How are power exchanges transforming India’s energy sector?

The Indian power industry is dynamic, with notable reforms over the past 10 years such as launching the world’s largest electricity market. This shift highlights the rise in power trading exchanges, focusing on short-term and spot trades over lengthy contracts.

Given that power plays a critical role in driving economic growth and contributing to the welfare of the nation, IBT digs deep in the trends and factors supporting the growth of power exchanges in India.

Power Exchange

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A power exchange is a regulated marketplace for buying and selling electricity. Participants like generators, distributors, and consumers offer or bid on electricity at specific prices. The exchange matches these bids to determine the clearing price and amount of electricity traded.

The power exchange functions predominantly in spot markets, facilitating instant electricity transactions. It also spans forward markets, allowing participants to plan ahead through contracts for future electricity exchange. A significant role of the power exchange is price discovery. It establishes prices based on current market conditions, enabling participants to make informed choices for their electricity-related endeavors.

This approach enables consumers to acquire power at a reasonable price. Given that power constitutes one of the most pivotal elements in the establishment and sustenance of infrastructure. It plays a critical role in driving economic growth and contributing to the welfare of the nation. The sector is a key driver of economic growth, contributing around 8% to the country’s GDP.

Power exchange trends In India

India, with a population of 1.3 billion and an area of 3.29 million square kilometers, holds the position of the world’s third-largest economy in terms of Purchasing Power Parity. It also stands as the third-largest producer and consumer of electricity globally, boasting an installed power capacity of 417.67 GW as of May 2023. India’s installed capacity for renewable energy in May 2023 was 179.32 GW or 43.0% of the country’s total installed power capacity. Solar energy contributes 67.07 GW, followed by 42.86 GW from wind energy, 10.24 GW from biomass, and 46.85 GW from hydropower. 

The Indian power sector is one of the most dynamic and fast-changing industries in the country, marked by significant reforms like the launch of the world’s largest electricity market, the Electricity Exchange of India. Power trading companies are gaining prominence, engaging in short-term and spot trades, replacing complex and costly long-term contracts. The rise of renewable energy is expected to reduce long-term contracts by 50-60% in the next decade.

The total trade volume of the Indian Energy Exchange grew by 8% Year-on-Year (YoY) to 8,25 million units (MU) in May 2023. The average spot power price during May 2023 was 30% lower at Rs 4.74 per unit against Rs 6.76 per unit in May 2022, due to an improving supply-side scenario, leading to increased liquidity, and cooler weather conditions.

Anticipating rising power demand in the upcoming months, the supply-side liquidity is poised to improve further. This improvement can be attributed to an augmented coal supply, reduced e-auction coal prices, and a consistent decline in imported coal and gas prices. As a result, competitive prices are expected, leading to increased clearance for both Distribution companies (Discoms) and Open Access consumers.

In May 2023, the Day-Ahead Market (DAM) volume escalated to 4,066 MU, marking a 26% Year-on-Year (YOY) growth from the 3,224 MU in May 2022. The average market clearing price for the month stood at Rs 4.74 per unit, marking a 30% decrease compared to the corresponding month of the previous year. 

Year-wise trade of Day-ahead contingency(at IEX)

Source: Trade data of IEX

Day-ahead contingency energy trade volume fluctuated at IEX over years. 2022 saw significant growth, possibly due to shifting energy demands. In 2023, 4452.8 GWh traded in 8 months, showcasing a notable upward trend in energy trading. Additionally, the Real-Time Electricity Market (RTM) achieved its highest-ever monthly volume of 2,424 MU during May 2023, showcasing a YOY growth of 5%.

In July 2023, the Indian Energy Exchange (IEX) which has the largest market share of 88% in total power trade at multiple exchanges, became India’s first carbon-neutral power exchange, saw a trade of 275 million units (MU) of renewable energy, marking a 53.3% YoY decrease, while showing a slight increase from June’s 272 MU. The cumulative traded volume by July reached 8,522 MU, signifying a YoY rise of 19%. 

Notably, the day-ahead market in June 2023 witnessed a total trade of 4,123.98 MUs at IEX and 0.03 MUs at Power Exchange India Limited (PXIL). The average market clearing price spanned between Rs 2.92 and Rs 6.79 per unit at IEX, and stood at Rs 10 per unit at PXIL. Furthermore, the real-time market in June 2023 observed a trading volume of 2,675.93 MUs at IEX.

