Trading of ESCerts on IEX

Akhilesh Awasthy

Director (Market Operations)

Workshop by BEE on

ESCerts Trading and PATNet Portal

16th Dec 2015, IIC New Delhi

Company Snapshot

96% Market Share ~80,000MWh average daily trade

3400+ Participants 3000+ Industries

50+ Discoms (all) 300+ Generators

Competition

LiquidityTransparency

POWER EXCHANGE

Nation-wide voluntary access

E-trading

No counterparty risk

Robust Platform

Delivery Based contracts

Regulated by Central Electricity Regulatory Commission (CERC)

6 3

0 6

216 25

672 38

79 1

398 22 33 16

11 0

0 21 48

7 15

4 1

0 1

761 2

59 57

3 3 1 2

7 23

273 4

Consumer: 3044

Generator: 304

Participation at IEX

402 8

Industrial segments with IEX

Textile29%

Manufacturer15%

Metal 24%

Chemical9%

Auto Components

6%

Cement4%

Paper3%

Cotton1%

Others9%

Trading/Market Regulator (CERC)

Member

Client

Member

Trade

Trade

ESCertsRegistry

ClearingBanks

Trading on Power Exchanges

Why ESCerts Trading?

Plant-1 Plant-2 Plant-3

Init

ial

Init

ial

Init

ial

Ach

ieve

d

Ach

ieve

d

Ach

ieve

d

= 10Initial

SEC

= 5Target

SEC3

5

7

Trade ESCerts on PX

Abatement Cost

Rs 10000/toe Rs 15000/toe Rs 20000/toe

No ESCerts Market

With ESCerts Market

Total Cost of Abatement = (5*1000*10000)+(5*1000*15000)+(5*1000*20000)

= Rs 22,50,00,000

Total Cost of Abatement = (7*1000*10000)+(5*1000*15000)+(3*1000*20000)

= Rs 20,50,00,000

Savings to Economy =

(22,50,00,000-20,50,00,000) =

Rs 2,00,00,000

Assume 1 SEC ≈ 1000 toe

Achieve EE Savings with less cost to economy

ESCerts MechanismStart 2012

Compliance Mandatory

Obligated Entities Energy intensive industries from 8 sectors, 478 in total

Target 6.6 Mtoe for1st cycle, allocated on SEC basis for each plant

Mechanism Market based Cap and Trade

Banking Allowed till next cycle

Denomination of ESCert 1 toe

Issuance Ex-post based on Energy Audit (80% issuance for intra-cycle, every year)

Cycle span 3 yrs (2012-15 for 1st Cycle)

Market Place Multiple Power Exchanges, regulated by CERC

Trading Regulator CERC

Administrator & Scheme R’tor BEE

Central Registry POSOCO

Penalty As per Section-26(1A) of EC Act, 2001, to be decided by SDA

Regulatory approval for PXs to provide

ESCerts trading platform

1) CERC to notify PAT Trading Regulations/Order

2) Power Exchanges to submit respective Business Rules (by

including a Schedule for ESCerts) to CERC for approval, so as

to commence trading

Business Rules of IEX for ESCerts shall cover the following:• Price Discovery mechanism

• Contract specifications for ESCerts

• Risk Management mechanism

• Trading timelines

• Delivery, Surveillance and Clearing & Settlement

• Member & Client categories

Proposed ESCert Contract on IEX

Name of the Tradable Instrument: Energy Savings Certificate (ESCert)Underlying Energy Savings Attributes of 1toe of energy savings by

Designated Consumer allowed in Energy Conservation (EnergyConsumption Norms and Standards for Designated Consumers, Form,Time within which, and Manner of Preparation and Implementation ofScheme, Procedure for Issue of Energy Savings Certificate and Value of

Per Metric Ton of Oil Equivalent of Energy Consumed) Rules, 2012

Instrument Types ESCert denominated by Cycle (e.g. ESCERT-C12-15)Price Quotation INR/ESCertPrice tick 1 INRPrice Limits Not ApplicableVolume tick 1 ESCertMinimum Order volume limit: 1 ESCertTransaction Fee Specified by the exchange from time to time, upon approval

by the Commission

Matching Closed double-sided uniform price auctionTrading Cycle Once a month, Weekly trading from Jan’15 to Form -D

submission date (TBD)

Proposed Price Discovery Mechanism

• Closed Double-sided Uniform Price Auction

• Prerogative of respective Power Exchange to define its

own matching rules, and notify the same through

Business Rules

• IEX will utilise the matching engine used for REC

mechanism, all the matching principles to remain same

as that of REC

Flow of ESCerts trading

ESCerts Registry

Trading Timelines

TIME on TRADE DAY DETAILSPre-trade Phase:

