“Power transactions have seen a steady increase”: Interview with PXIL’s Prabhajit Kumar Sarkar

Interview with PXIL’s Prabhajit Kumar Sarkar

Power Exchange India Limited (PXIL), promoted by the National Stock Exchange and the National Commodity and Derivatives Exchange, provides innovative and credible solutions for the power market. The exchange plans to launch new products such as an integrated day-ahead market, hydro contracts, weekly uniform price contracts and ancillary service market contracts to help market participants. In an interview with Power Line, Prabhajit Kumar Sarkar, chief executive officer and managing director, PXIL, discusses the performance of the exchange, the key operational highlights and focus areas for the future…

How has been the performance of PXIL over the past few years in terms of trading volumes and prices?

The volume of power transactions on PXIL has seen a steady increase over the past three years. In financial year 2020-21, the company witnessed the highest revenues since its inception. The total transaction volume on PXIL was 5,705 MUs, which was more than double the volumes transacted during 2019-20, which, in turn, was double the transaction volumes during 2018-19.

The previous year saw the renewable energy certificate (REC) market on the exchanges being closed for a major part of the year due to an ongoing legal issue among market participants. Despite that, PXIL has been able to increase its physical transaction volumes substantially to ensure a share of more than 60 per cent in the term-ahead market.

The term-ahead market, through its transparent market structure, has allowed for competition and consequent innovation to thrive. Several entities from across the country have traded actively on the PXIL platform on a variety of contracts that make power transactions easy, efficient and, most importantly, transparent.

What have been PXIL’s key business and financial highlights over the past year?

Over the past three years, PXIL has doubled its trade volume on a yearly basis. During the past year, due to the Covid-19 situation, the country witnessed the shutdown of almost all economic activity along with travel restrictions in all parts of the country during different time periods.

Despite these constraints, PXIL provided uninterrupted services to all its customers during this period. The exchange was and is committed to supporting its customers and providing assistance in alleviating these difficulties. We have implemented measures and processes to ensure business continuity and provide adequate service to our customers. Our customers reposed faith in PXIL’s processes and systems by doubling the business volume.

Over the past year, PXIL has increased its revenues substantially and has been consistently profitable, ensuring that all its regulatory milestones related to net worth were fully met. In fact, PXIL’s performance trajectory has ensured that the higher net worth requirements imposed by the new Power Market Regulations, 2021 will be met within the given time frame.

What has been the response to the company’s technology-based trading platform PRATYAY?

We have received an overwhelming response from market participants during the previous year. Our PRATYAY trading system was introduced on January 20, 2020. During the year, several new user-friendly features were introduced such as continuous matching, green term-ahead market (GTAM) contracts, RTM, GST modules and trade information reports for the benefit of members, clients, etc.

PXIL brought several innovative elements of contract design to the market in a short time, including dynamic and static continuous contracts in the term-ahead market, which help participants place their orders with greater clarity and efficiency. This was possible due to the flexibility and modularity of PRATYAY.

In all, with its anytime-anywhere access philosophy and ability to introduce new functionalities and features as per the requirements of the market, PRATYAY is playing a critical role in serving the market demand in a better and more time-bound manner.

What are your views on the GTAM and RTM? How have they benefited market participants?

The RTM is a significant change in the dynamics of the power market in our country. It is designed as a half-hourly market, comprising 48 auction sessions of 15 minutes each. The auction sessions are conducted during even time blocks of the hour with delivery to commence one hour after the closure of the auction session.

With RTM, both sellers and buyers get an opportunity to continuously manage their portfolio optimally through a transparent and efficient marketplace. The RTM is designed to help distribution companies and generators to trade power with greater flexibility on the power exchanges just one hour before the actual. Since the RTM market operates on a “collective matching” mechanism, the implementation of market coupling as envisaged in the Power Market Regulations, 2021 would ensure that competition thrives and market participants are benefited.

The CERC approved the introduction of GTAM on PXIL on March 19, 2021 and PXIL introduced intra-day and any-day contracts for transacting in solar and non-solar renewable energy on March 24, 2021.

The GTAM contracts are utilised by buyers to fulfil their renewable purchase obligation (RPO) targets during the year. The large-scale capacity addition in the renewable energy sector, along with ease of transaction on the exchange platform, provides an excellent avenue for participants to transact in renewable energy.

What are PXIL’s focus areas for the future?

During the year, we expect new products like integrated day-ahead market, hydro contracts, weekly uniform price contracts, ancillary service market contracts and market-based economic despatch to be introduced.

Through these contracts, we want to help market participants achieve better portfolio management outcomes for themselves as well as for their final consumers. In addition, we expect the power exchange to play a critical role in supporting the national goal of enhanced renewable integration through market-based mechanisms.

What is your outlook for trading volumes and prices at the exchange for the next two years?

The policy measures taken by the Ministry of Power (MoP) for deepening and strengthening market-based transactions are expected to enhance trading volumes on the exchange platform. The introduction of new products, revamping of the REC mechanism and early resolution for the introduction of forward contracts will help the power exchanges in enabling transparency of transactions.

On the price front, PXIL ensures a transparent and efficient price discovery. The market clearing price is solely dependent on the orders placed by buyers and sellers on the exchange platform at different times of the day and during various seasons. Since the prices are an outcome of the orders placed by market participants, PXIL focuses on ensuring transparency in price discovery rather than indulge in marketing of prices.

What is your outlook for the power sector for the next two to three years and the role of exchanges in it?

The power sector is undergoing transformation due to the increased use of new technologies and rapid digitalisation. Renewables, storage, distributed generation and electric vehicle integration are the new areas of research and investment. In the foreseeable future, we expect a significant increase in digital transactions and introduction of many new products with the deepening of the power markets.

The reforms directed towards deepening the markets are likely to result in a surge in liquidity on the exchanges. Recently, the exchanges have introduced real-time and green energy contracts. In the near to medium term, new products under categories such as integrated day-ahead market, hydro contracts, revamped REC mechanism, ancillary services market, market-based economic despatch and longer tenure contracts will be traded on the exchanges. These products will add diversity and scale to the existing offerings of the power exchanges.

The expanding role of power markets will go a long way in addressing the issues of clean, reliable and quality supply to consumers at affordable costs.