Indian Energy Exchange Ltd Management Discussions.

Power Sector: An Overview

India remains one of the fastest growing economies in the world in terms of GDP growth. As regards electricity production and consumption, India is one of the sizable power markets around the world. We rank third in terms of electricity production after China and the United States and rank fifth in terms of power generation capacity, as of 2018.

In FY19, India achieved an installed power capacity of 356 GW and generation of about 1371 billion units with diverse generation mix comprising coal, gas, hydro, renewable and nuclear energy. Presently, the thermal energy represents major share of 78% of India’s total energy mix.

Despite achieving 99.9% village electrification, the average per capita electricity consumption has increased moderately from 671.9 KWh in FY07 to about 1,200 KWh in FY18, still significantly lower than major developed and other comparable developing economies in the world. However, the Indian power market is set to witness a major shift in near foreseeable future driven by increased penetration of renewable energy, technology and IT developments as well as increase in demand for electricity, which is expected to rise at a CAGR of 6.5%-6.8% from FY19 to FY23. Some of the government efforts expected to drive the demand are:

Household electrification programs such as Pradhan Mantri Sahaj Bijli Har Ghar Yojana ‘Saubhagya’, which aims to provide electricity to 20 million new households as well schemes such as Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY), Integrated Power Development Scheme (IPDS) to reduce the aggregate technical and commercial losses.

• Impetus to electric mobility with penetration on electric vehicles including electric cars, electric commercial transportation including buses, three-wheelers, e-rickshaws.

• Rising demand for electricity in cooking and heating. Rapid urbanization that will drive up the demand for electricity. Currently, 31% India is urbanised and further expected to reacRs. 60% by 2050. A recent research from Oxford economics suggested that 17 of the top 20 fastest growing cities in the world are in India.

• The industrial expansion characterizing the fast growing Indian economy.

Energy transition led by renewables

With unprecedented expansion in solar and wind capacity and ambitious goals for further growth, India is at the global forefront of renewable energy development. The growing share of renewable resources in India’s energy generation mix represents a significant move, away from traditional thermal based power generation. The Indian government plans to add 175 GW of renewable energy by 2022 and also increase the share of renewable energy to 40% of the total energy by 2030. The renewable centric transition is evident from the fact that share of renewable capacity connected to the national and state grid has increased from 12.3% in 2013 to 22% in 2018. The levelised cost of Energy (LCOE) of renewable power has dropped steadily over the past few years while the corresponding cost of traditional power projects has steadily increased.

Growing focus on renewables

As on 31st MarcRs. 2019, the installed capacity for solar and wind energy stood at 30 GW and, 36 GW respectively which is expected to rise upto 100 GW for solar and 60 GW for wind under the government’s 175 GW renewable energy target to be achieved by 2022. Lower cost of renewable energy on account of economies of scale, enhancements in technology, equipment availability at lower prices and reduced renewable purchase obligations has helped renewable energy achieve grid parity. The players in renewable energy sector are currently focused on favourable policies like National Wind-Solar Hybrid Policy and National Policy on Biofuels, in order to expand their capacity portfolio. The sector, however, remained exposed to challenges arising out of cost of impact on safeguard duty and rising interest rates. The enhanced penetration of renewable energy seeks to address India’s key energy objective of increasing energy security, reducing energy inequality and improve energy sustainability. An increased focus on reducing carbon footprint, ensuring RPO compliance, waiving off or exemption on the transmission charges and growing REC trade has helped attract investments in the renewable sector.

Energy Storage

Battery storage technology would enable firm round the clock output as well as peaking support through the renewable energy projects. The cost of battery backed renewable energy projects is expected to equal thermal power projects in the near foreseeable future.

Technological changes

Fast paced technological developments, information technology infrastructure, new monitoring systems as well as control and energy management tools will position the sector on a growth trajectory by providing array of solutions to increase the efficiency and productivity of power sector like setting up distribution network, distribution load management and meter data management. One of the major emerging technologies under the sector is block chain technology that offers an efficient, secure and cost-effective way to manage transactions via decentralised tamper proof ledger system. It is used to create trans-active energy platforms enabling secure peer-to-peer (P2P) trading of power within communities.

Power generation

India has a total installed power capacity of about 356 GW as on 31st March, 2019, with thermal energy comprising the largest share of 78%. In a bid to conserve natural resources, the government has taken aggressive steps to increase the renewable energy portfolio with encouraging reforms. In the last five years, there has been an increase of 112% in total installed capacity of renewable energy reaching to 77.6 GW as on 31st MarcRs. 2019. Renewable energy constitute 22% share of the total installed power mix of the country followed by hydro at 13% (45 GW) and nuclear ~2% (6.8 GW), respectively.