By 12.00 Hrs • Exchange to check Initial Margin of MembersOrder Accumulation phase (Bidding)

13.00 Hrs to 15.00 Hrs • Order AccumulationOrder matching and trade finalization

By 15.30 Hrs • Exchange to send details of maximum offer placed by Sellers to Depository

By 16.00 Hrs • Registry to send Exception report intimating any exceptions (excess Sell)

By 16.30 Hrs • Finalization of trade results after removing defaulters’ orders• Exchange to inform participants about trade results

By 17.00 Hrs • Exchange to inform Registry, the details of successful buyers and sellersSettlement Phase

By 17.00 Hrs on T Day • Files to be sent by Exchange to banks for actual debits(Pay-in)

By 11.00 Hrs on T+1 day(next bank working day)

• Files to be sent by Exchange to banks for actual credits (Pay-out)

Delivery PhaseBy 18.00 Hrs on T Day • Registry to debit ESCerts in Sellers’ Accounts and credit the same to Buyers’

AccountsBy 18:00 Hrs O T Day • Exchange to raise invoices to each participant as proof of transfer of

ESCerts.• Reports shall be sent to all successful Members

Proposed Risk Management Mechanism

• Risk management mechanisms shall be designed by respective PX

and shall be notified through Business Rules

• A Member or a Client, as applicable, is allowed to transact in a

contract only when he maintains the requisite Margin, including any

additional Margin, as specified by PX

• On IEX, Member will be allowed to place a purchase order in

ESCerts against cash amount made available (Margin Money),

equivalent to 100% of the order value. Sell orders are permitted

irrespective of margins

• Exchange has the right to impose penalty on defaulting Member,

who short-sell ESCerts in excess of available ESCerts in his

Registry account, as decided from time to time

Surveillance, Delivery and C&S

• Surveillance: In order to ensure market integrity and to avoid

market abuses, the Exchange will use various on-line and off-line

surveillance tools like:

– Validation of orders

– Price & Volume movement monitoring

– Price rigging, concentration, price manipulation and other market abuses

The PX shall have the right to take appropriate actions in such

cases

• Delivery: Delivery of ESCerts shall be as per the Regulation/Order

issued by Commission and in pursuance to the BEE Rules, 2012.

• Clearing & Settlement: Clearing House of PX will monitor and

perform all activities relating to funds settlement, margining,

managing the settlement guarantee fund, and other relevant

matters

Members & Clients of IEX

• All the existing Members and Clients of the Exchange are eligible to trade

ESCerts on the Exchange Platform of IEX. However, Exchange can also

notify a separate category of Member & Client who can participate only in

the ESCerts market segment. Different terms and conditions for Members

of the Exchange shall be defined in the Business Rules.

• Member trading in ESCerts shall be governed by Regulation 26 of CERC

(Power Market) Regulation-2010, The BEE Rules-2012 for ESCert trading,

and the CERC Regulations (yet to be notified).

• Only Designated Consumers who are notified by BEE shall be permitted to

become Members/Clients of PX for ESCerts trading

• Fees and Charges levied by PX on Members & Clients for ESCerts trading

shall be as notified by respective PX from time to time

REC Vs ESCerts Scheme

REC ESCert

Cycle 1 year 3 years

Life of Cert’ 365 days (second time extended to 1095 days)

Closure of second Cycle (> 3 years)

Target State specific set by SERC, for Solar and Non-Solar

Plant/DC specific, set by GoI

Unit 1MWh equivalentRenewable Attribute

1 ToeEnergy Conserved

Buyers Obligated Entities (Discoms, CPPs and OA Consumers)

Designated Consumers falling short of Target

Sellers Qualified Renewable Generators Designated Consumers surpassing Target

Banking No Yes (1 Cycle)

Multiple Trading No (Once traded renders Extinguished) ---

Floor Price Yes (Solar: Rs 3,500 /MWh,

Non-Solar: Rs 1,500/MWh)No

Forbearance Price Yes (Solar: Rs 5,800 /MWh,

Non-Solar: Rs 3,300/MWh)No

Regulator CERC (Trading) & SERCs (Compliance) BEE(Scheme) & CERC(Trading)

