Indian Energy Exchange Ltd (IEX) Q4 FY23 Earnings Concall Transcript

Indian Energy Exchange Ltd (NSE : IEX) Q4 FY23 Earnings Concall dated May. 26, 2023.

Corporate Participants:

Sumit Kishore — Investor Relations

Satyanarayan Goel — Chairman and Managing Director

Vineet Harlalka — Chief Financial Officer and Company Secretary

Analysts:

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Sumit Kishore — Axis Capital Ltd. — Analyst

Apoorva Bahadur — Goldman Sachs — Analyst

Unidentified Participant — — Analyst

Ankit Kanodia — Smart Sync Services — Analyst

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Nikhil Nigania — AB Bernstein — Analyst

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q4 FY ’23 Earnings Conference Call, hosted by Axis Capital Limited. [Operator Instructions].

I now hand the conference over to Mr. Sumit Kishore from Axis Capital. Thank you, and over to you, sir.

Sumit Kishore — Investor Relations

Thank you, Tanvi. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I’m pleased to welcome you all for the IEX Q4 FY ’23 Earnings Conference Call. We have with us the management team of IEX, which is to be presented by: Mr. S.N. Goel, Chairman and Managing Director; Mr. Vineet Harlalka, Chief Financial Officer; Mr. Rohit Bajaj, Head, Business Development; and Mr. Aparna Garg, Head, 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, Goel sir.

Satyanarayan Goel — Chairman and Managing Director

Good afternoon, friends. I welcome you all to our quarter four and earnings — annual earnings call for the year, financial year 2023. With me today on this call are: Mr. Rohit Bajaj, our Head, Business Development; Mr. Vineet Harlalka, our CFO and Company Secretary; Mr. Amit Kumar, Head of Market Operations and Product Development; Mr. Sangh Gautam, CTO; Ms. Aparna Garg, Head of Investor Relations and Communications; and Mr. Aditya Wali.

Friends, last year was a turbulent year, and particularly for the global economy due to geopolitical disruptions, IMF forecast baseline global growth falling from 3.4% in 2022 to 2.8% in 2023. In comparison, the Indian economy has fared much better due to several proactive policy enablers by the Indian government. Economic growth sustained its momentum during the year, led by a strong rebound in the industrial activities backed by strong private consumption, higher capital expenditure and robust financial sector.

India is expected to register a strong growth of 7% for fiscal ’23 as per the Economic Survey ’23, and has been identified as the fastest-growing major economy in the world. India’s manufacturing PMI in quarter four ’23 stood at 55.7%, compared with 54.4% in quarter four of 2022. While the services PMI was higher per quarter four ’23 at 58.1% compared with 52.3% in quarter four of 2022; the country’s index of industrial production for ’23 grew 5.1% year-on-year basis. India’s G20 Presidency this year provides a significant opportunity for the country to lead the global narrative in sustainable energy transition. For the year 2023-’24, Government of India has presented a Saptkrishi [Phonetic] budget with green growth being one of their seven focus areas, thus clearly laying out the positive priorities for the energy sector in the country.

During the year, fuel supply constants due to Russia-Ukraine war led to several countries facing a severe liquidity crunch. Heatwaves in various parts of the world increased power demand, which coupled with rising input fuel costs led to high electricity prices in almost all major economies. As per IEA, during second half of 2022, electricity prices increased four-fold in France to cross EUR320 per megawatt hours and reached almost EUR330 per megawatt hour in Germany. In the U.S., average wholesale electricity prices in the second half of 2022 was USD91 per megawatt hour, which is 65% higher than second half of 2021. In Australia, prices averaged AUD170 per megawatt hour, which is more than twice of second half of 2021. A similar situation prevailed in India, electricity consumption in FY ’23 increased to 1,504 billion units, a 9.4% increase on a year-on-year basis. This was due to increased industrial activity, the hottest summer months in over 120 years, which coupled with supply-side constants, led to high price — high power prices being discovered on the power exchanges.

While coal production increased by 14.7% on a year-on-year basis in FY ’23 to 892 million tonnes, the coal dispatched to power sector during FY ’23 increased by 9.1%. However, this coal was mainly supplied to PPA-based power plants to meet increased demand. This led to a reduction in availability of e-auction coal by over 50% to 53 million tonne in FY ’23 in comparison to 108 million tonne to FY ’22, leading to higher premium of nearly 260% over notified price in fiscal year 2023. The average market clearing price for DAM for the fiscal increased nearly 36% to INR5.96 per unit, while the quarter four average price on the exchange was INR6.1 per unit, nearly 13% increase with respect to quarter four of FY ’22.

However, essentially, the prices of e-auction coal has reduced to a premium of nearly 137% over the notified price in April 2023. Price of 5,000 digitally [Phonetic] imported coal has also reduced to nearly to about USD95 per tonne, a 33% drop over May ’22 price. For gas also, the prices have reduced to almost about USD10 per MMBtu, and in the month of May, which is a drop of more than 100% on a year-on-year basis. In this year, the country are prepared to meet the summer power surge on the back of several proactive initiatives taken by the Government of India, the unexpected cooler water conditions in April, which continued until mid of May has mitigated the expected demand surge. Measures during the year were taken to increase coal production and prioritize supply to power sector.

Coal blocks were auctioned to private companies, PSUs for commercial mining. Captive mines were allowed to sell up to 50% of the annual production after meeting end-use plant requirement. Coal allocation for power sector was increased and its transportation prioritized through the railways. Further, the Power Ministry mandated the states, and then goes to import at least 6% of their coal leaders to blend with the domestic coal. Section 11 of the electricity act was involved thereby all imported coal-based power plants were asked to operate at full capacity with the option of selling unsold power on the power exchange. Strict monitoring was done for plant maintenance to minimize downtime.