The Government of India’s focus on attaining ‘Power for All’ has been playing a key role in accelerating capacity addition in the country. In FY2019 a significant capacity addition came from the conventional sources, while the renewable energy sector also added capacity to the tune of 15,860 MW. It is further expected that more than 75% of the new capacity is yet to come up in Rajasthan (over 2,000MW), Andhra Pradesh (1,950 MW), Tamil Nadu (1,872 MW) and Karnataka (1,555 MW).

India generated a total of 1372 billion units of electricity in FY19, out of whicRs. 78% was generated from thermal, 10% from hydro, 9% from renewables and 3% from nuclear. Overall generation in the country increased by 5% over last year with conventional power generation recording a 3.7% growth and renewable power generation clocking more than 24% growth. The Plant Load Factor (PLF) of thermal power plants monitored by CEA stood at 61% in FY19, compared to 59.83% in FY18.

The additional power capacities helped reduce the country’s peak deficit from 2% in FY18 to 0.8% in FY19. The states with highest deficit in power supply were Jammu & Kashmir, Jharkhand and few states in North East region while many states such as Punjab, Himachal Pradesh, Haryana, Gujarat, Rajasthan, Uttarakhand, Madhya Pradesh, Telangana and Karnataka were in surplus situation during the same period.

Power consumption

India is ranked as the third largest power consumer in the world. As per the data published in FY17, industrial sector consumes a major share of electricity produced at 40%, followed by domestic consumption at 24.3%, Agriculture sector at 18.3%, Commercial sector at 9.2% and others at 9.1% respectively. The country’s rising status as an emerging economy has seen the electricity consumption in industrial and domestic segments increased faster compared to other sectors between FY08 and FY17, growing at CAGR of 8.46% and 7.93%, respectively.

The peak power demand saw a steady growth rate of 7.9% in FY19 over the previous fiscal and reached 177 GW. This was achieved due to improvement of thermal power Plant Load Factor of 61% in the FY19 against 59% in FY18, and also 29.5% higher power generation from renewable energy sources. High AT&C losses at around 20% vs targeted 15% under the UDAY scheme continued to be a major concern for the sector. Few major SAUBHAGYA beneficiary states such as Jammu and Kashmir, Uttar Pradesh, Madhya Pradesh, Bihar and Rajasthan continued to have AT&C losses of over 25%.

Short-term electricity market in India

As per the report on power market published by CERC for FY19, size of India’s short-term power market grew from 128 billion units in FY18 to 145 billion units in FY19, which is about 12% of the total power generation at 124 billion units (excluding renewables). Of the total short-term market, bilateral (trader & direct) transaction constituted 48% followed by day ahead market of power exchanges at 35% and Deviation Settlement Mechanism (DSM) transactions at 17%. During FY19, volume of electricity traded through bilateral transactions (traders & direct) increased to 69.9 billion units from 57.8 billion units (21% increase). Volume transacted through power exchanges increased to 44 billion units from 38.2 billion units (15% increase) and DSM volume increased marginally to 21.4 billion units from 20.9 (2% increase) in 10 months FY19 over same period last year.

Between FY15 & FY19, power traded through power exchanges grew at CAGR of 15% followed by 8% for bilateral transactions and 7% for Deviation Settlement Mechanism (DSM). These statistics indicate a growing preference for short-term power transactions through exchanges wherein the value proposition includes round-the-clock trading on 24x7 basis. Among the many benefits, some include competitive price discovery mechanism involving participation from multiple buyers and sellers, flexibility in procurement through structured, standardized contracts and minimum risk quotient.

Government Initiatives

The various initiatives undertaken by the Government to increase in demand for electricity, are led by drivers such as demographic changes, rapid urbanization, bridging the urban-rural divide, energy security encompassing accelerated renewable energy integration and fast-paced technological interventions.

1. Augmenting demand for power:

The Ministry of Power, in FY19, continued its thrust on flagship schemes such as: Integrated Power Development Scheme (IPDS), Ujjwal DISCOM Assurance Yojana (UDAY), Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Saubhagya, UJALA, Urban Jyoti Abhiyan (URJA) and ambitious target of 175 GW of renewable energy capacity generation by 2022. Under SAUBHAGYA, since launch in September 2017, the government has achieved 99.99% household electrification. The primary objective was to provide electricity connection to every household till the last mile connectivity.

2. Reviving the stressed power assets

In FY19, the Government also dealt with the issue of revival of stressed power generating assets by adopting recommendation of a high-powered committee. One of the key recommendations adopted by the government is to provide coal linkage for short-term power sale which would help improve the financial viability and operational efficiency of the power generating assets.

