IEX — earnings call
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Prepared remarks
LIMITED · Management
MR. ROHIT BAJAJ – EXECUTIVE DIRECTOR (NON- BOARD) - BUSINESS DEVELOPMENT, STRATEGY & REGULATORY AFFAIRS – INDIA ENERGY EXCHANGE
MS. APARNA GARG – HEAD, INVESTOR RELATIONS & CORPORATE COMMUNICATIONS – INDIA ENERGY
EXCHANGE LIMITED · MR. ADITYA WALI – INDIA ENERGY EXCHANGE
MR. AMIT KUMAR – HEAD OF MARKET OPERATIONS AND PRODUCT DEVELOPMENT – INDIA ENERGY
MR. ADITYA WALI – INDIA ENERGY EXCHANGE
LIMITED · Management
Indian Energy Exchange Limited November 03, 2023
Moderator · Conference Operator
Ladies and gentlemen, good day, and welcome to the Indian Energy Exchange Q2 FY2024 Results Conference Call hosted by Axis Capital Limited.
As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need any assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone phone.
Please note that this conference is being recorded.
I now hand the conference over to Mr. Sumit Kishore.
Thank you and over to you Sir!
Sumit Kishore
Good Afternoon everyone.
On behalf of Axis Capital I am pleased to welcome you all for
Questions and answers
17:22:42 +05'30' · Research Analyst
“Indian Energy Exchange Limited
Moderator · Conference Operator
Thank you very much.
We will now begin the question-and-answer session.
The first question is from the line of Damodaran from Acuitas Capital Advisors.
Please go ahead.
Damodaran
Thank you for the opportunity.
Three questions from my side.
So one is you spoke about, GNA getting implemented in October, but if I look at the share of the Day-Ahead Contingency market, that has already come down sharply in September.
So what is the reason for that, I mean, given that GNA is being implemented now, where do you see the share stabilizing on a sustainable basis.
So that was one, then if you look at the mix of volumes, Term-Ahead market has seen a very sharp growth, so what is the reason for that in the last quarter.
That was one question, and if you look at CERC, I think given a deadline for October 16th to give all the comments and suggestions by all market participants.
So Indian Energy Exchange Limited November 03, 2023 now what are the next steps that the CERC will take to arrive at a decision on market coupling.
That is one question and the last one was, if I look at the share of bilateral trades in overall volumes, that has also gone up over the last three or four months.
I mean, the data is there through July on the CERC website.
So if you can throw some light as to what is the reason behind that.
These are my questions.
Thanks.
Satyanarayan Goel
Yes, first thing you asked about GNA.
Yes, GNA has been implemented from 1st of October and in the first two, three days we saw very positive development after implementation of GNA.
The DAC volume had reduced but subsequently in the month of October you can say right from 5th of October to 15th of October the demand was very high in the country and exchange clearing price was almost Rs.10 throughout the day.
And when you have this kind of price, then buyers they try to get into bilateral market to ensure availability of power, so they contract in the bilateral market or DAC market.
So that shifting of, I mean, the impact of GNA was not really positive during those days.
But then subsequently when the prices started going down the supply side scenario improved, we are again now seeing that good volume is happening in the Day-Ahead market of exchange and our overall volume growth for the month of October because of GNA implications in electricity has been almost about 20% now.
So that is a positive development and I am sure in the coming months the growth will be better.
Your second question was that our market share in the second quarter was lower.
See the reason was basically the second quarter, as I told you, the demand increased by almost 13% and because of the high demand increase many of the distribution companies they contracted power through the bilateral contracts and in fact bilateral contracts volume increased by almost about 25% during this quarter.
So substantial volume shifted to the bilateral contracts because of which the DAM volumes reduced and our market share was lower.
But I am sure in the coming quarter you will see good increase in the market share.
Coupling, yes CERC had issued a discussion paper, it was issued on 21st of August and I am sure you must have gone through the discussion paper and the reading of the discussion paper indicates that CERC has not taken any view, they are neutral in the paper, they have listed out the advantages whatever they can achieve, but the disadvantages and the challenges in implementation of coupling are more and they have highlighted all those things.
