The shares of the Indian Energy Exchange (IEX) experienced a sharp decline of nearly 10% in intraday trading on the National Stock Exchange (NSE), plummeting to Rs 215.65. This downturn follows reports indicating that the Indian government is considering implementing market coupling for power exchanges.

Market coupling refers to a system where buy and sell bids from all power exchanges in the country are aggregated and matched to establish a uniform market clearing price (MCP). This model aims to create a more efficient and transparent trading environment, enabling price discovery that reflects true market conditions. However, for IEX, the prospect of market coupling has been interpreted as a negative development.

Sources from the business news channel ET NOW reported that the Power Ministry has directed the Grid Controller of India (Grid-India) to ensure the timely completion of a pilot study on this new pricing mechanism. The results of this study will be pivotal, as they will inform the Central Electricity Regulatory Commission’s (CERC) final decision on the implementation of market coupling.

If market coupling is put into practice, it would mean that electricity trading across exchanges would converge to a single price point at any given time. This transformation could reduce the operational role of power exchanges like IEX to merely a platform for submitting buy and sell bids, with the actual electricity dispatched to buyers based on this uniform pricing.

The government is pursuing this initiative not only to standardize pricing across exchanges but also to enhance the share of power exchanges in the overall electricity trading market. Currently, long-term power purchase agreements (PPAs) dominate the landscape, with contracts often lasting up to 25 years.

The market’s reaction to the news has been swift and severe, with IEX shares retreating from their 52-week highs. This decline comes despite a strong year for the company, with IEX shares delivering impressive returns of nearly 85% over the past year and a 30% increase in 2024 alone.

For the fiscal year ending March 2024, IEX declared an equity dividend of 250%, equating to Rs 2.5 per share. At the current trading price of Rs 215.43, this translates to a dividend yield of approximately 1.16%.

Historically, IEX has also engaged in shareholder-friendly practices, including a bonus share issue in 2021 at a ratio of 2:1, and a significant face value split from Rs 10 to Rs 1 in 2018, which enhanced liquidity and made shares more accessible to smaller investors.

Story first published: Tuesday, September 24, 2024, 14:07 [IST]