NVVN was appointed as nodal agency to facilitate supply of 4,000 megawatt of NTPC gas-based power and 1,050 megawatts of Torrent gas-based power, during peak months to be sold on the exchanges. Additionally, a decisive focus on renewable energy by the government has helped the energy sector, diversify its fuel sources. India has achieved a renewable capacity of 172 gigawatt as on 31 March 2023, which is more than 41% of the total capacity, which is 41% of the total capacity of 416 gigawatt. The country added about 15 gigawatt of added capacity in the last fiscal, the fastest state of growth among the major economies. This makes the country well poised to meet its reason of achieving 500 gigawatt of non-fossil fuel-based electricity installed capacity by 2030.

With improving supply side liquidity due to above policy and regulatory enablers and cooler weather conditions, more competitive prices are being discovered on the exchange now. Going forward also, we expect more competitive price from the exchange in the coming months. IEX commented the recent proposal of the group, which is constituted by Ministry of Power for development of electricity market in India. The country’s electricity market is undergoing transformative changes led by the government decisive focus on sustainable energy transition and energy security. Power markets will have an instrumental role to play in accelerating India’s energy transition by enabling smooth integration of renewable into the crate [Phonetic]. Some key recommendations of the group, such as mandating the renewable energy sources to participate in the market and additional RE capacity to be developed through the contract of difference mechanism will facilitate faster addition of RE capacities and per investment in the sector, thus helping attain India’s 2030 RE targets.

To increase RE participation in the market, this pilot mechanism has been proposed for implementation within a year and initial capacity of 1,000 megawatts will be tendered by the nodal agencies under the single price option with 15 years, we pay 10 year. The significant benefit of the CfD model is that it depress the market by providing certainty to boost tenders and buyers by guaranteeing a fixed price for the defined period, the mechanism ensures a stable revenue stream for the renewable generator. Countries such as U.K., U.S.A, Germany, etc., were able to increase the renewable energy generation capacity more than 30% by implementing market-based reforms such as CfD to facilitate renewable energy integration into the grid.

Now Government of India has also decided to explore this option. Further, the proposal to introduce financial products for electricity to help against price volatility in spot market will lead to capacity addition, increased private investment, and ultimately result in lower prices for consumers. The group has also recognized the inefficiency and inflexibility of long-term PPAs, and a stronger role for power exchanges to deepen the market and enable efficiency in electricity procurement. Improving the efficacy of direct market will lead to market-based merit order dispatch of electricity, which will result in effective cost optimization.

Higher renewable integration will necessitate detailed resource adequacy planning by the utilities to ensure optimum resource mix and introduce capacity contracting through product mix [Phonetic]. Similarly, a market-based mechanism through exchange for secondary results will lead to RRAS [Phonetic] at competitive prices. We are confident that implementation of this roadmap will fast-track India’s energy transition goals through an efficient, optimal and reliable market framework.

Looking at the last fiscal, we saw several important developments on the policy and regulatory front. A few highlights are that the Draft National Electricity Policy retains to increase the share of competitive power market to 25% of the total electricity supply, by FY ’23. The policy highlights resource adequacy for better planning of resources. It also allows consumability among various buckets of renewable purchase obligations to provide flexibility to distribution essentials. The policy encourages market-based RE development and aggregation of small capacity for RE development. General network access was notified during the year. The notification to implement all provisions of general, G&A, will go a long way in streamlining network access and network user charges. G&A will strengthen exchange-based power markets in the country. Further, it will remove regulatory arbitrage which has led to temporary shift of volume from DAM to DAC and will be more conducive to our further market development in the country.

Electricity Amendment rules 2022 are expected to promote renewable energy through Green Energy Open Access. This should deepen the electricity markets and efficiently integrate RE resources into the grid. The Green Open Access Rules 2022 has reduced the open access limit from 1 megawatt to 100 kilowatt, while there is no limit for captive consumers. This will also allow smaller consumers to buy or sell RE power and increase access to renewable capacity.

The Electricity Amendment Bill 2022 proposes several reforms to the distribution sector, promote private participation, better services and improved financial health. Further, the Energy Conservation Amendment Act 2022 allows for development of national carbon market in the country. Deviation Settlement Mechanism and related matters, Regulation 2022 is likely to increase RTM volume in the exchange. DSC actually services the Regulation 2022 for development of territory reserve ancillary services will be effective 1 June and this is operationalized procurement of ancillary services through that exchange. Further, several enabling interventions were made towards increasing the generation and adoption of RE resources.

A new trajectory of RPO [Phonetic] mandate scaled to procure 27% of their electricity needs from renewable sources to be scaled up to 43% by the fiscal year 2030. Interstate transmission charges have been waived off for RE to reduce the cost of integration of renewables, while new transmission infrastructure is being set up to improve access of power to the grid — access of RE to the grid. Renewable generation obligation mandates new coal or unit-based plans to establish RE capacity of a minimum of 40% of the plant capacity. IEX will remain at the forefront of this transition by constantly innovating new products and segments to meet the evolving need of the market.

Now welcome to IEX update. During the year, IEX launched the most-awaited Term Ahead Market contracts with delivery of the materials. These contracts enable customers to help risk against volatility in spot market. We also launched Green monthly contracts, and introduced green hydro contracts. Last year, due to the surge of electricity prices in the spot market, CfD imposed the price cap of INR12 per unit across market segments. While this move rationalized prices for buyers, high-cost generators were left and left with standard capacity. To bridge the demand-supply gap during the high-demand period, the Ministry proposed a high-priced payer market, and following a petition by IEX, CfD has granted approval to this product. This segment enables high variable cost generators such as gas-based power plants, imported coal-based power plants, battery energy storage systems to participate in the market at a — in the price range of INR0 to INR20 per unit.

IEX commenced trade of high-priced market after it was launched by the Honorable Ministry, Shri R.K. Singhji on 9th of March 2023. This segment will bring more capacity to the spot market during high demand periods. We have made a humble beginning in this segment with the first trade executed around 15th of April of 2023. During the year, IEX maintained a near 100% market share in collective transactions, that is DAM and RTM. Together, these two markets constitutes about 80% of the power exchange business.

