Hindustan Power Exchange (HPX), India’s third power exchange, was launched earlier this year to establish a platform for electricity products backed by the latest technology and features.

The exchange is promoted by three leading organizations – PTC India, BSE Investments, and ICICI Bank.

Since its launch in July 2022, the company has traded a cumulative value of approximately 650 MUs and expects the trading volumes to go up in the coming months as more generators, DISCOMs, and traders continue to register on the platform.

Mercom India, in an interview, spoke to Naveen Singh, Head of Business Development & Policy Advocacy, HPX India, to understand the working of the new exchange and its contribution to the Indian electricity market.

What specific products does the Hindustan Power Exchange offer?

HPX launched its operations on July 6, 2022, with Day Ahead Contingency and Intra Day Term Ahead Market segments. In September 2022, we launched our Weekly and Daily Term Ahead Contracts, and we are set to launch I-DAM, RTM, and other product segments shortly after.

We are trying to line up our effort streams before going live with the DAM/GDAM/RTM segments. In terms of numbers, we have around ~350 members and clients already registered on HPX, and the number is expected to cross 450 within October 2022. To put this into perspective, these players together contribute 75-80% of the power trade on all power exchanges as of date.

What challenges have you faced as a new power exchange? How has the support from your lead promoters helped?

Being a new entrant to the markets, we did face quite a few challenges as everyone was keen to know how HPX would be able to achieve volumes through its platforms and how different we are from the existing power exchanges in the country. Although the market felt the need for a third power exchange for quite some time, we had to convince our shareholders about the need for third power exchange and its benefits.

The role of our promoters (PTC India, BSE Investments, ICICI Bank) has been critical. Power Trading Corporation has acted as a subject matter expert in setting up HPX. BSE, one of the fastest exchanges with a speed of six microseconds, has played a crucial role as a technical expert in facilitating the exchange technology. ICICI has extended its support in facilitating the robust clearing & settlement function of HPX. We acknowledge the support of our promoters because of whom the exchange has been able to initiate and successfully carry out its operations.

We are getting more than expected support from all our promoters, and it’s just a matter of time before our collective strength contributes towards an exponential growth of volumes at HPX.

What is your competitive differentiation compared with India’s other two power exchanges?

HPX has been envisaged to promote market efficiency through advanced technology and to maximize value for the power market. The cutting-edge technology solution, efficient price mechanism, and quality of service offered at HPX would act as the differentiator in the Indian power market. Even with these priorities, the quality of our service would be our key differentiator, and the market has started realizing the difference.

What market share does HPX aim for over the next five years?

The short-term market in India is expected to grow at a good pace in the coming few years. With market developments like Market-Based Economic Dispatch (MBED) and Market Coupling, we can expect at least five to six times more volumes to be traded over exchange platforms in the next five years. Considering all the new developments that will happen in the coming few years, HPX aims to achieve a significant market share in the next five years.

How would you rate the performance between the Green Day Ahead Market and the Green Term Ahead Market?

HPX is yet to commence operations for GDAM, and we are trying to board more renewable energy (RE) participants for GTAM segments. Comparing the volumes of other power exchanges in September, the total cleared volume in GDAM was ~324 MUs with an average Market Clearing Price of ₹6.57 (~$0.079)/unit. At the same time, the total traded volume in GTAM was around 155 MUs at an average clearing price of ₹5.7 (~$0.069)/unit. The clearance ratio in GDAM is low, but a much higher volume gets traded than in GTAM.

However, as is evident, a very small proportion of the overall market trade is happening in the green segment (GDAM & GTAM). The numbers are expected to grow very fast in the next two to three years as the storage technologies would slowly become more economically viable, and all the un-schedulable RE would become more predictable/schedulable.

SECI’s recent RTC (round-the-clock) & Peak RE tenders give a glimpse into the future. So instead of vanilla solar or wind tenders, which used to be rolled out earlier, SECI is coming up with tenders where the supply reflects the demand pattern of the DISCOMs, who were otherwise unwilling to support any further adoption of un-schedulable RE power injection.

It is important that this move of SECI comes only after the rollout of ~150 GW of RE projects where RE power would be pumped into the grid without any need to match it to the demand pattern. Therefore, balancing that much RE generation through various market mechanisms would remain a challenge.

This is exactly where power exchanges will play a vital role in balancing the demand-supply scenario by giving the right price signals, which helps faster adoption of storage technologies of all kinds. The current coal crisis and the high short-term price regime will only help the faster integration of storage technologies, benefitting RE significantly.

How do you see the Renewable Energy Certificates trading progress in the Indian market and its contribution to the Renewable Purchase Obligation (RPO) targets?

The Indian power sector is at the cusp of a massive energy transition where the share of renewable energy is steadily rising in India’s power generation mix. More variable power output from wind and solar plants is set to push short-term energy trading, thereby giving buyers and sellers more options.

In the last few months, we have witnessed huge volumes of REC trades happening over the exchange platform. The big numbers indicate that more entities are using the RECs to fulfill their RPOs. Further, with the government stressing the utilities and (or) other entities in reaching a significant share of renewables in their portfolio, we can expect more participation by the entities to fulfill their RPOs by using RECs in the medium term.

However, as we advance, more and more utilities and obligated entities would move towards direct intake of RE power compared to fulfilling their obligation through purchasing RECs. This is my personal opinion and may not necessarily be considered the view of my organization.

What are the driving factors for the short-term power markets?

While most of the power requirements for power utilities are tied up in fixed long-term power purchase agreements (PPAs), pressure is slowly building up within the sector to look at more options for flexible contracts of different tenures. This is also a result of the huge RE capacity addition that has taken place in the country, where the project life is relatively much smaller (15-20 years). To fulfill a longer-term obligation of 25 years, per the PPA, the underlying asset would need to be changed during the contract, which was not the case with thermal or hydro projects.

We have witnessed a shift wherein the traditional supporters of long-term contracts are shifting more towards the short-term markets and power exchanges in particular, which gives a more real-time flavor to the entire procurement, rather than a long-term contract which may have lost its relevance as per market trends.

We feel this trend would continue, and more and more procurement would happen through longer duration tradable contracts over power exchanges as against the fixed long-term legacy contracts. Besides this, RE integration challenges and the technological breakthroughs in storage would also necessitate a higher dependence on short-term markets, particularly exchanges, in the coming years.

How is HPX’s goal aligned with India’s renewable energy target?

The basic framework and the technology infrastructure of HPX is built considering the fact that almost 100% of the power trade across the country would happen through exchanges, and as a major portion of it would be RE power, the sector would surely move towards a five-minute scheduling framework where the accuracy of predicting RE generation would improve significantly.

The change in the share of overall power trade happening on the exchanges, from ~7-8% currently to ~70-80% in six to eight years, and the switch from a 15-minute scheduling framework to a five-minute scheduling framework would need a much more robust technology infrastructure at the power exchanges than what is available now. HPX would have an edge in this case as the technology we use is the best available globally and successfully utilized by the European markets.

The REC/IREC market, too, is expected to play a vital role in meeting India’s renewable energy targets and can boost renewable integration in the country.

HPX is inclined towards providing renewable energy-centric products through its platform, providing a great avenue for market participants to trade green power. Also, with more and more renewable power coming to the country and a lot of it in captive and merchant mode in the future, more and more spot trades are expected to happen through power exchanges.