3. Building conducive policy framework

The Ministry of Power also proposed significant structural changes in legal and policy structure of power sector through draft amendments in Electricity Act, 2003 and Tariff Policy, 2016. Some of the key proposals include separation of wire and supply business of Discoms, mandatory 24x7 power supply, provision for market for forward and futures contract in electricity, subsidy through Direct Benefit Transfer (DBT), abolition of additional surcharge, reduction and elimination of cross subsidy surcharge, Renewable Generation Obligation (RGO), higher penal powers to Regulatory Commissions and Load dispatch centers, capping of AT&C loss @ 15%, and 100% prepaid meters for consumers within 3 years.

4. Building green corridors

The Central Government took steps to facilitate evacuation and transmission of renewable energy through grid-connected networks. Green Energy Corridor is prerequisite for large-scale grid integration of renewable energy to achieve the 175 GW target by 2022. The target plans to establish a total 100 GW solar and 60 GW wind generation capacity by 2022. The Solar capacity targets includes 20GW through solar power parks in 21 States, 40GW through Roof Top Solar PV and 40GW through distributed solar generation.

5. Improving coal production

The coal production in the country saw a significant improvement especially from November‘18 onwards, when coal production saw an upward trend. The coal stock improved from 16,267 tons in March’18 to 30,947 tons in March’19 seeing 90% increase. Increase in coal production led to increased coal availability with the power generators to generate and sell more power at the Exchange platform. This also resulted in softening of average market clearing price at the Exchanges. This trend is likely to continue for major part of the year, which is positive for the State utilities & commercial and Industrial consumers purchasing power from the Exchange.

6. Other key interventions

The Government also approved measures to promote hydro-power wherein all future hydro projects of guidelines for Import/Export (Cross Border) of electricity to enable cross border trade in electricity, proposed Draft Amendments in the provisions relating to Captive Generating Plant in Electricity Rules 2005, issued notification regarding long term RPO from 2019-20 - 2021-22, issued scheme on ‘Flexibility in Generation and Scheduling of Thermal Power Stations to reduce the cost of power to the consumer’, guidelines on Charging Infrastructure for Electric Vehicles, issued Pilot Scheme –I & II - Procurement of aggregated Power of 2500 MW for three years and Draft Guidelines for short-term Sale of Power by Power Generating Company and Distribution Licensees (the ‘Seller’) through Tariff based bidding process.

7. Regulatory Initiatives: Center

The Central Electricity Regulatory Commission (CERC) undertook several new initiatives:

Regulations for cross-border trade Security Constrained Economic Dispatch (SCED), National Open Access Registry (NOAR), linking of DSM price with power Exchange price, transmission planning, pilot project on FRAS and 5-min scheduling, waiver of transmission charges and losses for solar and wind projects commissioned upto 31st March, 2022 etc. CERC also proposed several new initiatives such as Market Based Economic Dispatch of Electricity (MBED) proposing re-designing of DAM in India which would enable 100% of electricity trade through power exchanges. The regulator also introduced proposal towards Exchange based Ancillary Market and Re-designing Real Time Electricity Markets (RTM) in India.

8. Regulatory Initiatives: States

Out of total 34 States and Union Territories, the State Electricity Regulatory Commissions (SERCs) has been commissioned for 30 State and Union Territories except J&K, West Bengal, Tamil Nadu and Tripura issued Tariff Orders for FY19.

Power markets: key drives for growth and diversification

In view of the aforementioned developments, a meaningful shift is evidently underway in the short-term power market in India. Several policy, regulatory, social and technology initiatives that have been undertaken in the recent past will greatly assist the power market to grow and diversify. Also, there is a perceptible shift in the behavior of the distribution utilities who are deferring signing of the long-term power purchase agreements and opting for the short and medium term contracts instead. A few of the key developments that will future power market are:

a) Longer duration contracts on power exchanges

In February, 2019 the joint committee headed by Additional Secretary (Power), formulated to resolve the jurisdiction issue between CERC and SEBI, and reached an agreement that CERC will regulate the non-transferable specific delivery (NTSDC) long-duration contracts while SEBI will regulate the financial settled derivatives in electricity sector. This will allow launch of long-duration contracts on power exchanges. The contracts will be designed to cater to the requirements of the market participants and will aid the exchange to garner a bigger market share in the short-term power market.

b) Coal linkage to power plants selling in day ahead market

While addressing the issue of revival of stressed generation assets by adopting recommendations of high powered committee led by the Cabinet Secretary, the Government of India allowed provision of coal linkage to power plants for sale of power in the short term power market.

c) Cross border trade in electricity – MoP Guidelines, CERC Regulations and Conduct of Business Rules by Central Electricity Authority (CEA)

