Indian power sector on verge of major energy transition, with increasing proportion of renewable energy: HPX

Hindustan Power Exchange (HPX) (formerly known as Pranurja Solutions Ltd) is the new age power exchange in Indian Electricity Market. It provides a comprehensive market platform for different electricity products providing a transparent, seamless and robust exchange platform for the market participants. Several esteemed power sector entities including PSUs, Distribution Companies, Trading Licensees, IPPs etc. are other shareholders.

HPX provides opportunity to market participants to transact in most equitable and transparent manner giving its customers unmatched user experience through advanced technology and customized value added services. Through continuous innovation and creativity in the services as well as its technology, HPX brings in fresh perspective in the power market.

HPX is promoted by three leading institutions of their respective fields: PTC India Ltd, BSE Investments Ltd, and ICICI Bank Ltd

Backed by technology from Europe and world’s fastest exchange (BSE) and with a team of dynamic power sector professionals with a zest for innovation, HPX promises better price discovery and an unmatched user experience to its market participants.

Here, Akhilesh Awasthy, COO, HPX, tells us more. Excerpts from an interview:

DQ: Why was the need to have a third power exchange in India, when two are already functional?

Akhilesh Awasthy: Today, power exchanges have emerged as the most preferred entities to enable buying and selling of electricity and create a more competitive and liberalized market. For a country like India which is fast emerging as a global superpower, it is crucial to ensure the best possible utilization of the energy generated for economic resilience. Thus, the need for a third power exchange has long been recognized by market participants in order to improve price discovery and increase the effectiveness of power trade.

The Bombay Stock Exchange is the fastest exchange in the world, and HPX will be a seamless platform that uses the same technology. One of the greatest technology companies in the world, which also provides technology for power exchanges in Europe, supplied the matching engine for the trade. As leaders in their various fields of expertise, our promoters' extensive experience will likewise benefit us and the traders.

DQ: How is HPX different from IEX and PXIL? Elaborate.

Akhilesh Awasthy: Our company is backed by state-of-the-art technology that also powers BSE. We offer speed, transparency, improved price discovery in power trading, and a number of innovative features. HPX technology provides an upgraded matching engine that is in line with one of the most advanced European models. The technology offers all the applications such as Trading Platform, Matching Engine, Collateral, Clearing and Settlement, and Risk Trading Management System (RTMS) in an integrated manner.

It provides a faster response to the end client. The technology also provides user-based bidding access rights that give members to use a single platform for trading and need not create a separate platform for every client.

The cutting-edge technology solutions, efficient price mechanism, and quality of service offered at HPX would act as the differentiator in the Indian Power Market. Further, other power sector entities—generators and distribution companies—currently hold around 35% in HPX which is expected to be another advantage for the exchange.

Even amongst all the above priorities, the quality of our service to our esteemed members and clients would be our key differentiator and the market has already started realizing the difference. The exchange is also well equipped to provide customized user-centric/value-added solutions to give the end-users a taste of unmatched customer experience.

DQ: What is the growth in trading in the Term Ahead Market, Green Term Ahead Market, and Renewable Energy Certificates?

Akhilesh Awasthy: The TAM market has grown at ~14.5% from FY21 to FY22. During the same period, the GTAM segment has grown exponentially from 0.79 BU in FY21 to 5.45 BU in FY 22. The trades in RECs increased by 819% in FY22 as compared with FY 21, with 84.6 Lacs RECs getting traded amongst power exchanges.

HPX has launched its Green Electricity segments viz Green Term Ahead Market and Green Day Ahead Market and certificate segments, viz., Renewable Energy Certificates and Energy Savings Certificates in its product portfolio. HPX platform will be vital in bridging the supply and demand imbalance and providing trading at a price that is both reasonable and efficient.

DQ: How can sector participants take advantage of market conditions at different times?

Akhilesh Awasthy: The new power sector landscape will be shaped by a number of factors, including the economy's continued digitalization, climate change, a growing role for variable renewable energy sources, stagnant or declining contributions from traditional low-carbon sources like nuclear and hydro, declining thermal fleets, and others. These elements working together will change the likelihood and potential consequences of electrical supply disruptions.

The products offered by power exchanges offer different products and each of them is unique. If we take the example of the Day Ahead Market, the power is available for the day ahead, however, the certainty of clearance in the Day Ahead segment may not be 100%. In such scenarios, the power can be bought through the Term Ahead Market (TAM) or under Contingency Contracts or Intra-day Contracts.

If there is a sudden increase in demand, the participants can also participate in Real Time Market (RTM) for immediate delivery. Therefore, the exchange products can be used based on the convenience and the requirement of the market participants

DQ: How is it helping participants manage their power portfolios efficiently?

Akhilesh Awasthy: The Indian power sector is on the verge of a major energy transition, with a continuously increasing proportion of renewable energy in the country's mix of power generation. Additionally, more variable power output from wind and solar power facilities is expected to encourage short-term energy trading, providing buyers and sellers with more options.

With platforms available for selling green power (Green Day Ahead Markets, Green Term Ahead Markets), the sellers have the right avenues to sell their power and also provide the buyers the option of fulfilling their renewable power obligations.