What we understand is that participants have submitted the comments on that and CERC is just compiling the comments.
They have not taken any view on that.
Bilateral volumes, yes, they have increased as I told you because demand for power was very high and many distribution companies got into bilateral contracts.
So, now I think demand has reduced slightly.
It is not 5,200 million units per day.
Now it has come down to almost about 4,300/4,400 million units per day.
So our clearing price is also down to almost about Rs.5/unit.
So we should see good volume in Day-Ahead and RTM market.
Damodaran
Any update on how long will it take, I mean, this process of CERC compiling comments.
Indian Energy Exchange Limited November 03, 2023
Satyanarayan Goel
See I can tell you the process part of it.
They will have to compile the comments, take a decision, Commission will have to take a decision based on the comments.
They also do consultations.
There is a Central Advisory Committee of the Commission, they do consultation in that also, and based on all the inputs Commission will take a view on that.
If the view of the Commission is that, we should go ahead with the coupling then draft regulations will have to be prepared, and when they prepare the draft regulations they will also indicate why they intend to go ahead with coupling.
The statement of reasons also will be there, and then they will invite comment for that.
After receipt of comment from that they will then again see whether they want to go ahead with the coupling or not, if they want to go ahead with the coupling, they will issue the final regulations and then the activity for implementation of coupling will start.
So, this process of finalization of regulation itself may take one year time and after that implementation of coupling is getting a software, customizing the software for Indian conditions, and putting in place the clearing and settlement mechanism.
So all those things, I mean, it may take anything between one and a half to two years’ time for implementing coupling after that.
Damodaran
Sure, but that is very helpful.
Thanks, that is all from my side.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Mr. Sumit Kishore from Axis Capital Limited.
Please go ahead, sir.
Sumit Kishore
Thank you, Sir.
My first question is in relation to the long duration contracts.
What is the total volume handled by IEX in LDC in the second quarter, in the first half of the year and what is the market share composition in LDC and how much does IEX have?
Rohit Bajaj
In the first half, total volume done in LDC is 3.6 billion units, but if we talk about specific months it was more in September where we did more than 1 billion units and October it is about 1.7 billion unit.
So, it started on a smaller note and if you look back last year, total volume done in LDC was 1.4.
So as compared to 1.4 we have done in the first half itself 3.6 and a lot of traction is there, distribution companies are finding it very attractive to source power through LDC contract and we are seeing a lot of transactions are happening.
There we have organized more than 300 reverse auctions in this particular segment, and wherever rates were suitable, distribution company went ahead and sourced this power.
So started on a little slower note, but now picking up very fast.
Sumit Kishore
So, what would be the IEX share?
So in first half you have done 3.6 billion units how much was the total LDC traded?
Indian Energy Exchange Limited November 03, 2023
Rohit Bajaj
Total number is not readily handy with me, but our share was close to 60% in case of LDC contract.
We can say close to 7 billion units was all done in the LDC contract.
Sumit Kishore
My next question is that we have been seeing high demand environment although there has been easing of supply side constraints, exchange price discovery has been in the vicinity of Rs.6 and exchanges have not been able to gain market share.
Market share has moved towards bilateral.
So would you like to comment on how the medium-term situation will evolve because India seems to be headed into a situation where we could have tight liquidity or is that a wrong assessment?
Rohit Bajaj
See our reading is this situation that we are seeing where there is a huge supply side constraint, this is temporary.
What we have seen is, in last three, four months there is lot of softening in the prices particularly coal as well as gas and because of that there is some improvement in the liquidity.
Demand increase in some parts was more than expected.
So that has taken away whatever additional supply was brought in the market, but going forward we expect that some more capacity is going to get commissioned.
There are projections which say that 9,000 megawatt capacity will come in next five to six months.
So this will give us lot of support and renewable capacity as we all know is continuously getting added in the system.
So, whatever shortages we are seeing now, deficit we are seeing now will get covered eventually in coming months and with that situation will only improve and we expect prices to be in a decent level.