Moving on to IEX updates. Overall volume of 26 billion units was achieved across all segments during the quarter four FY ’23, a 7% — a 7.9% quarter-on-quarter growth. Total certificates traded during quarter four amounted to 1.8 billion units, an impressive 50% quarter-on-quarter growth. However, the total volume declined by 3.3% in quarter four of FY ’23 as compared to quarter four FY ’22 due to supply side constraints. The average they had market price during quarter four was INR6.07, higher by 13% on a year-on-year basis. For the fiscal year 2023, IEX expected 96.8 BUs, a decline of 4% on a year-on-year basis. Because of the sell-side liquidity constraints. For the fiscal year, their market price was INR5.96 per unit, higher by 36% on a year-on-year basis.

This was [Technical Issue].

Operator

This is the operator here. We lost the connection for the management, please hold while we reconnect.

Ladies and gentlemen, we have the line for management reconnected. Sir, you may proceed now.

Satyanarayan Goel — Chairman and Managing Director

Yes. For the fiscal year 2023, IEX stood at 96.8 BUs, a decline of 5% on a year-on-year basis due to sell-side liquidity constraints. For the fiscal year that they had market price was INR5.96 per unit, which was higher by 36% on a year-on-year basis. Liquidity was affected due to supply constraint led to higher prices of e-auction coal, imported coal and LNG gas. The average market price for April ’23 came down to INR5.41 per unit, which is a decline of 46% on a year-on-year basis as with respect to April of ’22. Going forward, with gradual improvement in domestic production of coal and improvement in coal inventory, which is at 14 days compared to 11 days of last year, and a reduction in imported coal and gas prices, we expect a rationalization of power prices on that same platform. This will enable cost optimization by Discoms and Open Access consumers and will suit results in higher volume on exchange platform.

In line with this — in line with its commitment to facilitate India’s decarbonization and targets, IEX has been certified as India’s first carbon-neutral power exchange by using market-based tradable instruments to offset its carbon emissions. This certification will also help our members and participants to reduce their Scope three emissions. An employee focused approach built on the foundation of trust and respect has made IEX the first power exchange in it to be certified as great place to work. IEX continued to leverage technology to launch market-friendly products and increase efficiency for our customers. We launched web-based bidding for GDAM, DAM monthly and any day single-sided reverse auction products to provide any time, anywhere easy and secure bidding access to our customers.

Web-based financial reconciliation to enable easy reconciliation of the bidding transactions done through the — through our platform, web-based data insights to enable effective bidding decision-making, automated financial limit allocation across product segments, utility for easy integration with RTM market, API, market data API to enable automated access to price and volume, market data across product segments; further, we undertook process automation, which are leading to benefits such as better system availability and ease of operations. We continue to invest in to create a robust and secure IT infrastructure at IEX. During the year, we also integrated with the National Open Access Registry of Grid India.

I shall now talk about developments at IGX. In FY ’23, there has been several notable achievements at our Indian Gas Exchange. IGX generated total volume of 50.9 million MMBtu during FY ’23, a 319% year-on-year increase. This growth was largely on the back of participation of major domestic gas producers and an increased number of participants. A total of 2,355 trades were executed during this year, an increase of 400% on a year-on-year basis. The profitability of IGX for FY ’23 has increased to INR28 crores from INR1.75 crores in FY ’22.

I will now talk about financial performance of IEX. On a consolidated basis, revenue for quarter four, FY ’23, increased 10.5% on a quarter-on-quarter basis from INR107.4 crores in quarter three FY ’23 to INR129.6 crores in this quarter. Total revenue of quarter four FY ’23 witnessed a growth of 1% on a year-on-year basis. Consolidated PAT at INR88.3 crores grew 14% on a quarter-on-quarter basis as compared to INR77.2 crores in quarter three of FY ’23. For the full fiscal year 2023, on a consolidated basis, the revenue declined by 2.1% on a year-on-year basis from INR484.4 crores in FY ’22 to INR474.1 crores in FY ’23. Consolidated PAT at INR305.9 crores was lower by 0.9% on a year-on-year basis, as compared to INR308.6 crores in FY ’22. Please note that the Indian gas exchange was a subsidiary of IEX till 16th of January 2022. And IGX became associate company with effect from 17th January 2022, and as a consolidated basis on equity measured in above numbers.

For fiscal year 2023, the Board of Directors of the company announced a final dividend of INR1 equivalent to 100% of the face value of the equity shares. During the year, the Board of Directors of the company also approved the buyback of the equity shares in the open market amounting to INR98 crores, and this was completed successfully from January to March. For the past 15 years, IEX has continuously pioneered the market with a keen focus on customer centricity, innovation and technology. IEX will remain at the front of accelerating India’s energy transition towards net zero. We will continue to explore business opportunities in new products and markets such as ancillary markets, capacity market and gross bidding. Through our diversification initiatives, IEX will continue to [Technical Issue] the energy markets of the country. In addition, IEX will help build a vibrant gas market in India. And bring the government aim of doubling the share of gas in the energy mix of country. IEX will continue to work with the Ministry regulator, our partners and clients and all the stakeholders to build a sustainable and as the efficient future for India.

Thank you. And now we can have question answers.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Nikhil Abhyankar from ICICI Securities. Please go ahead.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Thanks for the opportunity, sir. Sir, my first question is, when do we expect the G&A regulations to be effective, which will remove basically the arbitrage between DAM and DAC?

Satyanarayan Goel — Chairman and Managing Director

We understand that this will be effective from 1st of August. They will be issuing the grid They will be issuing the grid code maybe in this month itself. And after that, NLDC will need maybe two months to develop the procedure and do necessary changes in the system to implement grid code and transmission charge saving regulation.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Understood, sir. By 1st of August, by Q2, it will already be implemented. How do you expect like all the volumes which were shifted to DAC will be transferred back to DAM?

