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The Central Electricity Regulatory Commission’s sudden market coupling order has sparked concerns, impacting IEX’s stock.
News18
Authored by Ashish Kapur, CEO, Invest Shoppe: It has been nearly a fortnight when Central Electricity Regulatory Commission dropped its order on the contentious and hotly debated issue of market coupling. The CERC order also said that implementation of the coupling should happen in a round-robin mode by January 2026. The immediate reaction was one of disbelief – the players, the participants and the larger market did not expect CERC to announce coupling anytime soon since the pros and cons of this move – that will alter the business model of power exchanges – was still being discussed. The impact of sudden move was also reflected in the stock price of IEX, which is the only listed power exchange. Fears that coupling will hurt IEX’s dominant share in the DAM segment sent its share price crashing with the stock losing over 30% in just two trading sessions.
Now that dust has started to settle on the CERC order and the knee jerk reactions are over, questions have started to arise on the purported gains as well as the efficacy of market coupling. There are legitimate concerns – One, why market coupling was announced suddenly even as the findings of the pilot studies showed meagre tangible gains. Two, coupling will eventually kill fair and competitive market dynamics and reduce exchanges to mere post offices with little incentive for innovation. Three, although presented as ‘Market Coupling’, the proposed design more closely resembles ‘exchange coupling’ with no precedence globally. Fourth, the proposal for rotational Market Coupling Operators (MCOs) among exchanges, with Grid-India as backup, is contrary to global practice and may lead to potential biases and audit-related complexities.
Market coupling essentially means that orders across the three exchanges would be collected and then flow through a central algorithm managed by a Market Coupling Operator. This MCO would decide on a uniform clearing price, regardless of which exchange placed the order. Thus, while the exchanges would still handle bids and manage customers, the biggest task of price discovery would shift to the MCO. An exchange like IEX took 17 years to build and sustain an efficient price discovery mechanism with ample liquidity and thus attracts most customers but with this move, the volumes are likely to get evenly distributed across the three exchanges. In effect, IEX will pay the price for being innovative, harnessing the best technology and attracting the top talent that allowed it to become the biggest power exchange in a free and competitive market even as PXIL, which was also launched in 2008, couldn’t keep pace.
That said, market coupling of power exchanges can still be considered as a path breaking reform if the gains are sizeable and will benefit the dynamic and evolving power ecosystem. As the results of shadow pilot project undertaken by Grid Controller of India show, the numbers from the study have been disappointing and do not support implementation of market coupling. According to Grid India’s report, the overall welfare increased by a negligible 0.3% in the DAM segment while overall volume cleared increased by only 0.2%. Similarly, in the Real-Time Market (RTM) segment, both overall welfare increase and increase in volume cleared saw an insignificant gain of 0.01%. Further, the increase of social welfare by Rs 38 crore in case of DAM coupling doesn’t mean that there will be saving of Rs 38 crore. It is merely a notional number, used for algorithmic modelling, and does not imply actual consumer savings. Thus, these marginal improvements do not offer a compelling rationale for implementing coupling on a full scale. While CERC shared only a part of Grid India’s findings, it is surprising that the order was issued without disclosing the full report. In order to ensure complete transparency and maintain stakeholder confidence, the complete Grid-India report should be made publicly available to facilitate informed discussions and independent assessments of the recommendations.
The push to implement coupling also raises a larger question. The coupling in power exchanges may set a precedent and demand for similar model is likely to emerge from other segments of the economy. For example, there may be a clamour to introduce coupling in NSE and BSE for uniform stock prices. Or, customers may ask for coupling of ride hailing platforms like Uber, Ola and Rapido. BSE was launched in 1875 while NSE started operations in 1994. Yet, NSE handles more volumes today compared to BSE because it thrived in an open and transparent market. The idea of coupling, if extended, will certainly hurt competition, impede innovation and leave little incentive for organisations to stay ahead.
It is thus critical for regulators like CERC to rethink about their order and the attempt to bring three exchanges on the same pedestal without commensurate gains. Else, the ramifications of such a short sighted move may be felt beyond power trading.
It is authored by Ashish Kapur, CEO, Invest Shoppe.
The views expressed in this article are those of the author and do not represent the stand of this publication.
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A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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