So this is our reading of the situation and as this will happen we expect more liquidity or more buy will start to come on Day- Ahead and RTM market which is the most preferred option for any State because there, the price discovery is more efficient.
These are the most competitive market segments that are available, and we have seen historically prices are lowest in these particular segments.
Sumit Kishore
Finally, how do you see the share of overall short-term markets moving over the past couple of years and has it been as per your original assessment?
Exchanges within the mix have been falling short because of bilateral markets growing faster, how do you think that the next couple of years are likely to evolve?
So the short-term markets overall and exchanges within the short-term market.
Rohit Bajaj
If you see last five years data, you will find that short-term market is growing very fast, exchanges are the ones which are growing at the fastest pace.
So, this has been the historical trend.
There are some aberrations.
The point Mr. Goel explained, the point that I was sharing because of some uncertainty in availability, some sudden increase in the prices, there was a small shift that happened within, from exchange to bilateral market.
We have seen that in quarter one this shift was there, but as the stability will come, as the situation will stabilize which it has already started with increase in coal production, with increase in Indian Energy Exchange Limited November 03, 2023 more generation getting on board, we expect again the things would be aligned and exchanges would be the fastest growing segment within the short-term market.
But one more point here is, since no long-term PPAs are being signed today, earlier distribution companies were not taking, now many generators are also not interested to lock their power under long-term PPAs.
So, which means that going forward there would be this merchant capacity which is present, will not go away and more capacity will come in terms of distribution companies getting more power under the long-term PPAs, the plants which are going to get commissioned.
Together, this will create more liquidity on the sell side which will help exchange market to grow.
Sumit Kishore
Thank you.
Those were my questions.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Vikas Jain from Financial Quotient.
Please go ahead.
Hi, Good Afternoon everyone on the call and many thanks for the detailed summarization of what we have done at IEX.
My first question was on market coupling, but I think that has been answered very fairly by the management team.
So, just wanted to know about the PAT level figures for IGX and ICX for Q2 if any.
Satyanarayan Goel
Yes, for IGX our profit has been about Rs.7.8 Crore in second quarter.
The volume growth in case of IGX in the second quarter was significant.
ICX, we have not launched yet.
So ICX we are only doing the development activities at the moment.
As of now there is no revenue except for the treasury income, which is very small.
When ICX operations might be expected to get commenced.
Satyanarayan Goel
ICX, I think will need some more time because Government is also coming out with their CCTS which is the Carbon Credit Trading Scheme and there are some changes, what we are expecting with respect to the mandatory and compliance market.
So, we are analyzing all that and then we will launch it after analyzing all these things.
Just one more clarification Sir, so this ICX would have voluntary and involuntary both the credit markets right.
Satyanarayan Goel
Compliance market will be operated by IEX, basically that will be regulated market, regulated by CERC.
So, all CERC regulated exchanges will be able to offer the compliance market of carbon credit.
As far as voluntary market is concerned, there is no clarity about that.
Our intention is to launch ICX, international carbon exchange, for the voluntary Indian Energy Exchange Limited November 03, 2023 market, so that we are able to get the voluntary market share but whether that market also will be regulated or not, still the clarity is yet to come on that.
All right thank you so much I wish you all, all the best for the coming quarters.
Thank you and have a good day.
Moderator · Conference Operator
Thank you.
The next question is from the line of Arul Selvan from Independent Advisor Private Limited.
Please go ahead.
Arul Selvan
Hi, Good Afternoon.
I just have a few questions.
The first question here is regarding the market share of IEX in the different segments.
I believe, the slide in the PowerPoint presentation which had all these market shares was not given this time.
So, could you please help with that?
Satyanarayan Goel
Okay what else.
Arul Selvan
The next question here is just one question about this relationship between the high-priced power and bilateral trades.
So could you please help me understand what is the incentive for the parties to transact in the bilateral markets when prices go to double digits on the exchange?
Those are my two questions.
Satyanarayan Goel
Let me tell you about the market share.