Satyanarayan Goel — Chairman and Managing Director

That should happen because if you’ve looked at the volume in the DAC market two years back, there was particularly nothing happening in this. And in fact, at that time, even RTM market was not there. Now with the RTM market, there is no place for the DAC market, without this arbitrage.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Okay. And sir, how do you expect the long-term duration volumes to pick up, sir? Because till now it hasn’t picked up substantially. So what are the measures that we are taking towards it?

Satyanarayan Goel — Chairman and Managing Director

Yeah. I think, in the long duration contracts also, there is a lot of interest, which has been shown by the distribution companies and many auctions were conducted, but since the price discovered in these auctions was quite high this year, they have not resulted into contracts. And now, with the improvement in the coal supply and reduction in the e-auction rates, I’m sure the price discovered in the long duration contracts will also be very competitive, and the conversion should happen. So we expect good volume growth in this market also. Last year, we did 1.6 BU in you can say, eight months. So this year, we are running at least 5 BU in this segment.

Vineet Harlalka — Chief Financial Officer and Company Secretary

We have ordered 1 BU in first two months.

Satyanarayan Goel — Chairman and Managing Director

Yeah. We have already done 1 BU in six months at this rate, it should — so it should be more than 6 BUs.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

You just said 1 BU in April and May?

Satyanarayan Goel — Chairman and Managing Director

Yeah, yeah.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Okay. Understood. And sir, a final question, sir, what is the product launch pipeline for FY ’24?

Satyanarayan Goel — Chairman and Managing Director

Ancillary market is going to start from 1st of June.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Okay.

Satyanarayan Goel — Chairman and Managing Director

So — and in last two years, we have launched so many products, so it is time that we get — we bring liquidity in this products and bring agendas about these products so that participants do participation in these things.

Nikhil Abhyankar — ICICI Securities Limited — Analyst

Okay, sir. That’s all from my side. Thank you.

Operator

Thank you. The next question is from the line of Sumit Kishore from Axis Capital. Please go ahead.

Sumit Kishore — Axis Capital Ltd. — Analyst

Thanks. I have a few questions. The first one is that you seem to have exercised some cost control, your employee cost is down year-on-year, even other expenses are down year-on-year because of which Q4 EBITDA margin has improved, so could you speak about the cost control? And is the margin improvement is [Phonetic] sustainable?

Satyanarayan Goel — Chairman and Managing Director

No, in case of employee I think the cost is almost the same what it was last year.

Sumit Kishore — Axis Capital Ltd. — Analyst

Sir, it is down from.

Satyanarayan Goel — Chairman and Managing Director

Yeah, I would request my CFO, Mr. Vineet Harlalka, to respond to this question.

Vineet Harlalka — Chief Financial Officer and Company Secretary

On a year-to-year basis, I mean, if you look at the employee cost, it came down from almost around INR41 crores to INR34.5 crores. It was mainly because some portion of the IGX cost was in the IEX cost in for the nine months for the last year, that was one significant portion.

And secondly, because of the higher profit last year, so there was a provision for that with the variable scheme. So those two impacts were there, which is not there. So that’s why you see the gap in the cost.

Sumit Kishore — Axis Capital Ltd. — Analyst

Got it. Got it. And as far as other income is concerned, I mean, I mean, actually on your balance sheet, that cash and bank balance and investments have reduced. There was a buyback also of INR98 crores, but the reduction is higher, but your outcome has gone up on a year-on-year basis in quarter four, quite substantially. It has gone up even quarter-on-quarter. What is resulting in lower [Speech Overlap] Yes, sir.

Vineet Harlalka — Chief Financial Officer and Company Secretary

Yeah, please, can you repeat what you were asking in the last line, I didn’t get it.

Sumit Kishore — Axis Capital Ltd. — Analyst

So I was saying basically, the movement of cash and bank balance and investments, there is a reduction year-on-year even after adjusting for the buyback. And the — but the other income in quarter four has gone up quite sharply on a year-on-year basis.

Vineet Harlalka — Chief Financial Officer and Company Secretary

If you look at the total investments, investments have not gone down significantly. Actually, there was a shifting of the investment of long-term products. So if you look at the investment reducing the short-term, the current investments in the long-term from the current to non-current. So that is the case.

And secondly, because of the few initiatives and the parking of the fund into the good yielding products, so that was the impact. Because last year, if you see, there is a significant increase in interest rate. And during the last quarter, so because of the quite security crunch and also we got the good opportunities in the MLDs and other products. So we take the advantage of that, that’s why we got a better return in our overall investment portfolio.

Sumit Kishore — Axis Capital Ltd. — Analyst

So what is the nature of non-current investments, which you’re saying are increased?

Vineet Harlalka — Chief Financial Officer and Company Secretary

Non-current are basically, we put the money on the target maturity firms or the long-term MLDs, FDs. So that’s why those are the non-current assets.

Sumit Kishore — Axis Capital Ltd. — Analyst

Okay. Okay. On the business front, a few questions. One is, [Technical Issue] as you pointed out, the imported coal prices have come off, e-auction coal prices have come off, availability has also seemed to be improving. We had a weak demand growth in March and April. But I mean, May also seems to be soft on volume growth on a year-on-year basis so far. So what is — when is the inflection — when is the acceleration going to happen?

Satyanarayan Goel — Chairman and Managing Director

See, the volume growth for the first two months so far has been almost about 6% in electricity. So it has always started, I mean, those have already started, but I think, in the coming months, when we see better supply of coal in the market at lower e-auction price, because e-auction conducted in the month of April, it has — quantum was also significantly higher and the price was also reasonable, so the supply of this coal will start maybe in the month of June-July, and we should see competitive price, further reduced price, and higher volume on the exchange platform. Further, winds is also coming — wind generation also will improve, hydro generation also will improve, so all that should provide good liquidity on the sell side.