The Ministry of Power, CERC and CEA notified, the Guidelines, the cross-border Regulations and Business Rules respectively allowing cross border trade in electricity through the power exchange platform. This will allow grid connected with cross border countries such as Nepal, Bhutan and Bangladesh to trade power through the competitive platform of the power exchanges.

d) Power procurement and cost optimisation by distribution companies

The short-term market provides the distribution companies an option to hold a mix of long-term and short-term contracts and optimise costs. Subdued demand for power in the past three years, combined with a lag in long-term capacity contracting, prompted generators to sell surplus power in the short-term market. The average market-clearing price discovered at the exchange was RS. 2.7 per KWh in FY16, and RS. 2.4 per KWh in FY17 and RS. 3.3 per KWh in FY18 even as the average power procurement cost through bilateral contracts remained higher. This clearly incentivized the distribution companies to optimise their power portfolios through exchange procurement. Besides, there has been a greater recognition that the short-term market represents a better financial proposition over the excess contracting in the long-term power purchase agreements beyond base demand, requiring the payment of fixed charges even when there is no procurement of power during the non-peak season.

e) Cost optimisation by large consumers

The competitive price discovered at the exchanges also benefits large industrial and other consumers (connected load >1 MW), provided they are permitted open access by the distribution companies. The exchanges played a significantroleinfacilitatingopenaccesstrade.Consumers opting for open access are required to pay network usage charges and losses and also open access charges such as cross-subsidies and additional surcharges. With the lower price discovered on the exchange, even after paying above charges, several open access consumers could optimise their power procurement cost by purchasing power through the exchange. The implementation of open access and removal of procedural barriers could make open access transactions even more attractive for the consumers, as well as benefit the exchanges through increased volumes.

f) Coal adequacy and power surplus situation

Large coal-based generation capacity is operating at a plant load factor of <60%, whereas it has a potential to operate at plant load factor of>80%. A major portion of this coal-based capacity remained under-utilised. About 25 GW of generation capacity in the private sector does not have long-term contracts and these capacities have been selling power in the short-term market. In addition to the above installed capacity, in the 13th Five Year Plan, a capacity addition of 50 GW of conventional capacity and more than 100 GW of renewable capacity is planned. There is a possibility that following this medium-term capacity addition, our country is expected to be a power surplus nation in the near foreseeable future.

g) Seasonality factors

There is variation in demand from the state electricity distribution companies due to their geographical spread and varied climatic conditions. States with hydroelectric potential (Himachal Pradesh, Jammu and Kashmir, Uttarakhand and Sikkim) are power-surplus in summer and monsoon months but have power deficit in winter months. Some states like Punjab and Haryana have power requirements in the summer and monsoon seasons but are surplus in winters – this diversity in power requirements provides opportunities for power trading. For managing the seasonal variations, the distribution companies utilise the short-term market instead of entering long-term purchase power agreements that warrant the payment of fixed charges even when there is no non-peak power procurement.

h) Improvement in transmission infrastructure

Inter-regional transmission capacity grew by >3x to ~99,050 MW for FY19 from 27,750 MW for FY12. Enhanced transmission capacity is expected to reduce transmission congestion, and allow unrestricted short-term transactions through exchanges.


India’s power market is projected to grow to 1,905 billion units by FY22 from 1,372 in FY2019 on the back of industrial expansion, growth in per capita incomes, enhanced rural electricity availability and GDP growth. The continued thrust by the Government on its flagship schemes in power sector will also drive a sustainable growth for short-term power market in India.

Business review Electricity Segment

FY19 saw a 13% increase in electricity volume traded at IEX. A total of 52,168 million units were traded in the electricity segment of IEX, over of 46,215 million units traded last year.

Day Ahead Market

Day Ahead Market (DAM) is a market product for physical trading of electricity. DAM is traded for all 15-minute time blocks in 24-hours of next day starting from midnight. The prices and quantum of electricity to be traded are determined through a double-sided closed auction bidding process. The minimum allowable quantity to be bought and sold is 0.1 MW, with a minimum increment size of 0.1 MW of electricity and minimum price increment of RS. 1.0 per MWh, enhancing trading convenience.

A total of 50,063 million units were traded in DAM in FY19 in comparison to 44,842 million units in FY18 indicating a growth of 12%. The average daily volume trade was 137 million units, about 12% up from 123 million units in the previous fiscal.

Key DAM Highlights:

• Highest volume traded in DAM: 306 million units were traded on September 29, 2018.

• Total volume transacted in the short-term market by DAM: 34.5% as per CERC MMC reports, from April 2018 till MarcRs. 2019. Sell bids: 86,841 million units of sell bids were received in FY19, while sell bids of 72,956 million units were received in FY18 (19% higher than previous year).

