India's first power exchange to trade electricity is going to become a reality now. Financial Technologies Ltd on Thursday received approval from the Central Electricity Regulatory Commission to set up a national level power exchange -- Indian Energy Exchange Limited for trading electricity.

IEX, promoted by Financial Technologies, will be a pan India neutral and transparent electronic demutualized exchange for efficient price discovery in the electricity market. PTC India Ltd [Get Quote] has consented to take 26 per cent stake in IEX. Other corporates who have consented to take a stake are Tata Power [Get Quote], Reliance Energy [Get Quote] Rural Electrification Corporation, Adani Enterprises [Get Quote] and IDFC [Get Quote] in the consortium.

Financial Technologies will continue to invite strategic partners to join the power exchange. Taking into account the nascent stage of exchange traded power market in India, Financial Technologies has designed a very innovative solution for the power sector by deploying the best fit global technology solution for the Indian market to encourage larger participation by large and small players.

PTC India Ltd CMD Tantra Narayan Thakur said the "Indian Power market still possesses a huge under-utilized captive capacity and massive growth potential which, if utilized, can go a long way in bridging the existing demand - supply gap. All these factors have contributed in creating a nation-wide consensus and favorable government directives towards need for development and reforms in the power sector.

"I am confident that Financial Technologies' proven expertise in setting up and operating exchanges globally will ensure efficient distribution and trade of electricity at par with global standards and best practices. As MCX, an affiliate of Financial Technologies, is already the most profuse platform for energy trading accounting for over 97 per cent of trading in crude oil and natural gas, we are sure all stakeholders who have converged to MCX for other energy products will show similar confidence in IEX for electricity. "

Commenting on the launch, Dewang Neralla, Co-founder Financial Technologies said, "A pan India neutral and transparent energy exchange is the need of the hour for strengthening of the power sector by providing them efficient short term and long term price signals. IEX is a reflection of Financial Technologies' vision to create world class market driven economy which empowers the entire supply chain equalizing the smallest and the largest. IEX's endeavor will be to create a platform that can eradicate the gap between buyers and sellers by taking the supply where the demand exists at most efficient equilibrium price."

In India the scope of trading power is huge even with its current power shortage scenario. There is an imbalanced disposition of resources within the country. On the one hand, there is the eastern region, which is rich in coal sources and so a lot of pit head based load plants have been set up there. The north eastern region also holds a lot of hydro power potential, whereas on the other hand, the western and northern regions of the country suffer from a heavy deficit of such power due to their immense industrial and agricultural load. IEX will be the key change agent for distributing power for bridging the gap between demand and supply by uniting all the buyers and sellers on a single platform to trade at a common national price without any risk of counterparty, which will be guaranteed in the Exchange Mechanism

The need for a power exchange has been felt for quite some time to meet the demand and supply of power on time and to provide a common platform to both buyers and sellers and to assist them in price discovery. IEX promises multi-fold benefits for the Indian electricity supply industry by creating a non-discriminatory marketplace with a pan-India access to all buyers and sellers.

IEX will ensure a transparent price discovery mechanism along with providing various other services such as settlement, payment security and technology for trading and risk management. It will enable participants to trade electricity the subsequent day through standard hourly contracts and block contracts that permit them to draw power from the grid at a given hour.

Going forward, IEX has many products ready to meet the requirements of the power sector based on the feedback received from the trade during the last one and a half years. The power exchange will benefit market participants such as the generators, distribution licensees, open access users, trading licensees, industrial consumers, system operators and bankers in many ways.

Having a power exchange will also be advantageous to the regulators because it will act as a single point self-regulatory organization, supervising its users and ensuring neutral and transparent national level pricing for all.

Currently, short term trading constitutes only 3 per cent of the total energy market as against over 15 per cent globally. Power markets generally operate with power purchase agreements for long term trading and bilateral contracts for the short term. For very short term requirements there is the unscheduled interchange. In future, these markets will be complemented by the exchange, which will have standard contracts, nationwide choice, better price and payment security.

Apart from the known benefits of a power exchange, IEX brings to the table the benefits of a globally benchmarked exchange, owing to Financial Technologies in-depth domain expertise and best of breed exchange solutions. With Financial Technologies as a promoter, IEX will be able to provide services at significantly lower capital expenditure, operating expenditure and with globally benchmarked speed of execution.