Sumit Kishore — Axis Capital Ltd. — Analyst

Sure. And finally, on contracts for differences, seems to be a very promising move. So what is possible in the next one year in terms of volumes coming to exchanges, what is possible over a three-year time frame in terms of CfD leading to higher penetration of renewables in the merchant market?

Satyanarayan Goel — Chairman and Managing Director

I would like to say one thing that we have been working on this product contracts for differences from the last three years. And I’m very happy to say that government has finally accepted this concept, so that is one thing which is an achievement — big achievement in itself. One thing they have accepted is that they will tender out 1,000 megawatt of renewable capacity under the CfD, which will be sold through the market.

Second thing that we did this year is that 4,000 megawatts of NTPC gas stations and 1,050 megawatt of torrent gas stations will operate and sell power in the Day Ahead Market. And difference between that market clearing price and the cost of gas-based generation will be paid by Government of India. Again, it is a contract for difference. That also approved Procurement of 1,500 megawatts of imported coal-based power under contract for difference was selling in the exchange platform to meet the demand during the first year.

Of course, in that particular contract, there was no response from the generators, so that did not better materialize. So what I’m saying is that there is no acceptance of this concept. And in the coming years, I’m sure the standard capacity, gas-based capacity in particular will be utilized during the high-demand period to meet the peak-hour demand, and that should provide good liquidity of the sales platform.

Sumit Kishore — Axis Capital Ltd. — Analyst

Got it. So what was the volume in HP-DAM since launch?

Satyanarayan Goel — Chairman and Managing Director

For HP-DAM, the volume has not been significant because April and May months were comparatively much cooler months. The demand has not increased. In fact, the demand in these months was lower by 1% with respect to last year, and our clearing price was 40% lower than last year. So that is why volume has not happened in the HP-DAM market.

Sumit Kishore — Axis Capital Ltd. — Analyst

Those are all my questions. Thank you.

Operator

Thank you. The next question is from the line of Apoorva Bahadur from Goldman Sachs. Please go ahead.

Apoorva Bahadur — Goldman Sachs — Analyst

Hi, sir. Thank you for the opportunity. Sir, continuing on this contract for difference product. Now I understand it’s a derivative product. So will IEX be allowed to transact once the volume picks up, and also for approvals, will you need to approach CERC or SECI?

Satyanarayan Goel — Chairman and Managing Director

I think this product has been already approved by the Government of India now. And for delivery transactions — see if you look at the delivery transactions, beyond 11 days that is also considered as a forward contract. But now, these contracts are allowed on the exchange platform. Similarly, this contract also — since it is going to result in delivery of power — actual delivery of power, this will be allowed. And this, in fact, Government of India has already contracted 1,050 megawatt gas-based capacity from Torrent and 4,000 from NTPC for selling through the market under this concept.

Apoorva Bahadur — Goldman Sachs — Analyst

Okay. Since it is derivative delivery-based, there won’t be any issue for the regulatory side?

Satyanarayan Goel — Chairman and Managing Director

Yes. Yes.

Apoorva Bahadur — Goldman Sachs — Analyst

Okay. I understood, sir. Sir, second is on one of the suggestions — recommendations, which the Ministry panel had suggested for deepening the market, and that’s for 15-year renewable contracts, right? So just wanted to know what sort of appetite will the lenders have in funding this type of product?

Satyanarayan Goel — Chairman and Managing Director

See, if you look at the contracts, in most of the contracts, the debt obligation is serviced within 10 to 12 years, so as far as lenders are concerned, this will be comfortable with 15 years.

Apoorva Bahadur — Goldman Sachs — Analyst

With the short-lending period, I mean, will we really be viable on a cost competition — cost competitiveness basis?

Satyanarayan Goel — Chairman and Managing Director

But see today, one of the big problem is integration of renewables with the conventional power. And most of the renewable is happening through PPA. And if it is PPA, then it is a must run and it will operate as and when the power generation happens. I think to integrate with the market, they need this kind of market instruments, and that is why government is now saying that we should have 15-year PPA, so that after 15 years, this power is sold through the market mechanism. And I’m sure 15-year is a long period even from the funding point of view, this will be able to get funding at a reasonable cost even for this period.

Apoorva Bahadur — Goldman Sachs — Analyst

Understood. So essentially, the new capacity might sort of start coming in our platform, say, after 15 years.

Satyanarayan Goel — Chairman and Managing Director

Yes. Yes, you are right.

Apoorva Bahadur — Goldman Sachs — Analyst

Okay. Okay. Got it. Sir, I think last question is probably on the demand side. So we are seeing that the prices have corrected sharply, and that is something to do with the softness in demand, maybe due to the weather factor. So do you think that structurally, has the supply side situation improved? Or going ahead if the demand picks up again, will again be a supply crunch.

Satyanarayan Goel — Chairman and Managing Director

I think there is significant improvement in the supply side. But it is not as it was two years back, definitely. But I think in the next two, three months with increased coal supply to the IPPs, there should be further improvement in the supply side.

Apoorva Bahadur — Goldman Sachs — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Damodaran [Phonetic] from Equitas Capital. Please go ahead.

Unidentified Participant — — Analyst

Yeah. Thank you, sir, for the opportunity. Just two questions from my side. On the Day-Ahead Contingency Market. The first one was while we have a Day-Ahead market, what purpose does the Day-Ahead Contingency market serve? That’s one. And the second there is why the market share in that low, at 45%-odd. So those are my two questions.