In the collective transactions which is our Day- Ahead market and the RTM market our market share continues to be almost about 99.9%.
Long duration contracts which are daily, weekly and monthly contracts our market share is almost about 55% and in Day-Ahead Contingency market, the market share is close to 40%.
And with the implementation of this GNA, the DAC volumes are expected to go down.
So overall market share will improve.
Arul Selvan
Have they gone down in the month of October, the total volumes of electricity created on the DAC versus…
Satyanarayan Goel
You are right that volumes traded in the month of October have significantly gone down with respect to September.
I believe in the month of September the average daily volume was close to 50 and it was close to 25 in the month of October.
In the month of November, I am sure what is happening is hardly in the single digit DAC volumes are happening now.
Your second question was about bilateral transactions at HP-DAM market.
Arul Selvan
Right.
Indian Energy Exchange Limited November 03, 2023
Satyanarayan Goel
This HP-DAM market transactions will happen mainly when the crisis is there and the coal- based power plants are not able to meet the demand.
So, if you have to get the power from the gas-based power plants where the cost of generation is something around Rs.13, Rs.14, Rs.15.
So, we are not seeing much transactions in that market because distribution companies are not willing to buy power at that high price.
But when there is a crisis, very high demand, there is a tendency on the part of distribution companies to purchase power in the bilateral market even by paying slightly more premium, so that they are assured of power supply, because on the exchange platform if they are purchasing power in the Day- Ahead, in the RTM market then they are not very sure whether on that particular day will they be get the power or not.
So that is why we have seen in the past also, whenever the demand is very high, the bilateral transactions increase.
And now for the month of November, December, January, February when the volumes of demand is slightly lower with respect to the summer months, the bilateral transactions will go down.
Arul Selvan
I am a little bit surprised you are saying that when the prices are high the DISCOMS are not willing to purchase on the exchange because there is no certainty that they will receive the electricity is that the case.
Satyanarayan Goel
Yes, see when the price is high, it means that the demand is high, and supply is not commensurate with the demand.
That is a high demand period and during the high demand period some of the DISCOMS who want to ensure 24x7 power supply and who want to purchase power at any cost they pay premium over the market price and purchase power in the bilateral transaction.
Arul Selvan
No, the only question I am wondering here is, is there a material difference between the high price segment which we have launched recently and the bilateral market?
Is there a difference in terms of the availability of power or the ease of convenience or on the transaction charges?
I am just trying to understand in what way is the bilateral market better than the exchange market?
Satyanarayan Goel
See the point is, let me first clarify one thing that on the exchange platform we have also bilateral contracts.
These contracts are for weekly, fortnightly, monthly basis for delivery of power up to three months.
But in all these contracts the ceiling price is Rs.10.
If somebody wants to buy power if he is not able to get power within that, if he wants to buy gas-based power then he will have to go to the HP-DAM market.
Whereas in the bilateral transactions even the coal-based power plant, domestic coal-based power plants also supply power and the rate should be Rs.7, Rs.8, Rs.9.
So bilateral transactions there is no segregation of HP- DAM market, high price market or the normal market.
Indian Energy Exchange Limited November 03, 2023
Arul Selvan
Right, I understand.
Ok.
That is it for now.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Viraj Mithani from Jupitar Financial.
Please go ahead.
Viraj Mithani
Good Afternoon Sir.
I have three questions.
My first question is on carbon exchange.
When you talk about this international trading on the carbon exchange, what would be the benchmark we would be using, would it be a Paris based benchmark or the US based any thoughts on that?
And can you give more color in terms of the volumes we can attract in days to come since we have signed this 2030 Paris Accord and world is going green that is my first question?
My second question, is suppose if the coupling is implemented then what are our plans to mitigate that and how are we getting prepared for that?
And my third question is how are we placed against the competition?
That is it from my side.
Thank you and all the best.
Amit Kumar
On the international carbon exchange, as you mentioned that we intend to operate it in the voluntary carbon market and the way in the voluntary carbon market the trade happens is that there are global registries which are available, like Verra, Gold Standard which basically register projects and they certify projects for issuance of carbon credits.
