Power Exchange India Ltd has planned to revamp its business by introducing innovative technology and marketing strategy. The newly appointed MD& CEO MG Raoot, in an interaction with Pradeep Pandey, talks about the challenges in power trading market and company's future plan
You have a successful tenure with NTPC, PGCIL and National Power Exchange; can you share your experience with power exchanges so far?
Before taking my new responsibility with PXIL, I was with the National Power Exchange for almost 20 months as MD and CEO. National Power Exchange was set up by some public sector power entities, BSE and private players. In National Power Exchange the equity holding was something like the 50 per cent public equity and 50 per cent was with private sector. So in the 50 per cent public sectors holding there were three companies--NTPC, Power Finance Corporation and NHPC and in the private basket it was TCS, Bombay Stock Exchange and small investors like Meenakshi Power.
However, the exchange could not become operational because of some administrative issues. The policy decisions were not in favour and NTPC, one of the main promoters, was, of late, not interested in putting up the exchange and wanted to withdraw. Similarly, another promoter, NHPC also withdrew. The reasons given by them were that their expectations are not fulfilled and the power exchange market is very shallow.
It has been reported that PXIL has been suffering losses. What have been the challenges, and how have you planned to tackle them?
Whether it was the people issue or business model or business development model was faulty or whether it was leadership issue, I cannot directly comment. Per my understanding and observation, the first problem here is the technology. Technology means the trading software. PXIL used home grown solution for trading which I believed did not worked as expected. IEX and PXIL both the exchanges came in 2008 and IEX got the technology from Norway and it was prolonged technology because European market was well established. What they have used worked effectively to fulfil their requirement. On the other hand, IEX decided that we should go for home grown solution. Due to that model initially there was not problem as the exchange was dealing with very low volumes a few MUs only per day. The problem came later while handling the block deals and as there are lots of complex technologies actually in handling blocks deal. Secondly, there were some issues in the market like IEX today have around 95 per cent market share while PXIL hardly have 2to3 per cent or 5 per cent at the maximum. I believe that this is not happening only because our people are useless. In trading, engagement with the client is very important. You can see at NSE and BSE.
Another issue was of liquidity. The investors stopped putting money because the business was not so good. Following to this administrative issues and human related issues cropped up. However, the promoter are supporting fully that we have to somehow stand on this. Now, we have to learn from the mistakes in the past. Incidentally, I belong to power sector. The power trading volume is pegged around 80 MU billion units per day. When the competition was of doing around 70 MU to 80 MU per day here it was 1 MU per day that is the situation. This was the market scenario. So we have to understand the power system operation then only you can trade in the power markets. There was also transmission congestion. We were having most of our client from southern region and we were not able to deliver due to transmission constraints.
What kind of demand exists on account of open access in the country?
That will be too huge if you really go by that plus one megawatt norm if those restrictions are not there and the demand I think would be around 20 per cent of today's utility demand, coming from plus one megawatt customers.
But not all the states have allowed open access.
Yes many states have not allowed fully. For example Maharashtra has not allowed. However, some of the major states like Gujarat, Haryana and few others have allowed. Now what is happening is whichever states have opened, they issue a no objection certificate as per procedure defined by the NLDC. Now what is happening, NLDC issues, what I have noticed after coming here, is NoC is not exchange neutral. It is issued in the name of exchange, which is a big challenge because they cannot buy from other exchange. Our people were not knowing at all what is happening. So that was the reason, even if the trader has open access the customer cannot trade on my platform, he says I do not have NOC. He has no choice where he can split his portfolio, suppose that he has requirement of 10 megawatt he cannot split. If he can buy 7 Mw from that exchange and 3Mw from me it would have provided them flexibility.
So for us all doors are closed even if open access is allowed. Now we have noticed and we have to handle this issue immediately. Have taken up this issue first and then technology issue I have taken. See I have to replace my technology and NoC issue.
It has been observed that you have been doing large volume in REC; however, it is a challenging situation since there is low demand and too many sellers. What is the reason?
In the REC market, we are the leader, I am also talking and also came to find out who are the potential buyers and sellers in this segment. We engaged with them being from power sector I had a comfort level. In April, that was the first month, we got to know we are the leader and have got 72 per cent market share in this segment. I had to catch hold of buyers so that people will come on my exchange. There are 20 lakhs certification in the market. However, there are no buyers so we made the transaction fee free. We are reaching the buyers.
How is the demand for REC?
Demand is not there and it is because of the regulatory issue. See my question is even if 10 certificates are coming in the market and I must have my share, I cannot be having one and others having 9, my question is that why India is not bidding RPO. State regulators have set certain percentages for RPO and they have to care for that. That is not happening. Ten days before I was interacting with Korean team and there I have understood that they are adopting a different model for improving the RPOs. Here what we do is RPOs are given to an entity, which purchases power. There they put it on generators itself. In India, we should do the same thing. Suppose there are 65 per cent is thermal generation, you put on all the generating companies that you will have to buy the RPOs. We have written to CERC last week on the same.
It has been recently reported that companies that are generating power from cogeneration could get the concession. Your thoughts?
That is not good, we are interacting with regulators quite frequently on such issues. We are also giving them a presentation on that. Most probably that will be addressed, I do not know, it is at a very premature stage, 10 days before only I have shared the matter with CERC and maybe we may see this happening in our country also that buying REC should be made mandatory. That will solve most of the problems. The people are discouraged to come in the renewable that is the whole thing.
In the recent past many private power generators who have earlier decided not to trade power on exchanges more than 50 to 60 per cent of their generation but now they are finding that their business is not viable?
Basically power exchanges are for meeting your short-term requirements. Normally utilities they fulfil their adequacy through a long term contract. Even if today you see around 900 billion unit we generated in the country, of which 90 per cent is tied up through long term contracts. Four-five per cent is through bilateral traders and exchanges have get 2 to 3 per cent. For your short term list it is okay. In power exchanges the price is market driven for short-term requirements. So some of them could face challenges due to rising fuel prices and low demand.
According to you when do you believe power trading will mature in our country?
It has not matured in the last four years, but now, I am thinking with the imposition of strict codes things will improve. There are restrictions on volumes, tax on UI, unbalanced interchange, so people have to contract power. I feel that our market will shift from long term to short term. Nobody wants a long-term engagement. In Europe 60-70 per cent is through power exchanges. So here also that trade will definitely come.
When do you expect?
I am expecting in the five year down the line we will have different markets here.
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