The selection of demand- and supply-side alternatives to meet customers' needs through a portfolio that reduces overall costs, has minimal adverse effects on the environment, and carries an acceptable amount of risk s necessary for effective portfolio management. Regulators match utilities' financial incentives with customers' interests in order to enable effective portfolio management. Regulators and governing boards remove the significant financial disincentive that traditional regulation gives utilities to use cost-effective energy efficiency or other demand-side resources to meet customers' energy service needs.

Trading on power exchanges is conducted in a fair and transparent manner and has advantages over the traditional bilateral approach. E.g., generation companies greatly benefit from timely payments. It does not just support the generators in recovering from financial stress but helps in transforming the companies into profitable entities. For buyers, power exchanges help in the efficient management of their power portfolios.

If India has more power exchanges, it will deepen the market and will encourage spot deals for electricity. Currently, only 6% of the nation’s electricity is traded through spot deals, and with power exchanges, it would be possible to purchase more of India's electricity through spot deals which can bring ground-breaking results.

DQ: What are the advanced technologies being used by HPX?

Akhilesh Awasthy: Backed by the latest technology and a series of innovative features, the newest power exchange in India delivers the fastest transactions, transparency, and better price discovery in the execution of trades. The exchange offers an agile process model for software development which allows customization or modification in the software in a fast-paced manner.

Members and clients can use the exchange's transparent technology platform for transparency in price discoveries and flexibility in multi-asset trading from any geographical location. The exchange also has a high-end MLP-based matching engine for DAM, GDAM, and RTM segments, ensuring maximum welfare.

The member and traders of the exchange are also being helped in participating in various electricity trading without any complexities by the User Interface Design platform of the exchange. The exchange also uses online surveillance tools to maintain market integrity and avoid market abuse. With such amazing surveillance tools, the exchange platform has also created a robust risk management system that ensures an easy clearing and settlement process and adequate margin assurance.

Not only this, but the exchange has also created distinct features and news offerings in their technology platforms like providing integrated solutions which will help integrate all the applicants and provide them with faster responses. With this, the exchange technology has also provided user-based bidding access rights which facilitates members to use a single platform for trading.

Similarly, in clearing and settlement, various facilities have been provided for reducing the working capital required. Reporting system has been designed to meet the day-to-day needs of easy reconciliation

DQ: With the share of renewable energy steadily rising, what steps are being taken by HPX to manage that?

Akhilesh Awasthy: With a steadily rising share of renewable energy in the nation's mix of power generation, the Indian power sector is on the cusp of a huge energy transformation. Furthermore, it is anticipated that increased variable power output from wind and solar power facilities will promote short-term energy trading and give buyers and sellers more options. The HPX platform will be essential in bridging the supply and demand imbalance and providing trading at a price that is both reasonable and efficient.

HPX is inclined towards providing renewable energy-centric products through its platform, thereby providing a great avenue for the 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.

HPX has already initiated Green Term Ahead Market (GTAM), and Renewable Energy Certificates in its product portfolio to cater to the renewable energy needs of the market participants.

DQ: Elaborate on the Day Ahead Market (DAM), Green Day Ahead Market (G-DAM), and Real-Time Market (RTM) offerings.

Akhilesh Awasthy: DAM, G-DAM, and RTM sectors will expand HPX's offerings and boost its additional services. With the help of these new sectors, HPX's customers will be able to satisfy their various trading requirements and find better power transaction prices.

The Day Ahead Market (DAM) is a delivery-based contract that enables market players to transact in spot energy. It also establishes a benchmark reference price for the market and aids in managing participants' day-ahead power procurement portfolios. HPX will enable its clients to fulfill their electricity needs in real time by launching the Real Time Market (RTM). Customers will be able to control their last-minute supply-demand gap for electricity through the RTM route with the help of HPX's frictionless and dependable platform.

The Green Day Ahead Market (G-DAM), on the other hand, is another product segment that enables buyers and sellers to submit bids for the sale or purchase of renewable energy each day.

These HPX segments are designed to give producers of renewable energy, such as solar, non-solar, and hydropower, a seamless platform to sell electricity with improved price discovery.

DQ: Elaborate on the risk management system being offered.

Akhilesh Awasthy: As per Power Market Regulations 2021, HPX has introduced a robust risk management system. The technology used ensures an easy cleaning and settlement process and provides adequate margin assurance. HPX assures the fund pay-outs to sellers and is keen to develop the settlement criteria of T+1 days for the market participants involved.

DQ: What should we expect from HPX in the future?

Akhilesh Awasthy: The support from the market participants has overwhelmed HPX, and it vows to keep aiming for excellence in all of its operations going forward. Hindustan Power Exchange will undoubtedly be a company that provides an inviting and competitive platform for the trade of energy in India. The sole goal of HPX is to provide participants with a variety of market items that meet their individual needs.

HPX is aware of the competition and the necessity to offer new, cutting-edge products to consumers in the distribution as well as industrial sectors. Additionally, it attempts to guarantee that buyers and sellers can acquire effective and transparent electricity pricing through a reliable trading system. Above all, we would like to stress that HPX is a people’s exchange that strives to become the most preferred choice for customers.