And those carbon credits which get issued by these global registries Verra and Gold Standard and there are few other registries as well.
They are basically then eligible for trading in the voluntary carbon market.
So, basically once we commence our operations, we will have integration with these registries so that the project developers whose projects are registered for credit issuance they will be able to list those credits for sale on our platform and the buyers who want to buy these carbon credits to do offsets, they will come and buy these credits from our exchange platform.
So that is how, basically the voluntary carbon market operates, and that is what we intend to tap in from an international perspective.
Viraj Mithani
What will be the benchmark like, would it be based on certain benchmark right, either by the Paris or the US or India or something?
Amit Kumar
The registries for different projects they have the methodologies defined.
So, like for forest projects, Verra will have a methodology defined.
The projects, let us say, there is a forestry project that meets the requirements of the methodologies that are defined within Verra, those projects once they apply for registration, Verra will approve those projects.
So each registry for different types of project.
Because carbon credit is a heterogeneous commodity, there are different types of like you have nature-based carbon credit, cook stove, then you have carbon credit from renewable.
So for cook stove there is a set of methodologies that each registry will define.
Now project, for it to be accepted for approval for credit issuers, Indian Energy Exchange Limited November 03, 2023 they have to be aligned to the methodology that registry defines.
So that is how basically the credit issuance, and the project approval works in the voluntary carbon market.
Viraj Mithani
The other two questions.
Satyanarayan Goel
Can you repeat the question please.
Viraj Mithani
My next question was if the coupling is implemented how are we prepared to mitigate that issue?
Satyanarayan Goel
First of all implementation of coupling itself is doubtful, no view has been taken by the CERC so far.
And we do not think based on our interactions that coupling is going to get implemented.
In any case, I mean, I respect your question, if coupling is implemented, we are already working on different strategies to create a strong customer connect and you must have seen that in the last two, three years we have done lot of development in our technology platform also.
We have a strong integration with our customers to the API system and we are also providing value added services to our customers, the data analytics which we are providing.
I think all these things are giving lot of value to the customers and the relationships which we have built with the customers over the last 15 years I am sure with all that we should be able to maintain our market share.
Viraj Mithani
How are we placed against the competition?
I guess we are the largest exchange so far right.
Satyanarayan Goel
Yes.
Viraj Mithani
How are we placed?
Are the competitor gaining more grounds against us.
So, we are still performing better than them, if you can give some light on that, color on that.
Satyanarayan Goel
As far as the collective transactions are concerned, which are the flagship transactions in any exchange platform which is Day-Ahead market and Real Time market in these two segments our market share is 99.9%.
And if you look at the volume in these two segments it is almost about 75% of the total volume happening on the exchange platforms.
So, in this 75% volume our market share is 100% you can say.
So rest of the 25% which is consisting of DAC market, TAM market, Certificate market, all these things our market share is close to 40%-45% so you can say as of now our market share is about 85%-86% but going forward it should improve further.
Viraj Mithani
Thank you sir and all the best to you.
Indian Energy Exchange Limited November 03, 2023
Moderator · Conference Operator
Thank you.
The next question is from the line of Devesh Agarwal from IIFL Securities.
Please go ahead.
Devesh Agarwal
Good Afternoon Sir and thank you for the opportunity.
My question is around the supply side.
You did mention that supply is likely to improve going ahead, but I just wanted to understand better in terms of what is giving you that comfort?
And secondly given that we would be entering into State elections and then Union election wouldn’t SEBs be wanting to sign short-term bilateral contracts to ensure that the supply is intact during this election period?
Satyanarayan Goel
Yes, I mean, liquidity as of now in the market is very good.
We are getting every day close to 300 plus MU on the sell side whereas demand is only for about 200 MU, 225 MU and so there is more sell available than the buy requirement and I am sure this situation is going to continue for the next 3-4 months.
From March onwards when the election fever will catch up some of the DISCOMS may get into a bilateral mode because this is a very politically sensitive issue.