• Buy bids: Buy bids of 65,585 million units were received, almost 15% more than 57,133 million units in FY18.

• Market Clearing Price (MCP): The market-clearing price reflected the nation’s reality. The average MCP was 3.86/unit in FY19, about 19% more than 3.26/unit in previous fiscal due to comparative increase in buy bids and decrease in sell bids on the exchange, caused by lower availability of coal supply and increased demand.

• Final cleared volume: Final cleared volume was 50,063 million units, increased 12% from the previous year.

• Participants: Total registered participants increased from 6,238 in FY17 to 6,429 in FY19, reflecting a growth of 3.1%.

• One Nation-One Grid: One price was realized on 214 days in DAM in FY19 compared to 268 days in FY18, implying a high congestion this year due to increased congestion in the southern region of India.

• Congestion: Overall, 538 million units could not be traded in FY19 due to congestion while in the last fiscal 279 million units were lost.

The East -> South and West -> South corridors were congested for about 6.9% of the time.

The East -> North and West -> North corridors were congested for about 4.0% of the time

Term-ahead market

The Term Ahead Market (TAM) offered by IEX is closest to real-time trading for physical delivery of electricity. The trade in TAM started in September 2009, giving participants an opportunity to trade for contacts for delivery from three hours ahead to 11 days in advance. Buyers and sellers electronically submit their bids during the market session. The TAM contracts cover a range of options such as intra-day contracts, for the next day through day-ahead contingency contracts, on a daily basis for rolling seven days through daily contracts and on weekly basis through weekly contracts, to manage their electricity portfolios for different durations. These contracts are region-specific and can be differentiated on a time-of-day basis, for example, for all 24 hours, peak times and off-peak times. The exchange enables trading in day-ahead contingency contracts, intra-day contracts, daily contracts through the continuous trade methodology, i.e., on a real-time basis with price and time priority as the matching criteria. The exchange enables trading in weekly contracts through a uniform price auction methodology.

In FY19 a total of 2,105 million units of power was scheduled under TAM compared to 1,373 million units reported in FY18. The highest volume traded so far in this segment was achieved in October’ 18 when close to 619.7 million units was traded.

Renewable Certificate Market

Renewable Energy Certificates (REC)

REC is a market-based instrument representing the environmental attributes of electricity generated from renewable resources. It is classified into solar and non-solar segment depending upon the source of generation. IEX commenced trading in RECs in February 2011. A total of 317.69 lakh RECs have been traded on the Exchange so far. In FY19 a total of 89.56 lakh REC certificates were traded.

RECs are traded on the last Wednesday of every month. The market seeks to address the mismatch between the availability of electricity generated through renewable resources and the obligation of certain entities to ensure that a proportion of their annual electricity consumption is addressed through renewable resources.

The renewable energy generators have the option to sell electricity to distribution companies at their average power purchase cost, or utilize the same for captive consumption, or sell it to third parties, while selling the green attribute of the renewable electricity through RECs.

Energy Saving Certificates (ESCert)

ESCerts is another market-based instrument designed for consumers in energy-intensive industries and sectors (Aluminum, Cement, Thermal Power Plant, Fertilizer, Iron & Steel etc.) in order to reduce their specific energy consumption for every compliance period in accordance with specified targets. The certificates were created under the Perform Achieve Trade (PAT) scheme of the Ministry of Power, Government of India. The idea is to enhance the cost effectiveness through certification of excess energy saving which could be further traded.

The Company commenced trading of ESCerts on September 26, 2017. Consumers achieving reductions above their targets are issued ESCerts that are tradable on IEX. Consumers unable to meet their targets in accordance with the PAT scheme are required to buy ESCerts to offset their shortfall. Consumers achieving reductions above their targets can either bank their ESCerts for the next compliance period or sell them on the Exchange. As per the regulations issued by the CERC, ESCerts are permitted only to be traded through power exchanges, such as IEX.

PAT Cycle-I was completed in 2017. PAT Cycle-II trade session is expected to happen in FY2019-20. Therefore, during the FY19, trade sessions of ESCerts were not held, and thus certificates were traded.

Human resource management

The Company is a passion-driven organization comprising of dedicated professionals with rich industry experience. As on 31st MarcRs. 2019, the Company comprised a human capital of 126 people with various competences; engineers, MBAs and finance professionals. The Company’s human capital is young with an average age of 34 years.

The Company is marked by an open and engaging culture with a culture of responsiveness, customer-orientation and doing it ‘Now’ attitude.

The Company holds training programs for employees at regular intervals to impart the necessary knowledge and skills to employees and keep them updated on latest sectoral developments.

