Why IEX Share Price is Falling

The Indian electricity market is witnessing rapid growth, driven by rising energy demand, industrial expansion, and a shift towards renewable sources like solar and wind.

With this, the electricity exchange market has emerged as a crucial platform, offering transparent and efficient trading for power distribution companies and large consumers.

Indian Energy Exchange (IEX) plays a pivotal role in this space, facilitating over 90% of short-term electricity trades in India. As the largest player in the market, IEX has historically benefitted from its dominant position and steady market share, leading to consistent performance.

However, recent challenges have threatened its market dominance, and concerns over competition have emerged.

As a result, IEX's share price tumbled 12% in the past five days.

Let's explore what changed for IEX.

Probability of Market Coupling

The shares of Indian Energy Exchange (IEX) embarked on a downward trajectory after reports surfaced about possible market coupling for power exchanges.

This new system could be introduced by the end of this financial year or the beginning of FY26, raising concerns about IEX's market dominance.

IEX currently controls 84% of the power trading market. Market coupling, which sets a single price for electricity across all platforms by combining buy and sell bids, threatens this dominance. If implemented, it could erode IEX's competitive edge.

The government is fast-tracking its plans for market coupling. The Power Ministry is pushing this initiative and has directed the Grid Controller to carry out a pilot study. The study is under the Central Electricity Regulatory Commission (CERC) and is expected to be completed next month. CERC will then decide when to introduce the necessary changes.

India currently has three power exchanges: IEX, Power Exchange India (PXIL), and Hindustan Power Exchange (HPX). These exchanges operate independently, each establishing its own market clearing price (MCP) based on separate buy and sell bids.

While electricity costs across these exchanges only vary by a few paisa, market coupling would introduce uniform pricing.

The government aims to reduce the reliance on long-term power purchase agreements, some lasting up to 25 years, by increasing the role of exchanges in power trading.

Analysts warn that if market coupling takes place, IEX could see a drop in its market share. This would likely result in lower earnings per share (EPS) for FY27, pressuring the company's stock.

What's Next?

Indian Energy Exchange (IEX) is set for growth as it continues to expand its market dominance.

The company is focusing on increasing its product offerings, including new services in real-time and green power markets. This diversification is expected to enhance IEX's position in the electricity trading sector.

The company also has ambitious plans to capitalise on India's energy transition, towards renewable energy. IEX is preparing to leverage future demand for green electricity by launching more products tailored to renewable energy integration, such as green real-time markets (RTM).

Additionally, IEX aims to increase its presence in cross-border electricity trading, opening new opportunities for growth in the region.

IEX is also exploring opportunities in the battery energy storage systems (BESS) market. With battery costs falling, IEX plans to create platforms for energy storage trading, further strengthening its foothold in the evolving energy landscape.

The company's growth strategy aligns with India's projected increase in power demand, which is expected to reach over 2,000 billion (bn) units by 2030.

As the energy market in India expands, IEX aims to maintain its leadership, targeting higher volumes and exploring new regulatory developments that could favor market-based models.

For more on IEX, check out the below video where Co-head of Research at Equitymaster, Tanushree Banerjee compares IEX with other Indian leading exchanges.

How IEX Share Price has Performed Recently

In the past five days, shares of the company have tumbled 12%. In the past six months, it is up 50.8%.

In 2024 so far the stock has rallied 20.4%, additionally, in the past year it is up by 54.2%.

The stock touched its 52-week high of Rs 244.4 on 24 September 2024 and a 52-week low of Rs 121.3 on 26 October 2023.

About IEX

The IEX is an Indian electronic system-based power trading exchange regulated by the Central Electricity Regulatory Commission (CERC). IEX started its operations on 27 June 2008.

It pioneered the development of power trading in India. It provides an electronic platform to the participants in the power market - state electricity boards, power producers, power traders, and open-access consumers (both industrial and commercial).

Ever since its incorporation, it has held an influential market share, of more than 90%. IEX operates a day-ahead market based on closed auctions with double-sided bidding and uniform pricing.

To know more about the company, check out IEX fact sheet and IEX quarterly results.

For a sector overview, read our power sector report.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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