Satyanarayan Goel — Chairman and Managing Director

Yeah. In fact, Day-Ahead Contingency Market was introduced in the beginning because if somebody has not been able to purchase power if his volume bids are not cleared day ahead market, then there was another opportunity in Day-Ahead Contingency for market for him to do the transaction. But in 2022, the RTM market was introduced. And in this market, there is a lot of liquidity available. So I think now the purpose of the Day-Ahead Contingency Market is over, and that is why no significant volume was happening in this market. Volumes started happening only when in 2021, when the transmission pricing regulation was issued and the arbitrage available in the PSC [Phonetic] market, the volume started shifting in this market.

In this market, since it is a price matching, it is not a price discovery. So, I think all three exchanges are on the same footing, and it all depends on the interactions with the customers, connectivity with the customers. So that is why we have a better share in this market in comparison to other two exchanges. But I think all of them has an opportunity to get market shares. And I understand some of the other exchanges were also giving some incentives on the transaction fees.

Unidentified Participant — — Analyst

Okay. Sure, sir. Got it.

Operator

Thank you. The next question is from the line of Ankit Kanodia from Smart Sync Services. Please go ahead.

Ankit Kanodia — Smart Sync Services — Analyst

Thank for taking my question. I just wanted to understand in relation to the G&A regulation, if I remember correctly, it was first supposed to be implemented by — from October 2022. From there, the date changed to January, then in the last con call, we discussed about 1st April. And now we are guiding for 1st of August. Why this delay is happening for so long? And do we have any sort of certainty that 1st August is a clarity or we can further have delay from 1st August as well. That’s my first question.

Satyanarayan Goel — Chairman and Managing Director

The point is implementation of this will depend on the regulatory orders. And this is linked with the issuance of grid code regulation. So that has not been issued so far. After grid code is issued, thereafter NLDC will align its processes and systems in line with the new grid code and transmission charging regulation. So they will also need some time to implement that. Based on the discussions and based on the developments which have taken place, we expect that it should get implemented from 1st of August ’23, but I cannot guarantee that. It all depends on the order — issuance of order by CERC and thereafter, revision of processes and systems by any NLDC.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you do much, sir. That really helps. And my next question would be, sir, if I understand correctly, when the price of electricity in exchange is higher then probably the demand suffers, so that is what we witnessed in the last year. So what gives us an idea that this year sustainably the price will be lower? Or can we have any guidance in terms of how we look at the prices? And do we have any forecast for the prices or it is completely demand-supply driven and we have no control in foreseeing that?

Satyanarayan Goel — Chairman and Managing Director

See, power price discovered is purely based on the demand and supply. And we have seen years in which the supply is more, the prices are competitive. Last year, we had more demand than the supply that is when the prices were higher. This year, we are definitely expecting a much better situation because coal supply, coal production targets are very, very high targets, and the target is for one billion tonnes of coal production, which is 12% more than last year. And whereas the demand — the electricity demand increase is expected to be only 5%, 6%. So increased coal availability in the market, that should lead to better liquidity on the sell side and lower price on the exchange platform.

And also you know, what happens if the imported coal prices are higher. Last year, the 5,000 GCV [Phonetic] coal price was about $130. It has come down to almost about $90 now, and it is expected to go down further. E-auction prices are invariably linked to the imported coal price. So e-auction prices also have started coming down now. Quantum of coal offered on the e-auction that has also started increasing, so all these things should result in availability of coal at a lower price and lower tiering price on the exchange platform.

Ankit Kanodia — Smart Sync Services — Analyst

Right. Thank you so much, sir. If I can sneak in one last question. As you rightly mentioned that the G&A regulation is not in your control, but it is all in the regulatory’s hand, do we see any threat or risk in terms of our market share getting further eroded, if we are unable to get the market share from DAC back to DAM, do you see that as a long-term problem, if this issue persist for a longer period of time?

Satyanarayan Goel — Chairman and Managing Director

See one thing I want to make clear that in the Day-Ahead market and RTM market, our share is practically 100%. That is one. And it will — I mean we are quite confident we will be able to retain this market share. The transactions happening in DAC market are mainly because of the arbitrage available in the DAC market. Once the arbitrage is over, there is no reason for the transaction to happen in the DAC market.

Ankit Kanodia — Smart Sync Services — Analyst

My question is related to that only if the arbitrage persist for a long period of time, do you think that could be a threat to us or not? That is what my question.

Satyanarayan Goel — Chairman and Managing Director

I mean this is a market distortion shifting volume from the DAM market. And in DAC market, as I told you, all three exchanges are equally active, so that will definitely then lead to loss of share. But looking at the developments which have taken place and which are happening, I’m sure within a day or two, you will see CERC issuing the grid code and implementation of G&A should happen from 1st of August, as discussed with the other stakeholders.

Ankit Kanodia — Smart Sync Services — Analyst

Thank you so much, sir, and all the best.

Satyanarayan Goel — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Drashti from Thinqwise Wealth Managers. Please go ahead.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Thanks for the opportunity, sir. I just have one question. In a recent interview of one of the exchanges MD, he had mentioned that the initial steps towards market coupling has been implemented by CERC, which is introducing ancillary services market from 1st May ’23 that he had mentioned that date. So if you could help us understand what exactly are these stats? And how can it impact our existing products? Thank you.

Satyanarayan Goel — Chairman and Managing Director

I think, there was a lot of echo, but let me repeat your question what I understood. What you said that ancillary market is a step towards market coupling. Is that correct?

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

That’s right, sir. Where he mentioned that these are the first steps towards market coupling, which have been implemented.

Satyanarayan Goel — Chairman and Managing Director

Can you be slightly away from the microphone because there is a lot of.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Sir, is it better now?

Satyanarayan Goel — Chairman and Managing Director

Yeah, better now.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Yeah. Sir, in one of the interviews of the competitive exchange, the MD had mentioned that the first steps market coupling are being implemented by CERC, while introducing ancillary service markets. So if you could help us understand those, and how can it impact our existing products?