The dynamic landscape of India’s power sector, coupled with its impressive growth, underscores the immense potential of power trading in the country. The robust growth of renewable energy installations, coupled with the evolution of power markets and trading mechanisms, showcases the forward momentum. The recent achievements in trading volume, market clearing prices, and the embrace of real-time and renewable energy trading further exemplify the promising trajectory of power exchange in India.

When we asked India Energy Exchange(IEX) about the future potential of power exchange sector in India, they said,” Electricity is the prime mover for all economic activity, and the rise in industrialization and urbanization
has resulted in a steady growth of power consumption. According to the Central Electricity Authority,
energy consumption in India reached 1,504 BU in FY ’23, an increase of 9.4% YoY. Add to that, we recently
witnessed the highest power peak demand amounting to 235 GW on 17th August 2023. Reports estimate
that the Indian electricity sector would grow at a rate of more than 6% per year for the next 5 years.”

They added,” As India marches towards installing 500 GW of renewable energy and achieving its net-zero targets, power exchanges will play a much more significant role. Though power exchanges account for 6-7% of the country’s power consumption, there is acceptance and trust that exchanges have brought to the power markets. Power trading through exchanges provides flexibility, competitive prices, transparency, payment security, risk management and greater choices for market participants. In effect, power exchanges have traded a cumulative volume of nearly 700 billion units since 2015, at an impressive 27 % CAGR.”

Power exchanges would be crucial in facilitating efficient integration of the projected RE capacity into the grid. Exchanges will be instrumental in managing the intermittencies of renewable energy, reducing the cost of integration, and providing price signals for further capacity additions. Globally, power exchanges have played a key role in reducing the cost of renewable energy integration and providing efficient price signals for newer capacity addition. Taking cognisance, the Government aims to increase the share of power exchanges to 25 percent by 2030.

How India’s power exchange is excelling in the market?

The escalating demand for power creates a fertile ground for the growth of the power exchange. As electricity consumption rises, the exchange gains momentum by facilitating efficient transactions and price discovery, contributing to a more robust and dynamic energy market ecosystem.

India’s electricity demand continues to be driven by sustained economic expansion. According to the latest report by the International Energy Agency (IEA), the strong post-pandemic recovery, combined with intense heat waves, drove electricity demand up by 8.4% in 2022. It is expected the strong growth trend will continue in 2023, at a rate of 6.8% and 6.1% in 2024, by when India’s electricity consumption is expected to surpass that of Japan and South Korea combined.

Year-wise total energy consumption in India

Source: Energy Statistics India 2023 Report

India’s energy consumption reflects steady growth, with demand rising consistently. From 2016-17 to 2021-22, it increased from 29556 to 33508 Peta-Joules, showcasing the nation’s escalating energy needs.

The IEA report has highlighted that India witnessed a 3.8% rise in coal-fired electricity generation during the first half of 2023. This increase was driven by robust demand growth, which was further accentuated by a decrease of 8 % in hydro power output. Anticipating heat waves that could lead to heightened peak electricity demand due to increased cooling needs, the government has issued a directive for coal plants to operate at full capacity starting from March 16 until September 30, 2023.

For India to take its rightful place in the world economy, making its electricity market more competitive and efficient is of utmost importance. India is making significant strides to position itself as a global economic powerhouse, with the power sector playing a pivotal role. India’s peak power demand surged to a record 223.23 GW on June 9, 2023, surpassing the 200 GW milestone. To secure its rightful spot in the global economy, enhancing the competitiveness and efficiency of its electricity market remains paramount.

A crucial step in this journey was the implementation of the Electricity Act (EA) 2003. This act delineated electricity trading as a distinct activity, fostering efficient, transparent, and competitive price discovery through power exchanges. Recently, the Power Market Regulations 2021, introduced by the Central Electricity Regulatory Commission (CERC), incorporate insights from the past decade. These regulations provide novel mechanisms to enhance the efficiency and reliability of transactions. Moreover, the approval for the launch of another power exchange (Hindustan Power Exchange Ltd. Or HPX) is anticipated to further propel growth.

