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Industrial Purchases at IEX, PXIL Increasing

Industrial consumers now account for almost a third of the about 40 million units of electricity traded daily on the IEX ( http://www.iexindia.com/ ), the country’s largest power exchange (85% of total trading volumes). Power Exchange India Ltd ( http://www.powerexindia.com/ ) is another significant player in this industry.

IEX was flagged off in 2008, and is a joint Initiative of Financial Technologies Group (FTIL), along with Power Trading Corporation (PTC). The other key shareholders in IEX are Tata Power, Reliance Energy, Rural Electrification Corp, Infrastructure Development Finance Company (IDFC), Adani Enterprises and Lanco Infratech.

PXIL is promoted by the National Stock Exchange of India Limited (NSE), and the National Commodity & Derivatives Exchange Limited (NCDEX). This was also started in 2008, in Oct.

This fundamental consumer shift at these power exchanges is driving up trading volume at these exchanges, with over 100 industrial houses emerging as active players at the IEX. These include Sterlite Industries, India Cements, Jindal Stainless, Nahar Industries, Vardhaman Group, Rajasthan Spinning and Weaving & more…

The industrial buyers belongs to one or both of two categories: Those facing power cuts during peak hours and hence trying to buy power from the exchanges at high prices (Rs 10-12 per unit), and the second being firms scouting for cheap power during off peak hours (less than Rs 3 per unit).

20-30 million units are being traded every day. This is still a small % (1%) of the total amount of electricity used in the country every day – close to 2000 million units – which only implies that the opportunity for growth for these exchanges is huge.

Not all’s well with these exchanges though. According to CERC estimates, an average of 18 million units of the average 615 million units traded every month by the two exchanges (IEX and PXIL) are not being delivered due to grid congestion. In June 2010, IEX has reportedly failed to deliver 11.26 million units and PXIL 6.80 million units.

The reason is simply that demand for transmission has exceeded transfer capacity and the two power exchanges’ hourly time blocks are not proving sufficient to transmit the volume of power being traded everyday.

Long power cuts are a reality in many states in India, and many industries have started using the open access provisions to buy power from the exchanges during these times. The industries are applying pressure on the distribution utilities to allow them open access power purchase round the clock. While the chokings in our grid is indeed an irritant, it is unlikely to create any major hiccup to the growth of power trading in India.

This is an interesting space that needs to be watched…