So, it is very difficult to make any comment on that, but yes some of the DISCOMS may get into bilateral contracts also.
Rohit Bajaj
We have more offerings, they can tap them to buy power for up to three months now and going forward we will launch up to 11 months also since the GNA has been implemented and short-term contracts are allowed and can be done up to 11 months.
So we will get approval and we will launch 11 month contract also.
So we are also gearing up for this, we also understand there would be some tendency among some of the distribution company to source power under bilateral and since we have an offering now, earlier days we had only TAM which was up to 11 days so situation is a little different and we are gearing up to compete with other bilateral contracts.
Devesh Agarwal
Just to understand better you did mention that in the LDC market in the first half we did 3.6 billion units.
So if you were to divide this in one month or 3 month contract where are we seeing most of the volumes coming, where is the concentration of volume?
Is it in like 10 day, 15 day contracts or one month or three months?
Rohit Bajaj
So, today the concentration is up to one month, but recently or lately I would say we have started seeing some activity in the second month also.
So, if I talk about H1 it was majorly first month, but now some transactions are happening for December, January also which means that it has extended to second also and going forward we will add some more months, it would be third, fourth and hence… .
Devesh Agarwal
By when do we intend to increase the tenure?
Indian Energy Exchange Limited November 03, 2023
Satyanarayan Goel
We will be filing our petition with CERC in the next 10-15 days for offering long duration contracts for delivery up to 11 months and CERC normally takes about 2 months’ time to approve that.
So hopefully by end of December we should have approval and from 1st of January we should be able to launch this contract for delivery up to 11 months.
Devesh Agarwal
Understood.
Sir, any recent bilateral agreements that have been signed if you can give some sense of what is the price that is being discovered in the bilateral market versus the price that we see on the exchange platform?
Satyanarayan Goel
See one thing is prices in the bilateral contracts are definitely more than the prices on our DAM market, DAM or RTM market.
So that is why people only go to the bilateral contracts when there is a crisis, and they want to just ensure availability of power at any cost.
There are many instances where distribution company purchase power in the bilateral market at a higher price and on the real time basis.
Because of seasonal variations demand in that particular case was lower and they ended up in selling power on the exchange platform at a lower price bought at a high price in the bilateral and sold at a lower price in the Day-Ahead market or RTM market.
So distribution companies are also realizing it now, that too much of reliance on the bilateral market is not desirable and they are contracting maybe certain minimum contract based on their demand and supply projections.
Devesh Agarwal
The final question from my side.
This Government has extended the Section 11 until June 2024.
So does this scenario in any way help or hurt us in terms of volume?
Satyanarayan Goel
See Section 11 extension up to June 2024 will definitely ensure increased availability of power in the market and if there is increased availability of power in the market, then desperate situation will not be there.
Rohit Bajaj
It is good for the sector, it is good for exchanges because overall liquidity on the sell side will improve and we would be able to, or together all of us would be able to meet the demand.
Devesh Agarwal
Understood, thank you so much.
Those are my questions.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Mr. Nikhil Abhyankar from ICICI Securities.
Please go ahead.
Nikhil Abhyankar
Good Afternoon Sir, thanks for the opportunity.
Sir, can you just brief us on what product additions are we looking at in the next 6 to 12 months?
Indian Energy Exchange Limited November 03, 2023
Satyanarayan Goel
See in the last two years we have added many products and we did RTM market then we launched green market, Green Term-Ahead, Green DAM, now HP-DAM, HP-TAM.
HP- TAM also was introduced in the month of October.
So and now we are going for the long duration contracts for delivery up to 11 months that is also expected in the next two, three months’ time.
So, I do not think you can add new products every two months.
There is a limit to that.
Only thing is whatever new products were introduced we have to bring more liquidity in those products.
Green products, Green DAM and Green TAM market, there the volumes are still not significant.
I mean, I think combined volume in a year is almost about 8 to 9 BU.
So we have to bring more liquidity in the green market.
Lot of activities are happening in that.
So we are working with the generators, we are working with the States also, how to bring more liquidity in this.