Penalty SERCs SERCs

Trade Synopsis of RECs

-

1,000

2,000

3,000

4,000

0

200,000

400,000

600,000

800,000M

ar'1

1

Sep

t'1

1

Mar

'12

Sep

t'1

2

Mar

'13

Sep

t'1

3

Mar

'14

Sep

t'1

4

Mar

'15

Sep

'15

Market C

learing P

rice

(In R

S/REC

)N

o. o

f R

ECs

Trad

ed

Non-Solar REC Prices & VolumeIEX-Volume PXIL- Volume Price @ IEX Price @ PXIL

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0

20000

40000

60000

80000

100000

May

'12

No

v '1

2

May

'13

No

v'1

3

May

'14

No

v'1

4

May

'15

No

v'1

5

Market C

learing P

rice

(Rs/R

EC)

No

. of

REC

s tr

aded

Solar REC Prices & VolumeVintage

Multiplier

Over Supply of RECs

2015

1175

491 444

0 62307 197

0

500

1000

1500

2000

2500

FY 11-12 FY 12-13 FY 13-14 FY 14-15

Cap

acit

y R

egi

ste

red

(M

W)

REC Projects Slowing Down

Non Solar Capacity (MW)

Solar Capacity (MW)]

0

0.2

0.4

0.6

0.8

1

Ap

r '1

2

Sep

t'1

2

Feb

'13

July

'13

Dec

'13

May

'14

Oct

'14

Mar

'15

Au

g'15N

um

be

r o

f R

ECs

(Cro

res)

Non-Solar RECs

Buy Bid

Sell bid

Traded

0

0.05

0.1

0.15

0.2

0.25

May

'12

Oct

'12

Mar

'13

Au

g'13

Jan

'14

Jun

e '1

4

No

v'14

Ap

r'1

5

Sep

t'1

5

Nu

mb

er

of

REC

s (C

rore

s) Solar RECs

Sell Bid

Buy Bid

Traded

RECs (as on 15.12.2015)

RECs Issued 2.88 Cr

RECs Traded + Redeemed 1.15 Cr

Inventory 1.73 Cr (60%)

NAPCC proposes 10% of generation by 2015 from Renewables, which amounts to 104.51 BUs

Trade @ IEX

Entities eligible for Membership:

Inter-State Generating Stations (ISGS)

Distribution Licensees

State Generating Stations

IPPs

CPPs and IPPs

(with consent from SLDC)

Open Access Customers

(with consent from SLDC)

Electricity Traders / Brokers (Including REC & ESCerts)

Designated Consumers (For ESCerts)

Who Can become Members of IEX ?

IEX Membership Types

Proprietary Member

Right to trade and clear on its

own account

who can trade ESCerts on its own behalf and also its companies provided the ownership remains the

same

Professional Member

Trade and clear on behalf of its

Clients

NO CREDIT /FINANCING

Electricity Traders

Trade and clear on behalf of its

Clients

CREDIT /FINANCING

ClientsEligible Designated Consumers

Financial Requirements (For REC Membership)

FeesProfessional & Proprietary &

Electricity Trader(Full Payment Option)

Proprietary member (Light Payment

Option)

Admission fee Rs. 10,00,000 Rs. 5,00,000

Interest Free SecurityDeposit

Rs. 5,00,000 Rs. 2,50,000

Annual SubscriptionFees

Rs. 2,00,000 Rs. 1,00,000

Processing Fees Rs. 10,000 Rs. 10,000

TOTAL Rs. 17,10,000 Rs. 8,60,000

Exchange Transaction Rs 20/REC Rs 30/REC

Client of Exchange (Proposed)

Requirements to become a Client of a Member

Annual Client / Portfolio Subscription Fees of IEX

Rs. 20,000

Member’s Fee Decided by respective Member, as guided by CERC Power Market Regulations’2010

Exchange Transaction Fee Rs 20/REC (TBD for ESCert)

*All Designated Consumers registered with Central Registry are eligible to become a Client for ESCerts Trading.

How to Move Ahead…

Become Member or Client (of a Member)…options

• Rs 8.6 Lacs +3p/kWh transaction fee

• Rs 17.1 lacs + 2p/kWh transaction fee

• Client @ 0.2 Lakh p.a

Technical Requirements

• As specified by CERC/BEE for ESCerts

Connectivity with Exchange can be done in two ways

• Internet Immediate

• Leased Line

Start Trading

Best Power Exchange in India – Enertia Awards ’14, ’13 &’12 – India Power Award 2014 – Power Business View 2014

Inc India Innovative 100 Award for ‘Innovation in Product and Technology’

Best Performing Power Exchange –Power Line Awards ’13 & ‘12

India Power Awards ‘15 & ‘09

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