The Company also trains its employees in line with industry needs, besides deputing executives to prominent institutes likeIIT,IIM,MDIandASCIetc.,toengageintechnical/behavioral training, strengthening their relevance to the Company’s competitiveness and direction. Renowned training experts like Franklin R Covey, are engaged by the Company to train its middle-level and senior-level employees.

IEX promotes job rotation across specific functions to minimize role monotony, enhance skill-sets, increasing job contemporariness and reinforcing employee productivity. Over the years, this strengthened the ability of executives to take informed decisions, strengthening competitiveness.

The Company provides annual health checks for employees, yoga sessions, sports events such as marathon and cricket, which focus on employee fitness and encouraged get-togethers that made it possible for families to meet and inculcate a cohesive environment.

The Company also focuses on maintaining the diversity quotient at IEX. We have employees from different regions and religion.

The policies that we have are employee friendly, flexible and they are well accepted and appreciated by all the employees. The result is in the numbers: Employee retention continues to be favorable when compared to the industry average.

Managing risk

The Company is exposed to normal industry risks like Regulatory risk, IT risk, Legal risk, Operational risk, and Market risk among others. The Company takes adequate steps to monitor, measure and mitigate these risks through a systemic Enterprise Risk Management Framework.

IEX has a robust Enterprise Risk Management (ERM) framework for identifying, qualifying & assessing strategic, operational and external risks affecting the business of the Company.

The ERM framework also provides a structure for determining a mitigation strategy and also helps in monitoring progress.

The risk management framework consists of the following steps:

The major risks identified by the businesses and other functions are systematically addressed through mitigating actions on a continuous basis. The Company’s internal control systems are also in place and are adequate considering the nature of its business and the complexity of its operations. IEX follows a definitive Enterprise Risk Management (ERM) framework that consists of practices relating to identification, analysis, evaluation, control, mitigation & monitoring of risks related to key business objectives. The mitigation status of the risks identified is placed before the ERM committee on half yearly basis. A few key risks as identified by the Company alongwith the mitigation measures are as listed below:

Regulatory risk:

A Power Exchange platform is a self-regulatory organization with its Rules, Bye Laws, Business Rules and circulars approved by the CERC. The organization functions within the ambit of provisions. Also, the Exchange is regulated by the guidelines of CERC such as Power Market Regulations 2010, Inter-State OA regulations and Procedure for scheduling of Collective transactions issued by POSOCO, etc. Any deviation from any of the provisions would be of significant risk to IEX.

Mitigation: Market surveillance committee & risk management committees are formed as mandated by CERC and the committee meetings are held as per timelines fixed by CERC with reports submitted at regular intervals. The state level regulations are governed by SERCs. IEX also proactively engages into regular policy advocacy with CERC, SERCs and other industry bodies for any change in regulation that may adversely affect its business.

Technology risk:

The use of obsolete technology as well as threat to data security could affect the Company’s business.

Mitigation: The Company’s cutting-edge technology serves a large number of participants in a competitive market scenario. IEX is ISO 27001-certified for information security and its related benchmarks. The Company has a disaster recovery site in Mumbai to quickly provide backup in case of any break down issues to resolve functioning on priority basis.

Cyber security risk:

As per amended Regulation-21 of the SEBI (Listing Obligations and Disclosure requirements) Regulations,

2015, w.e.f. FY2020 the Company is required to have a Risk Management Committee for monitoring and reviewing the risk management plan that plan shall cover cyber security.

Mitigation: The Company already has Enterprise Risk Management Committee (ERMC), which reviews and monitors periodically the various strategic, operational, financial and compliance risks to minimize the adverse impact of such risks. The Company has a well-defined security mechanism to deal with the cyber threats, however keeping in view the amended SEBI regulations the Company is reviewing the same to make a Cyber security process more robust.

Legal risk:

Legal risk consists of non-compliance of various factors like membership criteria fulfillment, incorrect member enrolment, non-compliance to tax or accounting compliances, entity with a criminal background, change in the net worth profile of members etc.

Mitigation: The mitigation measures include regular surveillance of the trading mechanism and reporting any error to the CERC at periodic intervals. Moreover IEX is an ISO 9001:2008 certified company with definitive SOPs in place.

Operational Risk:

Operational risk consists of various risks that have the potential to affect the regular business operation of the Company. This may include factors like margin maintenance, malfunctioning of softwares, access to trading data, sufficient bank balance in settlement account for meeting the requirement of executing the trades etc.

Mitigation: Mitigation measures include regular surveillance of the trading mechanism and reporting any error to the CERC at periodic intervals. Moreover IEX is an ISO 9001:2008 certified company with definitive SOPs in place.

Market Risk

The Company’s revenues could be adversely affected if it is unable to maintain or grow electricity contract volumes.