Satyanarayan Goel — Chairman and Managing Director

Yeah. See ancillary market, if you look at the market design, ancillary market is exchanges are only taking bids from the participants. These bids are forwarded to NLDC, because NLDC is deciding how much of power they have to procure on a real-time basis. And based on that requirement, then they will stack these bids. And procure — I mean, purchase the power or take the power based on the least cost option basis.

So in this case, because the requirement is by NLDC. It has to happen only in this manner. I mean each of the exchange cannot do price discovery and discover these prices and volumes to the NLDC. NLDC have to decide how much of power they want to buy, and based on that, they will exercise a least cost option. And there is no price discovery in this case, the demand is fixed, and based on the demand, based on the bids for the supply, they will find out what is the least cost option.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Correct sir. So yeah, that’s what I wanted to understand that since these are the initial steps for market coupling, how can it impact us in the future and which all products would be impacted?

Satyanarayan Goel — Chairman and Managing Director

No, no. This is a different kind of the product. This is a product which is for meeting the requirement of NLDC. So this is, again, not price coupling. This is just exchanges are inviting bids and forwarding the bids. It is NLDC who have to basically then select how much of power they want out of that is received by them. I don’t think this will have any impact on the other products in the market.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Understood. Okay.

Satyanarayan Goel — Chairman and Managing Director

Line of other products is exchanges will invite the bids, they will do the price discovery and settle financial and physical settlement. In this case, we are not even doing the physical and financial settlement. It is just, we are selecting the bids and sending it to NLDC.

Drashti Nandu Shah — Thinqwise Wealth Managers LLP — Analyst

Okay, okay.

Operator

Thank you. [Operator Instructions]. The next question is from the line of Lavanya [Phonetic] from UBS. Please go ahead.

Unidentified Participant — — Analyst

Hello. Am I audible, sir?

Satyanarayan Goel — Chairman and Managing Director

Yeah, I can hear you.

Unidentified Participant — — Analyst

Yeah. Thank you. Thank you for the opportunity. Sir, just going on with the earlier question, ancillary market, if I understand that, it is for — you’ll be taking only supply side bids and forward to the NLDC, who will take based on the merit order. Is that understanding right, sir?

Satyanarayan Goel — Chairman and Managing Director

Yes. Yes, you are right.

Unidentified Participant — — Analyst

So how will be the transaction fees on this particular product?

Satyanarayan Goel — Chairman and Managing Director

Based on that, which received by us, selected by NLDC and scheduled for supply. On that, the quantum which is scheduled for supply on that you can charge transaction fees. Since the opportunity in this market [Technical Issue] let’s see how much volume happened in this market and then we will decide what. As for the CERC order we can charge up to INR0.02. [Speech Overlap]

Unidentified Participant — — Analyst

INR0.02 only to the supply side then?

Satyanarayan Goel — Chairman and Managing Director

We can charge them to INR0.02, but we don’t intend to charge them because in this case, scope of work is much less for the exchanges. There is only collection of bid and sending the bid to NLDC.

Unidentified Participant — — Analyst

Okay. Got it. So other thing on the overall market, sir. So just wanted to understand in terms of power market, so last year, whatever we have seen, it was just only because of coal availability or we are seeing any difficulty in terms of capacity as well? Like the supply side, it was largely due to only coal availability or in terms of capacity also we are closing.

Satyanarayan Goel — Chairman and Managing Director

In fact it was more because of the coal availability.

Unidentified Participant — — Analyst

Okay. And the quantum — I mean, the capacity is still.

Satyanarayan Goel — Chairman and Managing Director

I think, we have capacity. Even now also when the demand of 221 gigawatt met, I think, in the month of May, we still had the surplus capacity available in the system.

Unidentified Participant — — Analyst

Okay, got it.

Satyanarayan Goel — Chairman and Managing Director

And in any case for meeting this kind of demand, 25 gigawatt of gas capacity is also available. And based on the current gas prices, which are likely to go down further, I’m sure even cost of with the cash also will come down to less than INR10.

Unidentified Participant — — Analyst

Sir, before 2019, I mean, the supply from gas stations was happening or were then — was that not happening definitely [Phonetic]?

Satyanarayan Goel — Chairman and Managing Director

See, 2019, the demand in the country itself in comparison to what it is today was much lower. So there was no need for the gas-based generation to bid in the market because that’s a costly generation. But now since the demand has increased, and if there is a shortage of capacity maybe for 15 days, one month in a year, the gas-based generation also can be utilized.

Unidentified Participant — — Analyst

Got it, got it. Thank you. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Nikhil Nigania from Alliance Bernstein. Please go ahead.

Nikhil Nigania — AB Bernstein — Analyst

Yes. Thanks for the opportunity. My first question is regarding a portal, which the government had launched PUShP portal, any traction which has happened on that or not really until now?

Satyanarayan Goel — Chairman and Managing Director

Not to my knowledge. I think, [Foreign Speech] happened there, but nothing after that.

Nikhil Nigania — AB Bernstein — Analyst

Okay. Okay. Understood. The second question I had was, regarding the CfD, which is proposed as a great move from a renewable generator or even an exchange perspective. But I would think of it from a Discom perspective, what is the incentive for them to sign a CfD contract versus signing a PPA, for example, especially if renewable prices are falling every year?

Satyanarayan Goel — Chairman and Managing Director

No, no. The Discoms will not sign the CfD contract. Discoms may not find the CfD contract. But normally, these kind of contracts are signed by the nodal agency of the government. In this case, it may be SECI or any other public sector company, government can ask them to get into these kind of contracts.

But even in case of distribution companies also, see what happens you know, a distribution company who have to meet the RPO obligation. If they get into a RE capacity on through the PPA, then they will have to purchase that power. And they will have to manage the variability of that power with respect to their demand and supply. Other option for them is that they get into a contract, pay the money contracted by you to the generator, take the green attribute for your RPO obligation and let the directors sell the power in the conventional market. And the difference between the conventional market rate and the strike price can be borne by the distribution company, which is basically towards that green agreement.

