PXIL: Leveraging technological innovation in power trading

Leveraging technological innovation in power trading

Launched in October 2008, power Exchange India Limited (PXIL) is India’s first institutionally promoted electronic power exchange for power trading.

Promoted by the National Stock Exchange of India Limited (NSE) and the National Commodity & Derivatives Exchange (NCDEX), PXIL has been facilitating trading of electricity at the national level with users ranging from state utilities to state procurement agencies, industrial consumers, independent power producers as well as captive power producers. It has enabled participants to manage their consumption and generation through effective product portfolio management. PXIL’s other shareholders are the Power Finance Corporation from the central sector; Gujarat Urja Vikas Nigam Limited,  M.P. Power Management Company Limited and West Bengal State Electricity Distribution Company Limited from the state sector; and Tata Power Trading Company Limited, GMR Energy Trading Limited and JSW Power Trading Company Limited from the private sector.

Recently, in January 2020, the exchange launched a new technology-enabled trading platform, PRATYAY, which is expected to allow greater participation in trading on the exchange and improve the customer experience. According to Prabhajit Kumar Sarkar, managing director and chief executive officer, PXIL, “PRATYAY is the tangible outcome of an intense consultative process encompassing all stakeholders in the sector, which has resulted in a platform that permeates all forms of transactions in the power markets. The power markets in our country are fast evolving, with transactions expected to span durations of a few minutes to a few months and years. PXIL is ready to support and work with all the participants in the power markets to help them best fulfil their electricity requirements.”

Products and offerings

The contracts listed on PXIL are divided into two broad categories-physical and certificate. The physical delivery category is further classified into collective and bilateral. The collective segment consists of day-ahead spot (DAS), which has now been relaunched, and the real-time market (RTM), which is likely to start soon.

Under the bilateral segment, the products are day-ahead contingency (DAC), intra-day (24×7), weekly and any day. The certificate category includes renewable energy certificates (RECs) and energy saving certificates (ESCerts).

Under the DAS product, a member can bid for any or each 15-minute time block as required. The DAS auction is applicable for all 24 hours of the following day.

Trade under DAC is open every day (currently from 3 p.m. to 5 p.m.) after the closure of the DAS auction. This provides market participants another opportunity to balance their portfolios closer to real time. Under DAC too, members can trade for the delivery of electricity for 24 hours of the next day. A member can bid for hourly contracts.

The intra-day product allows participants to trade electricity for the same day and the next day. Power procured through the intra-day product allows market participants to manage contingent spikes in demand and supply that are unforeseen within a day or on a day-ahead basis. This brings the participants much closer to the real-time delivery of power in an organised way without the deviation settlement mechanism.

Under the weekly product, members can trade electricity for the whole delivery week (as defined by the exchange from time to time), which is currently from Monday to Sunday. Members can bid for a block of hours (fixed) as specified by the exchange from time to time.

Under the any-day product, participants are allowed to trade electricity for a single day or multiple days up to 11 days in advance. They can place bids for a block of hours as specified by the exchange from time to time. The any-day contract allows participants to deal with daily or the contiguous day’s requirement.

RECs are market-based instruments that representthe environmental attribute associated with power generated from renewable sources. These certificates are tradable and hence have a market-discovered price. These certificates can be purchased by entities to meet their renewable purchase obligations. There are two types of RECs, solar RECs and non-solar RECs. Both these certificates are separately traded and priced. They are traded within the price band determined by the Central Electricity Regulatory Commission (CERC) from time to time. Meanwhile, ESCerts are certificates traded on the power exchanges to facilitate the implementation of the Perform, Achieve and Trade (PAT) mechanism targets.

Volumes and price trends

According to the CERC’s annual market monitoring report, during 2018-19, PXIL’s trading volumes in the day-ahead market (DAM) and term-ahead market (TAM) segments stood at 0.09 BUs and 1.26 BUs respectively. During 2018-19, the weighted average price of total electricity traded at PXIL was Rs 4.29 per kWh. Almost 55 per cent of the volume of electricity that was transacted through PXIL was at less than Rs 4 per kWh and 90 per cent of the volume was transacted through PXIL at less than Rs 6 per kWh.

The exchange had 588 open access consumers in 2018-19, according for 16 per cent of its total portfolio. These consumers procured 21 MUs of electricity and were located mostly in Tamil Nadu, Gujarat, Punjab, Chhattisgarh and Karnataka. The weighted average price of electricity transacted by open access consumers was Rs 3.27 per unit. Further, in the REC market,  around 2.53 million solar RECs were traded during 2018-19 at a weighted average price of Rs 1,067 per MWh on PXIL’s platform. Also, 1.07 million non-solar RECs were traded at a weighted average price of Rs 1,274 per MWh.

PRATYAY trading platform

PXIL’s earlier platform, ENTRIM, had been serving the market since its inception but some technologies were not supported by it. Therefore, PXIL has now unveiled a new technology-based trading platform, PRATYAY, with several innovative and unique features, which went live on January 20, 2020.

The new service provides a single platform for all segments and offers hassle-free migration from a thick client-based solution to a complete web-based solution with many other benefits. Before the launch of PRATYAY, PXIL held various mock sessions for smooth enablement of this trading platform.

PRATYAY has a user-friendly approach and includes features such as auto updates at the user end, web browser operations, ease of exporting and printing reports, and a smart user interface. The technologically advanced platform helps eliminate participant-driven updates on their PC such that no action is required on the client’s end. The client gets the benefit of revised features and functionalities as and when an upgrade is available.

PRATYAY also contains modules for risk management as well as for clearing and settlement. It enables stage-wise risk management and margining, which allows payment security and trade margins to be applicable based on the status of the order, transaction, clearance and settlement. This allows more efficient capital deployment by participants for their trade and reduces the cost of working capital for them while maintaining the underlying security of financial settlement during power exchange transactions.

The contract creation modules, matching algorithms and a robust yet flexible database structure help reduce the time to introduce any new contract or functionality as may be required for the development of the market.

PRATYAY is also capable of handling RTM and cross-border trading. PXIL is currently waiting for the Central Electricity Authority to release the guidelines or standard procedures for RTM and cross-border trading. RTM will allow consumers, including discoms and captive users, to buy power through the exchanges just one hour before delivery. Besides getting ready for RTM and cross-border trading, PRATYAY is also expected to help PXIL improve its share in the DAM, TAM and certificate sales (green certificates and energy saving certificates) space, the company notes.

The way forward

Once declared an unprofitable company with a severely eroded net worth, PXIL today has become a profitable, zero-debt company. With years of effort and product innovation, the exchange has revived its operations, retained and increased its member base and ensured the profitability of its business.

Overall, PXIL is optimistic about the growth of the short-term power market. “The short-term market accounts for around 4 per cent of the total electricity generation in the country. We believe that it is set to grow with the regulatory and policy push taking place in the sector, especially with the launch of the real-time market and the cross-border trading mechanism. Moreover, with the resolution of jurisdiction issues between the CERC and the Securities and Exchange Board of India, longer-tenor contracts would be launched as well through the exchange platforms. Taken together, this will help grow the trading taking place through the power exchanges,” notes Sarkar.

PXIL is confident that PRATYAY will prove to be a game changer in the power market while meeting the existing and emerging needs of the sector. As Sarkar notes, “For us as an exchange, the technology platform is of paramount importance. PRATYAY has scalability, modularity, configurability and flexibility as the fundamental bedrock on which the entire technology platform rests.”