Mitigation: The revenues of IEX are majorly derived from transaction fees and annual subscription fees. The company systematically engages with all stakeholders maintaining participant base and driving revenue growth.

Financial Performance

In accordance with the SEBI (LODR) (Amendment) Regulations 2018, the Company is required to provide details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with detailed explanations therefore. The key financial ratios are given below:

Key performance metrics

Particulars 2018-19 2017-18 Growth %
Total revenue (H lakh) 29,415.86 25,607.14 14.87%
Total Expenses 6241.36 5607.63 11.30%
PBT (H lakh) 23,174.50 19,999.51 15.88%
PAT (H lakh) 16,503.67 13,168.52 25.33%
PAT MARGIN 56.10% 51.42% 467 bps
Earnings per share* (H) -Basic 5.47 4.46 22.65%
Earnings per share* (H)- Diluted 5.46 4.41 23.81%

*EPS for FY2017-18 is after making adjustment for Sub-division of Equity Shares of the Company from Equity Shares of face value of RS. 10 each to Equity Shares of face value of RS. 1 each during FY2018-19.

Profit & Loss statement analysis


The Company derives its revenues from transaction fees, annual subscription fees, admission fees, interest income, gains on sale of investments, and other miscellaneous income.

The operating revenue stood at RS. 25,407.68 lakh for FY2019, growing by 10.25% as compared to RS. 23,044.80 in the previous year.

During FY2019, the total revenue of the Company increased by 14.87% to RS. 29,415.86 lakh from RS. 25,607.14 lakh over previous year, leading to rise in EBITDA from RS. 21,049.51 lakh in FY2018 to RS. 24,290.33 lakh in FY2019.

The treasury and other income increased by 56.43% from RS. 2,562.34 lakh to RS. 4,008.18 lakh due to higher investment and return.

The profit after tax (PAT) for the year was of RS. 16,503.67 lakh, showed a y-o-y growth of 25.33% as compared to RS. 13,168.52 lakh in FY2018.


The expenses of the company primarily comprise of employee cost, operating and other expenses, interest and depreciation / amortization charges as detailed below:

IEX’s expenditure

(Rs. in lakh)

Particulars 2018-19 2017-18 Growth %
Employee benefit 2,483.19 2,407.69 3.14%
Other operating expenses 2,160.81 1,845.18 17.11%
Buyback Expenses 133.00 - -
CSR 348.53 304.76 14.36%
Finance cost 73.42 22.66 224%
Depreciation and amortization 1,042.41 1,027.34 1.47%
Total expenditure 6,241.36 5,607.63 11.30%

Other operating expenses primarily includes costs / charges pertaining to office rent, IT related costs, professional fee, business promotion, communication expenses, advertisement, regulatory fee etc as detailed below-

• During the year the Rent & Electricity cost increased from 336.90 lakh to RS. 402.18 lakh mainly due to new office space on lease basis taken at Mumbai and increase in lease rental as per lease agreement.

• The Technology related expenses decreased from RS. 511.22 to RS. 269.29 during the year, due to acquisition and internalization of trading software.

• The Training and Coaching cost increased from 42.51lakhtoH88.29lakhduetovarioustrainingprogramme conducted for the members and stakeholders, however correspondingly fee was charged from the participants, which covered under the miscellaneous income.

• The Travelling cost increased from RS. 93.90 lakh to RS. 119.99 lakh mainly due to business related travelling.

• During the year the Legal and Professional expense increased mainly due to share buyback cost and various professional fees towards business needs.

Finance cost

• The finance cost increased from RS. 22.66 lakh to RS. 73.42 during the year. The increase was due to provision of RS. 50.85 lakh towards refund of 70% of the return earned on investment of initial security deposit received from members of the exchange, as per the directions of the CERC.

CSR Expenses

• The Company spent RS. 348.53 lakh towards the corporate social responsibility required pursuant to Section 135 of the Companies Act, 2013 against the obligation of RS. 343.55 lakh. During the previous year the Company had spent RS. 304.76 lakh on the CSR activities.

For details please refer Annexure-VI of the Directors Report.

Provision for taxation

• During the year the total Income Tax liability (provision) was of RS. 6,670.83 lakh, as against the tax liability (provision) of RS. 6,830.99 lakh made during the previous year. The tax liability was lower due the lower tax rate of 25% applicable during the year in comparison to previous year. With proposed changes in the Budget 2019 the Company would continue to be in lower tax category in next year also.

Earnings Per Share

• Basic EPS of the Company increased by 22.65% to RS. 5.47 for the FY2018-19 against RS. 4.46 in the FY2017-18 whereas Diluted EPS increased by 23.81% to RS. 5.46 from RS. 4.41 in the same period. (EPS for FY2017-18 is adjusted for Sub-division of Equity Shares of the Company from Equity Shares of face value of RS. 10 each to Equity Shares of face value of RS. 1 each during FY2018-19).