And what we find is that for such kind of contracts also, there is a very, very strong case, because the rate in the conventional market is definitely higher than the strike price. In fact, we got a study done from Deloitte doing the price forecast for the next 15 years based on the marginal cost basis. And what we have come to see, note that, the price for the next 15 years, if somebody gets into with the CfD model, no funding will be required. So in fact, there will be a surplus in the pool.

Nikhil Nigania — AB Bernstein — Analyst

Okay. Got it, sir. And so one more question then, not to a related point, but regarding another notification from our Ministry on fair allocation of coal, where they said that if States are found using domestic coal to sell excess power on the exchanges, their rates will be curtailed and given to other states. Has that been implemented in practice or any impact of that, that you’re seeing till now?

Satyanarayan Goel — Chairman and Managing Director

I think, that notification was applicable up to 31st of May, and nothing has happened in the last two months.

Nikhil Nigania — AB Bernstein — Analyst

Got it, sir. Perfect. Thank you. Those are all the questions I had.

Operator

Thank you. The next question is from the line of Bharani Vijayakumar from Spark Capital. Please go ahead.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Yes. Good afternoon, sir. So in this development of power market report by the government, there is also a lot of mention on MBED. It looks like MBED is seriously being thought about by the government at least in the long-term. So, how is this positive or negative for IEX?

Satyanarayan Goel — Chairman and Managing Director

First of all in the report, they have very clearly mentioned that implementation of MBED is a complicated issue and will require a lot of consultation with the stakeholders. So having realized that Government has already said that this is a part of the long-term plan, and in future for renewable integration, they may consider it at appropriate time. I don’t think they have mentioned any time frame about that. It is in long-term time frame.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

So, is it possible to expect it, say, in the next five years or 10 years, any such anticipation from your side?

Satyanarayan Goel — Chairman and Managing Director

Very difficult to say what is going to happen in the next five, 10 years here. I think, things are changing very fast these days. But I’m very sure that not in the next five years.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Okay. Yeah, got it. So also, we have this clarity on our margins recently with CERC order. However, even in that order, there has been indications that in the future, there would be margins that could come under the scanner of the regulator. Essentially, say, being lower, even IEX has submitted lower margins for longer duration products, so what is your view on long-term nature of our margins? Is it likely to come down any time in the next say five years?

Satyanarayan Goel — Chairman and Managing Director

See, CERC had mentioned a cap of INR0.02 on the transaction fees in the regulation. And based on the requirement of regulation, we filed our application CERC, in that also they have given approval for charging transaction fees up to INR0.02. So we don’t see any further challenge in this. Though it is mentioned in the order that staff will work out details and comparing after studying the other exchanges. But looking at the market size, which is just about 6%, 7% of the total investment [Phonetic] in the country. I think looking at what has happened in the last two, three years, regulatory is more concerned about development of the market.

And looking at the road maps of the expert group also, government is concerned about deepening this market. So more efforts are required for deepening the market than for regulating the transaction fees, because if you do that, then you are going to create entry barrier for the market. I mean, I’m sure other exchanges will not be commercially — financially viable if the transaction fees is regulated.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Understood. Two bookkeeping questions. So what is the potential in this DAC volume shifting to G&A in this year, say in million units?

Satyanarayan Goel — Chairman and Managing Director

Can you repeat the question, please?

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

What is the potential in million units where the G&A regulations are implemented, there will be a shift from DAC to DAM for us?

Satyanarayan Goel — Chairman and Managing Director

Yeah, last year, DAC volume was 40 BU. And now this year, we are expecting from 1st of August of four months, you can say two-third of the 40 BU, which is about that nine, 10 BU, that should shift back to the DAM market.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

9 billion to 10 billion units should be incremental for us on an annual basis?

Satyanarayan Goel — Chairman and Managing Director

No, no, for this year. Next year, we are expecting that out of this 40 BU at least 12 BU will get shifted to the DAM market.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Okay. And the second, on the ancillary services, you mentioned that demand is kind of fixed. So in megawatt terms or in million unit terms per year, what is the overall demand in the country for this kind of power?

Satyanarayan Goel — Chairman and Managing Director

Demand is very high. But again, we are expecting sell-side that is going to be constant.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

No, no. I’m talking about ancillary market, which is arranged by NLDC. So any number on per year capacity that it is met through ancillary markets?

Satyanarayan Goel — Chairman and Managing Director

Yeah. I mean, requirement of ancillary market ranges in the range of 2,000 to 3,000 megawatts. But then again, that depends on the time of the day.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Okay, just wanted.

Satyanarayan Goel — Chairman and Managing Director

Not throughout the day and throughout the year.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Okay. But it will be 2,000 to 3,000 megawatts if it is to an average for every day for the full year, it will be 2,000 to 3,000 megawatts.

Satyanarayan Goel — Chairman and Managing Director

No, no. No, no. It is 2,000 to 3,000 megawatts whenever they want it. But if you look at the average for the full year, the quantum is going to be much, much lower.

Bharanidhar Vijayakumar — Spark Institutional Equities Private Limited — Analyst

Okay. Okay, understood. Those are my questions. All the best.

Operator

Thank you. Due time constraint, we’ll take one last question from the line of Ankit Kanodia from Smart Sync Services. Please go ahead. Ankit, your line has been unmuted, please proceed with your question.

As there is no response, I’ll hand it over to management for closing comments.

Satyanarayan Goel — Chairman and Managing Director

I would like to thank you for being part of this call. While higher input costs impacted our volume last year, going forward with increased coal production and pulling down of input prices, we expect lower clearing price on IEX platform and increasing opportunities for optimization by distribution companies and consumers. I’m sure thereby our volumes also will be much better. As always, we remain committed to positively contributing towards sustainable Indian energy sectors. And thanks for the interest, thank you.

Operator

[Operator Closing Remarks]