer only. In case of green power product projects commissioned up to 2025, given the transmission charges for the buyer also is waived off.

For projects, but -- okay, sorry. But the buyer is only generally, say, for example, some third-party somebody. I'm trying to understand if somebody is selling in the merchant market then. So green market would be merchant market that way?

No, I think it is for that projects which are on the PPA mode.

Okay. So for the product -- for the green products that we have, the buyer has to pay transmission for that. The transmissions are exempted for the volumes that you do on exchanges.

So for exchanges also, it is exempted, but the problem is it is not yet implemented. We expect going forward, very soon, this will be implemented and then it will be raised off. To begin with, it is easier to implement that for bilateral contracts through exchanges also, a little difficult for [ collective ], but eventually in times, in months to come, it should get implemented.

So it's a clarification which probably or some modification that we're seeking and once that happens [indiscernible]

Absolutely.

We would take that as our last question. I would now like to hand the conference over to the management for closing comments.

Thank you, friends. I would like to thank each one of you for being part of today's call. During the quarter, we have witnessed a lot of initiatives signed off by the government and the regulators towards creating a favorable policy and regulatory environment to transform the energy sectors. We remain committed in doing our bit towards building a sustainable and efficient energy futures. Have a great evening. Thank you very much, and happy Diwali.

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