With Government also we are doing the policy advocacy with the Government.
Government has allowed that you can purchase up to 5% of the power in a contract to meet commitment from the green market.
All this and they are also working on the CFD contracts for the green market, virtual power purchase agreements are also now becoming popular.
So all these initiatives are being taken to bring more liquidity in these markets.
Nikhil Abhyankar
Is there anything around power derivatives, electricity derivatives?
Satyanarayan Goel
Power derivatives should be launched on the exchanges which are regulated by SEBI that means MCX or NSE or BSE.
So, there is a Committee which is working on this and I think they have still not come to a conclusion of launching derivatives at this stage because volatility in the market is too high at the moment.
Nikhil Abhyankar
You mentioned that LDC volumes are high in the past three, four months and once we get the approval of LDC for 11 months can we expect a large part of the bilateral contracts will shift to us.
Satyanarayan Goel
Should shift, yes, that is our effort.
That is the intent with which we are going to offer this contract.
And we will start interacting with the distribution companies and generating companies to ensure their participation in those contracts.
Nikhil Abhyankar
Final question we have around 1,400 Crores of cash on our balance sheet, investments and cash.
So, can we expect more buybacks going ahead?
Satyanarayan Goel
We will take a call on that - whether buyback or dividend.
We have a policy of rewarding our shareholders and we give almost more than 50% of the profit in the form of dividend or buyback.
So, we will continue to do that.
Indian Energy Exchange Limited November 03, 2023
Nikhil Abhyankar
Okay thank you that is all from me.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Jiten Rushi from Axis Capital.
Please go ahead.
Jiten Rushi
Good Afternoon Sir, thank you for taking my question.
My first question is on e- certificates.
So the cycle two is over in October, we have seen volumes coming off significantly.
So we expect the cycle over for this year and when can we expect the next cycle to begin?
Satyanarayan Goel
Yes, cycle 2 is over now and we have to now wait for cycle 3.
Jiten Rushi
That will be in next three years right.
Satyanarayan Goel
It depends on when BEE notifies that.
Yes, we are expecting next year.
Jiten Rushi
On the LDC just want to reiterate you said volumes in LDC in October is almost 1.7 BU.
Satyanarayan Goel
Yes.
Jiten Rushi
Okay that is from my side sir.
Thank you and all the best.
Wish you happy Diwali.
Thank you.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Amey Kulkarni from Candor Investing.
Please go ahead.
Amey Kulkarni
Hi, Good Afternoon.
I had a couple of questions.
We had this proposal for Gross Bidding and we had also submitted a petition to CERC sometime in 2021.
Is there any rethinking/update on this issue and what is the progress with the Transmission System Operator for the gas sector?
Just one or two more questions, is there any update on the renewable contract by using the strike price which we call a contract for difference?
Thank you.
Satyanarayan Goel
First one is on the Gross Biding.
See Gross Bidding is basically optimization by distribution company.
And this concept is more relevant when the prices are competitive in the range of maybe Rs.3.5 to Rs.4 but since the last two years our prices have been around Rs.5, so there is not significant opportunity from Gross Bidding at the moment.
In any case, the new GNA regulations and Sharing of Transmission Charges Regulations which have been issued by the CERC, under those regulations, now Gross Bidding it can be implemented.
You do not need any separate approval for the Gross Bidding.
It can be implemented by the distribution Indian Energy Exchange Limited November 03, 2023 company very effectively and many of the distribution companies are already doing it.
See there is no extra payment to be made by a distribution company for sale of power on the exchange platform now.
Suppose, a distribution company has got a PPA with a generating company and under that PPA they have power available and they do not need that power, they can schedule that power in the morning hours, submit bid on the exchange platform based on the variable cost of that, if that power is cleared they can continue with the schedule and if the power is not cleared they can revise the schedule of the generator on the lower side.
So, all these flexibilities are there, there are no transmission charges to be paid for sale of power and no losses are accounted for that.
So that flexibility what we were looking for under the Gross Bidding petition that has been already provided by CERC in the GNA and Grid Code - all these new regulations which have been implemented now.
