IEX shares tumbled more than 8 percent in the last 30 minutes of trade yesterday on the back of a June 2 circular, which noted that the power ministry has directed the Central Electricity Regulatory Commission (CERC) to undertake the process of consultation and implementation of 'market coupling', which actually means integration of two or more market geographies into one, in a timely manner.

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Below is the verbatim transcript of SN Goel, Chairman & MD of Indian Energy Exchange (IEX)

Q: Could you, in very simple terms, tell us what market coupling mean? We have analysts who track the sector saying that this will take away pricing out of the hands of IEX; IEX, if this goes through, will only match volumes and there will be no discovery of prices which will happen elsewhere - is that interpretation correct?

A: Market coupling is when you have different geographies and markets operating in these geographies, you couple these geographies to take advantage of diversity in demand and supply in these geographies. Europe has done these things. 26 countries of Europe did the market coupling to take advantage of different sources of power and demand variations. In India, we have one market in the country, already the entire country is coupled through the market. So, there is one market. I don't understand this market coupling, what we are now talking about is that different exchanges will be coupled through this. This will be something like a couple, maybe BSE and NSE, or a couple of Ola and Uber. So that doesn't make any real business case. I mean, it will kill basically innovation and competition in the sector. So, I don't think the interpretation of the market coupling, which is floating since the last day, is the right interpretation. And in any case, the ministry has requested Central Electricity Regulatory Commission (CERC) to look into this. CERC will analyze whether in the present market design, which is a voluntary market, in this voluntary market design whether market coupling has a place, whether we should go for it or not, and what are the advantages.

Q: You are saying the interpretation is maybe not correct, but have you reached out to the ministry to understand what this would mean? And, and primer facie you are saying that price discovery will still happen on the exchanges. What is your understanding?

A: The price discovery has to happen at the exchange only. The main role of the exchange as per the power market regulation issued by CERC is that the exchanges have to do the price discovery and they have also defined how the price discovery is to be done. So, I have no doubt about that. And in any case, it is the regulatory function to regulate the market. And I am sure the regulator will look into these things. If required, they will initiate stakeholders’ consultation and thereafter, maybe if they want to implement this then they will have to construct the design of the market and amend the regulations. It is a long-drawn process.

Q: Could you tell us regarding implementation, now the CERC has to have a look at it, right? What kind of a timeframe can we look at?

A: First, CERC will have to internally decide whether they would like to go ahead with this or not, whether in the present market design, which they have implemented; CERC has implemented the present market design, voluntary market from the last 15 years and they have licensed the three exchanges and all the three exchanges are operating in this space. It is only 6-7 percent of the country's generation, which is not transacting through the exchange, all buyers and sellers have different options available in the market. So, in this kind of voluntary market, whether market coupling is really required or not. I mean, if you recall, there was a discussion on the Market-Based Economic Despatch (MBED) earlier. So, if you implement MBED, where the entire generation of the country has to go through the market. In such kind of a scenario yes, maybe market coupling is a point, but not in a voluntary market.

Q: That is the other negative, right? Because there is no mention of MBED which, you and I may have discussed many times in the last 18-24 months - that was supposed to be the big trigger, but there is no mention of that. There is a mention of coupling but there is no mention of MBED.

A: That is why I am saying that CERC will look into this that whether under the present market framework, this is required or not. And if they feel that we should go ahead with this then they will issue a consultation paper, and everybody will have an opportunity to give their submissions and comments. We will also have an opportunity to give our comments.

Q: Assuming that the CERC goes ahead with this because that is the fear that the street has; the stock was down almost 10 percent yesterday. So, if the CERC goes ahead with this, what would the impact be on IEX? What kind of volume hit are we looking at, and any other impact that you would have?

A: So, if it is implemented, then we will have to see what kind of construct they are going ahead with. Is one of the exchanges going to do the price discovery or they are going to have some third party doing the price discovery, and exchanges are only collecting the bits and doing the financial settlement? So, we will have to see the construct, and what they are going to do, and thereafter only we will be able to assess the impact.

Q: So, you are saying as of now you need to see the construct, if and when it goes through, and then assess the impact, got that? Can you tell us if have you given up or ceded any market share to the other players in the recent past organically? And if you can just help us with the numbers? What is the market share currently and how much has it changed?

A: It used to be almost about 94-95 percent. It is now almost about 88-89 percent because last year, one more exchange came into operation and with that, the market share is slightly down now.

Q: From the market share perspective, you had mentioned last time that from 95 percent it came to around 89 percent, but you are expecting it to go to the early 90s. So, you hold on to that view for this year. We will have to wait for the implementation of these new proposals. But for this year, you see that around 90-93 percent - point number one and volume growth you were guiding for is around 15 percent for this year, the first two and a half months – are they shaped up okay and do you hold on to that volume guidance?

A: As far as market share is concerned, CERC has already issued G&A regulations and transmission charge-sharing regulations. So, the anomaly which was there in the transmission charge regulations will get implemented now and that should lead to a shifting of volume in that market. And as far as the growth is concerned, I still hold the view of 15 percent growth because in the first two months, we have achieved almost about 8 percent kind of growth and now monsoon is coming, we will have large hydro generation in the country, wind generation in the country. So, there is going to be an improvement on the supply side.

Q: Going back to the regulations, you said it will be up to the CERC, etc. But if I look at the June 2 circular and see how it has been worded. It is almost as if the ministry has made up its mind. It says the Ministry of Power has decided to go ahead with the process. CERC has requested to take suitable action so that the process of consultation and finalization for this implementation is done expeditiously and the same can be implemented quickly. So yes, there will be a process in terms of how this will go through. So, they will have to go through different stages - consultation, etc., but for the ministry side, there still seems to be a push, if you just give a basic reading of the circular, from the ministry.

A: I have read this letter and the ministry has given their peace of mind, but they have requested CERC to initiate the stakeholder consultation and start the process. And CERC, whenever they do any change in the market design, or initiate stakeholder consultation, there is a process which is defining the act and the CERC regulations also.

(Edited by : C H Unnikrishnan)