Shareholders’ Funds Share capital:

As on MarcRs. 31, 2019, the Company’s share capital stood at RS. 3,019.19 lakh, i.e., 30,19,19,020* equity shares of RS. 1 each.

(Previous year: RS. 3,016.00 lakh i.e. 3,01,59,992 equity shares of RS. 10 each).

During the year the Company had done Sub-division of Equity Shares of the Company from Equity Shares of face value of RS. 10 each to Equity Shares of face value of RS. 1 each, thereby keeping the paid-up share capital intact.

Refer note 14 of Financials on page 128.

*Company’s share capital is net of 13,67,220 equity shares of RS. 1 each (yet to be granted) held by IEX ESOP Trust (previous year: 1,68,632 equity share of RS. 10 each)

Other equity:

The Company’s other equity as on MarcRs. 31, 2019 was of RS. 34,007.71 lakh in comparison to RS. 25,356.39 lakh as on MarcRs. 31, 2018. The net worth stood at RS. 37,026.90 lakh as on MarcRs. 31, 2019 as against RS. 28,372.39 lakh as on MarcRs. 31, 2018.

Settlement Guarantee Fund:

The SGF balance (non-current and current) as on MarcRs. 31, 2019 was of RS. 13,446.73 lakh, increased by RS. 1,774.97 lakh as compared to RS. 11,671.76 lakh as on MarcRs. 31, 2018, due to increase in additional margin requirement in line with higher trading obligation.

Secured & Unsecured loans:

There were no secured & unsecured loans in the books of the Company books during the year under review.

Trade Payable

The Company’s trade payable was of RS. 13,382.63 lakh as on MarcRs. 31, 2019, as against RS. 8462.98 lakh as at MarcRs. 31, 2018. Increase in trade payable was mainly results of non-clearing day on MarcRs. 31, 2019 due to Sunday.

Fixed assets

The Company’s net fixed assets stood at RS. 11,262.22 lakh as at MarcRs. 31, 2019, as against RS. 11,951.97 lakh as at MarcRs. 31, 2018.

Investments and Cash and Bank balances

As on MarcRs. 31, 2019, the Company’s investments (Non-current and Current) and cash and Bank balances stood at RS. 54,226.92 lakh, as against RS. 44,678.66 lakh as on MarcRs. 31, 2018 (including amount receivable on redemption of Mutual fund RS. 6,395.57 lakh on 31.03.2018).

Trade Receivable

The Company’s trade receivable was of RS. 4,588.65 lakh as on MarcRs. 31, 2019, as against RS. 21.59 lakh as at MarcRs. 31, 2018. Increase in trade receivable mainly arose due to non-clearing days on MarcRs. 31, 2019 due to Sunday.

Key ratios

Key Ratios FY2018-19 FY2017-18 Reasons for change
Operating profit margin (%) 82.58% 82.20% No/minor change
Net Profit Margin (%): 56.10% 51.43% The rise in net profit margin was mainly due to lower income tax rate applicable on the Company during FY2018-19 as compared to FY2017-18.

Corporate Social Responsibility

The Company’s corporate social responsibility (CSR) initiatives were around themes such as environmental sustainability, economic empowerment, social development and protection of national heritage and art & culture.

Over the last few years, the Company has undertaken several CSR interventions spread across 10 States including Uttar Pradesh, Delhi, Haryana, Bihar, Odisha, Maharashtra, Madhya Pradesh, Chhattisgarh, Tamil Nadu and Karnataka. The CSR interventions of the Company promote education, healthcare, decentralized renewable energy applications, skill development for the youth, mid-day meals and holistic development for young school children, skilling the mentally disabled, building of rural schools, healthcare support to elderly and communities, among others and are being implemented in partnership with credible nongovernmental organizations. Besides, the Company has five year a memorandum of understanding with the Indian Institute of Technology, Kanpur, to set up the Energy Analytics Lab (EAL) to promote analytics and research in power market in an endeavor to promote greater efficiency, market development as well as provide financial support to scholars pursuing doctoral and post-doctoral fellowships in energy and power markets.

The Company’s expenditure in CSR initiatives was 348.53 lakh for the financial year 2019 compared to 304.76 lakh for the financial year 2018.

Internal Control

The Board has put in place various internal controls to ensure that they are adequate and are effective. The Board has also put in place state-of-the-art technology and has automated most of the key areas of operations and processes, to minimize manual intervention.

The design, implementation and maintenance of adequate internal financial controls is to enable it to operate effectively and ensure the accuracy and completeness of the accounting records, and are free from material misstatement, whether due to error or omission.