And we find there are states like Punjab, MP, Haryana, Maharashtra, many of these states are submitting bids there for purchase of power and sale of power both and that is basically with the intent of doing optimization in their power procurement cost.
So, we are working with the States now that how they can use the GNA provisions to effectively implement, I mean, not Gross Bidding, but you can optimize your cost now, which was the intent of the Gross Bidding.
Second question was on the gas system operator, yes, I mean, Government in fact had mentioned in many of the forums that they are going to create gas system operator but as of now nothing has happened much on that and your third question was about?
Amey Kulkarni
CFD.
Satyanarayan Goel
Yes, CFD contracts.
Yes I mean this issue is under discussion.
What I will say that final stage of approval but only they are looking at taking a view that if at all there is a gap in the contracted price and the market clearing price, how to fund that, so once they decide about that they will approve that contract.
Otherwise, all other modalities are already discussed and finalized.
Amey Kulkarni
So just one last point, the distribution companies when they buy under the LDC contract, the long duration contract.
Suppose we extended to say 11 months, do the distribution company need approval from the regulator for the prices discovered in these contracts or because they are traded on the exchange regulatory approval is not required?
Satyanarayan Goel
Yes, for the LDC contracts they normally take approval from their respective State Regulatory Commissions.
Amey Kulkarni
Before bidding itself.
Indian Energy Exchange Limited November 03, 2023
Satyanarayan Goel
In many of the States they have given certain limit up to this price they can i.e. distribution company can purchase the power, but if the price is more than that they can take the approval and such approvals do not take much time because the regulators are also aware about the market condition.
Amey Kulkarni
Okay thank you so much.
Moderator · Conference Operator
Thank you.
The next question is from the line of Dhruv Muchhal from HDFC Asset Management Company.
Please go ahead.
Dhruv Muchhal
Thank you so much.
I had just one question.
Somebody who is a buyer who is buying from the exchange, green products, does he have to pay transmission charges or that is also waived for the buyer?
Satyanarayan Goel
As per the new GNA regulations sellers whether they are from green plant or whether they are from the coal-based power plant, no seller is required to pay any transmission charges.
Dhruv Muchhal
And Sir, buyer?
Satyanarayan Goel
Transmission charges are to be paid by the buyer only.
In case of green power, for the projects commission up to 2025 even the transmission for the buyer also is waived off.
Dhruv Muchhal
But the buyer is generally, say, for example some third party or somebody see if I am trying to understand if somebody selling in the merchant market then?
So green market would be merchant market that way.
Satyanarayan Goel
No, I think it is for the projects which are under the PPA note.
Dhruv Muchhal
For the green products that we have, the buyer has to pay transmission for that?
Is the transmission charge exempted for the volumes that you do on exchanges?
Rohit Bajaj
So for exchanges also it is exempted but the problem is it is not yet implemented we expect going forward very soon this will be implemented and then it will be waived off to begin with.
It is easier to implement that for bilateral contracts, but through exchanges it is a little difficult for collective, but eventually in months to come it should get implemented.
Dhruv Muchhal
So it is a clarification which probably or some modification that we will be seeking and once that happens it will be helpful.
Rohit Bajaj
Absolutely.
Yes.
Indian Energy Exchange Limited November 03, 2023
Dhruv Muchhal
Thanks so much and all the best Sir.
Moderator · Conference Operator
Thank you so much.
We would take that as our last question, I would now like to hand the conference over to the management for closing comments.
Satyanarayan Goel
Thank you friends.
I would like to thank each one of you for being part of today's call.
During the quarter we have witnessed a lot of initiatives announced by the Government and the regulators towards creating a favorable policy and regulatory environment to transform the energy sector.
We remain committed in doing our bit towards building a sustainable and efficient energy future.
Have a great evening.
Thank you very much and a Happy Diwali.
Moderator · Conference Operator
Thank you.
On behalf of Axis Capital Limited that concludes this conference.
Thank you for joining us and you may now disconnect your lines.