Future Strategies of Power exchange

To remain relevant in a high electricity demand environment, exchanges need to continually focus on
innovation to launch new products and segments to keep pace with the evolving Indian power market.

when we asked India Energy Exchange about the future strategies that Power Exchange should adapt in the high demand and green energy initiative environment, they said, ” In line with the country’s sustainability vision, green market segments at exchange platforms are going to increasingly become significant over the next few years. Consequently, innovative products such as Green Monthly contracts or Green Hydro contracts would gain traction. Also, in the Term Ahead Market (TAM) existing contracts with delivery up to 90 days may find extension up to 11 months. These longer duration contracts would enable discoms to hedge risk against volatility in spot prices. In this calendar year, two distinct segments witnessed commencement of trading on exchanges. One was the High Price Day Ahead Market (HP-DAM) segment, to help bring surplus liquidity to spot markets during high demand months
and the other being the Tertiary Reserve Ancillary Services market segment. This segment began trading from the delivery date of 1st June 2023 for the Day Ahead Market Ancillary Services as well as for the Real Time Market Ancillary Services.”

They added,” Technology is at the core of exchange operations. Technology-driven solutions leveraging futuristic technologies such as API-based solutions and Robotic Process Automation that automate market operation processes and reduce human dependency for greater efficiency have been emerging as a corner stone of innovation across exchanges. Apart from technology, future opportunities for power exchanges lie in focusing on new market models of Contract for Difference (CfDs), Virtual PPAs, Battery Energy Storage Systems, and P2P Trading.”

Further more to increase RE participation in the market, a pilot mechanism has been proposed for implementation within a year and an initial capacity of 1,000 Megawatt is to be tendered by nodal agency under the (Contract for Difference) CfD model with a 15-year PPA tenure. Further, almost 5,000 Megawatt of RE capacity is also being targeted for development under this concept. The CfD model will help further deepen the market by providing certainty to the generator by guaranteeing a fixed price over PPA periods.

Similarly, under the Virtual PPA model, a financial instrument could be devised to hedge cost of electricity. Herein, the renewable generator can sell power on the exchanges, while the green attribute of that power is attributed to the C&I consumer with whom the VPPA is signed. VPPAs ensure certainty of cash flows for the RE generator as per the PPA, thereby helping deepen the market and encouraging RE capacity addition.

This model can be helpful in increasing renewables’ adoption by Commercial and Industrial (C&I) consumers. A joint report by WWF and ICF estimates that the VPPA demand from C&I customers would reach 62 GW by 2030.

It is expected that by 2030, grid scale battery energy storage systems (BESS) would play a crucial role in large scale RE integration having reached an installed capacity of 27 GW. The Solar Energy Corporation of India (SECI) and the Ministry of New and Renewable Energy (MNRE) have been working towards promoting the use of market options for storage tenders. Last year, SECI’s storage tender of 500 MW provided for 40% open capacity which can leverage power exchanges. These storage systems are expected to provide liquidity to exchanges during peak hours. In an effort to leverage rooftop solar (RTS) capacity addition, exchanges can explore opportunities in Peer-to-Peer (P2P) trading in India through various pilot projects. P2P trading is also expected to play a supporting role towards incentivizing prosumers to add more RTS capacities.

The grand push towards achieving net zero objectives requires regulatory catalysts and key among them has been the Energy Conservation (Amendment) Act, 2022, which has paved the way for development of a national carbon market in India. Recently, the Ministry of Power notified the carbon credits markets scheme. This scheme necessitates the formation of a National Steering Committee to Govern and oversee the functioning of the Indian carbon market. According to guidelines, trading of carbon credits in this mandatory market is expected to take place shortly through the exchanges. Carbon trading would then play a crucial role in helping India achieve its target of reducing the emission intensity of its GDP by 45% (with respect to 2005 levels) by 2030 to limit global warming to 1.5 degrees Celsius.


In the dynamic landscape of India’s energy sector, the power exchange emerges as a catalyst for transformation. With its role in facilitating efficient transactions, encouraging renewable energy integration, and promoting competition, the power exchange holds the promise of a cleaner, more resilient energy future.

As demand surges, its potential to balance supply and demand while driving price discovery becomes ever more crucial. This transformative journey, rooted in sustainability and market innovation, beckons towards a future where India’s energy landscape not only meets the needs of today but also paves the way for a greener and more prosperous tomorrow.

But the escalating power demand in India has triggered a notable surge in coal-based power generation to meet the growing energy needs. This intensified reliance on coal, while addressing immediate energy demands, needs to be paid proper attention, as India targets an accelerated transition to a net-zero carbon economy.

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