“Short-term trading will gain importance”: Interview with HPX’s Akhilesh Awasthy

Interview with HPX’s Akhilesh Awasthy

In a recent interview with Power Line, Akhilesh Awasthy, chief operating officer, Hindustan Power Exchange Limited (HPX), spoke about his perspective and outlook on the power trading sector. He spoke about the company’s performance, deployed technology, vision and future plans. Excerpts…

What is your perspective on the power trading scenario in the country?

The Indian power sector is on the cusp of a massive energy transition, wherein the share of renewable energy is steadily rising in India’s power generation mix. As dependence on renewables such as wind and solar will gain traction, short-term trading will also gain importance, giving more options to both buyers and sellers. Currently, the power exchange platform provides various product segments such as green day-ahead market (GDAM), green te­rm-ahead market, and renewable energy certificates for the trade of green power, thereby providing the required flexibility to market participants. The power exchanges have made the market more competitive and flexible, and utilities are understanding its importance as well.

In India, state utilities and producers en­ter into long-term power purchase ag­ree­ments (PPAs) for the trade of power. The PPAs do not provide enough flexibility to sector participants to take advantage of changing market situations. Pow­er exchanges, meanwhile, allow different avenues for participants to buy/sell power in the form of multiple market segments. The need of the hour for all participants is to maintain a judicious mix of long-term commitments and short-term opportunities.

For a country like India which is fast emerging as a global superpower, it is crucial to ensure the best possible utilisation of the energy generated for economic resilience. Power exchanges definitely have a pivotal role to play in this.

What has been the operational performance of HPX in terms of trading volumes and prices since the commencement of its operations?

  • HPX initiated trading on its platform on July 6, 2022, with the day-ahead contingency and intra-day segments. In September 2022, weekly and daily term-ahead contracts were launched.
  • HPX has traded a cumulative volume of about 800 MUs in a very short span of time since its launch. Higher volumes are expected in the coming months, as just about all generators, discoms (government and private) and traders are already on board with HPX as members/clients. In terms of numbers, we have around 350 members and clients already registered on HPX. These players together contribute 75-80 per cent of the power trade on all power exchanges as of date.
  • The peak volume achieved at HPX sin­ce the commencement of operations stands at 22 MUs, with a daily average volume of about 8 MUs.
  • HPX conducted its first weekly trade in the first week of November 2022, and is set to secure more term-ahead market (TAM) volumes on its platform in the coming months.

What technology is the company using?

HPX aims to promote market efficiency through advanced technology and maximise value for the power market. HPX’s technology includes an upgraded matc­hing engine that is in line with one of the most advanced European models. The technology offers all relevant applicatio­ns, such as a trading platform; a matching engine; a collateral, clearing and settlement system; and a risk trading management system, in an integrated manner. It provides a quicker response to the end client. The technology provides us­er-based bidding access rights, enabling members to use a single platform for tra­ding. Users need not create separate platforms for every client.

Members and clients can use technology platform of the exchan­ge to ensure transparency in price discovery. It also offers the flexibility to initiate power trading from any geographical location. The ex­change has a high-end mixed integer linear programming-based matching engine for the day-ahead market, GDAM and real-time market (RTM) segments, ensuring maximum welfare.

The user interface is designed in such a way as to provide a seamless experience of participation in the various product segments (integrated day-ahead market/RTM/TAM) without any complexity. The exchange also uses online surveillance tools to maintain market integrity and avoid market abuse. The exchange platform has created a robust risk management system that ensures an easy clearing and settlement process, and adequate margin assurance.

The cutting-edge technology, solution-efficient price discovery mechanism, and quality of service offered at HPX act as its differentiators in the Indian power market.

What are HPX’s focus areas and vision for the future?

The aim of HPX is to provide a push to the development and progress of spot trading in electricity over a seamless platform led by speed, efficiency and transparency in power trading. Also, with more renewable power coming to the country in the future, with a lot of it being in the captive and merchant modes, increased spot trades are expected to happen through power exchanges. Therefore, HPX is inclined to provide renewable energy-centric products th­rough its platform, thereby providing a great avenue for market participants to trade green power.

What is your outlook on the power trading ma­r­ket, volumes, prices, etc. in the near to me­dium term?

The short-term market in India is expec­ted to grow at a good pace in the coming few years. This growth shall be defined by a variety of factors, including the economy’s continued digitalisation, climate change, renewables and declining thermal fleets. These elements, working together, will change the likelihood and potential consequences of electrical supply disruptions.

While most of the power supply for power utilities is tied up in fixed long-term PPAs, pressure is slowly building up within the sector to look at more options for flexible contracts of different tenures. This is also a result of the huge renewable energy capacity addition that has taken place in the country, where the project life is relatively shorter (15-20 years). To fulfil a longer-term obligation of 25 years (as per the PPA), the underlying asset would need to be changed during the course of the contract, which was not the case with thermal or hydro projects that were prevalent in the recent past.

We have witnessed a shift in trend whereby traditional supporters of long-term contracts are shifting to short-term markets and power exchanges in particular, which provide a more real-time flavour to the entire procurement process.

We feel that this trend would continue and more procurement would happen through longer duration tradable contracts over power exchanges, compared to fixed long-term legacy contracts.

The total traded volume across power exchanges in 2021-22 stood at 101.45 BUs, as compared to 79.59 BUs in 2020-21, indicating an increase of 27.46 per cent. With HPX also commencing operations, we can expect the volumes to go higher still in 2022-23.

Power market prices tend to increase during certain times of the year, as was seen in April-May 2022. However, as these increases do not tend to last for long periods, we do not expect significant changes in prices to be discovered in the near future. Besides this, renewable energy integration challenges and technological breakthroughs in storage will also necessitate a higher depe­n­denc­e on short-term markets, parti­cularl­y exchanges, in the coming years.

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 expected to undergo a major transition in the coming years. The introduction of general network access has paved the way for major changes in the sector. Besides this, draft papers for resource adequacy, market-based economic despatch, and ancillary service markets are under discussion with the regulatory commission. Once these are implemented, we can expect massive changes in the power sector.

An important job, therefore, will be to provide opportunities to market participants to transact in an equitable and transparent manner, giving customers unmatched user experience through state-of-the-art technology and customised value-added services, bridging the supply and demand gap, and offering trading at a cost-effective rate. On top of this, the aim is also to onboard heterogeneous players going forward, to create a competitive platform. Additionally, variable power output from wind and solar power facilities is expected to encourage short-term energy trading.

The role of power exchanges is expected to grow, making this an exciting space to be in. Power exchanges give market players a platform with numerous op­tions for buying and selling power, helping them efficiently manage their power portfolios. In the draft Na­tional Elect­ri­city Policy, the government has envisaged that 25 per cent of the power generated in the country should be traded through power exchanges. Currently, only 6 per cent of the country’s electricity is traded throu­gh spot agreements, but with an increa­se in power exchan­ges, a greater volu­me of electricity is ex­pected to be traded through spot deals, which might lead to ground-breaking outcomes.