Indian Energy Exchange (IEX) Plunged 28%: What Market Coupling Means for the Future of Electricity Trading in India

Indian Energy Exchange (IEX) closed yesterday with a sharp decline of 27.9%, following the Central Electricity Regulatory Commission’s (CERC) approval for the phased rollout of market coupling across India’s power exchanges. In this article, we break down IEX’s business model, explain the concept of market coupling, assess its potential impact on IEX’s operations, and outline our course of action with respect to the smallcases where IEX is currently a constituent.

What is the Indian Energy Exchange (IEX), and what does it do?

Indian Energy Exchange (IEX), established in 2008, is India’s leading power exchange, offering a transparent and automated platform for trading electricity, renewable energy, and compliance certificates. It plays a vital role in the physical delivery of electricity and holds a dominant 84% market share in the short-term power trading segment.

Indian Energy Exchange (IEX) enables power generators, distribution companies (discoms), and electricity traders to buy and sell electricity efficiently, helping balance supply and demand in real time. The broader wholesale power market is categorised into short-term (up to 1 year), medium-term (1 to 5 years), and long-term (5 to 25 years) contracts, with IEX focusing primarily on the short-term segment.

The company generates revenue mainly by charging a fee for each unit of electricity traded, which accounts for 78% of its total income. It also earns from annual or one-time membership fees and from facilitating the trade of compliance instruments such as Renewable Energy Certificates (RECs) and Energy Saving Certificates (ESCerts), which together contribute the remaining 22% of its revenue.

Why Do Discoms Use IEX?

Distribution companies (discoms) are responsible for delivering electricity to homes and businesses. To meet demand, they enter into power purchase agreements of varying durations—long-term contracts (typically 25 years) for steady, base-load supply; medium-term contracts (up to 5 years) for flexibility and cost control; and short-term contracts (up to 1 year) to manage unforeseen fluctuations. Despite these long-term arrangements, discoms must schedule electricity supply in 15-minute intervals for the following day. Because actual demand can differ from forecasts, discoms may need to buy additional power if demand is higher than expected, or sell excess power if demand is lower. In such situations, IEX plays a crucial role by offering a fast, reliable, and liquid platform for discoms to adjust their positions at short notice, ensuring grid stability and operational efficiency.

How IEX Facilitates Short-Term Power Trading

Power market transactions on IEX are categorised as either Collective or Continuous. This article focuses on Collective Transactions, which function much like a stock exchange for electricity. In this system, buyers and sellers submit their bids simultaneously and anonymously. A central matching system then determines the final traded volume and price based on the total demand and supply, resulting in a single, uniform market-clearing price that applies to all participants.

IEX operates across three key market segments. The Day-Ahead Market (DAM), where electricity is bought and sold for next-day delivery, accounts for a 98.8% market share. The Real-Time Market (RTM), used for near-instantaneous balancing with power delivered one hour after trading, sees IEX holding a 99.7% share. In the Term Ahead Market (TAM), which allows trading up to 90 days in advance, IEX commands a 44% share. Combined, these segments contribute over 81% of IEX’s total trading volumes, reinforcing its dominant presence in India’s short-term power market.

All about market coupling

India currently has three power exchanges — IEX, PXIL, and HPX — all of which collect buy and sell bids separately and determine their own market clearing prices (MCPs) based on supply and demand. However, a CERC report from August 2023 highlighted that most of the trading happens on IEX, while the other two exchanges have very low bid volumes. In some cases, even when both buy and sell bids were present, no trades occurred because there weren’t enough matching bids. This has led to inconsistent prices across exchanges and shows that simply having multiple exchanges hasn’t resulted in real competition or innovation.

To address this issue and make the system more efficient, CERC is exploring the idea of linking the Real-Time Market (RTM) with something called SCED — Security-Constrained Economic Dispatch. SCED works like a smart traffic manager for electricity. It decides which power plants should generate electricity and how much, so that the grid remains safe and the overall cost is minimised.

Alongside SCED, CERC is also proposed introducing market coupling. This means that bids from all three exchanges will be combined and matched through a central system to determine a single, common price for electricity at any point in time. The power exchanges will only act as platforms for submitting bids, while a central body will handle the actual matching and dispatch. Globally, market coupling helps improve the efficiency of power markets. In India, it aims to ensure a single electricity price nationwide, better use of transmission lines, more liquidity in the market, and greater participation from different players.

Why did IEX’s share price crash yesterday?

The Central Electricity Regulatory Commission (CERC) has officially approved the rollout of market coupling in India’s power sector, starting with the Day-Ahead Market (DAM) from January 2026. This move is intended to improve efficiency and transparency in electricity trading by centralising price discovery across exchanges.

Currently, IEX collects bids independently and determines its own market-clearing price (MCP). Under market coupling, however, all exchanges will submit bids to a central system that will determine a single, uniform MCP. As a result, IEX is feared to lose control over its moat – price discovery, which has been one of its key differentiators and a factor behind its dominant market share. With this change, IEX is expected to function more like a neutral bidding platform, where it simply facilitates bid submission while clearing and dispatch are handled centrally. This may reduce its operational role in the market.

There are also concerns around IEX’s revenue and valuation. Since it earns revenue based on trading volumes, any redistribution of trades across platforms could impact its top line. This is seen as a risk to investor sentiment and could weigh on its premium valuation.

These fears combined triggered a sharp market sell-off, leading to a significant correction in IEX’s stock price, as investors reacted to the potential long-term implications of the new regulatory framework.

While some analysts foresee a meaningful hit to IEX’s earnings and pricing power, others believe the actual impact may be limited. As such, the market remains divided on how significantly market coupling will affect IEX’s business in the long term.

Updates from the company

In the first quarter of FY26, the company’s total revenue grew by 14.7% compared to last year, while it remained largely unchanged from the previous quarter. Operating income rose by 16.7% year-on-year, with margins improving to 77.5%. Earnings per share (EPS) increased by 25.9% year-on-year and 3% quarter-on-quarter. Net profit margin also saw a strong rise to 85.1%. Electricity volumes for the quarter stood at 32.4 billion units, up 14.9% from the same period last year. The company has stated that it is currently assessing the impact of recent regulatory changes and will update stakeholders as more information becomes available.

Our View and Course of Action

We at Windmill Capital are closely monitoring the recent developments around the rollout of market coupling and its potential implications for the Indian Energy Exchange (IEX). While the regulatory shift represents a significant structural change to how power markets operate, we believe it is important to avoid knee-jerk reactions. We will continue to track announcements from both the Central Electricity Regulatory Commission (CERC) and IEX itself, and will take any portfolio action only after a thorough and well-informed assessment of the evolving situation. Our approach remains rooted in disciplined research—guided by long-term fundamentals for thematic and tracker smallcases, and by strict adherence to predefined model criteria for model-based smallcases. 

Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of a SEBI recognized supervisory body (if any) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The content in these posts/articles is for informational and educational purposes only and should not be construed as professional financial advice and nor to be construed as an offer to buy /sell or the solicitation of an offer to buy/sell any security or financial products.Users must make their own investment decisions based on their specific investment objective and financial position and using such independent advisors as they believe necessary. Windmill Capital Team: Windmill Capital Private Limited is a SEBI registered research analyst (Regn. No. INH200007645) based in Bengaluru at No 51 Le Parc Richmonde, Richmond Road, Shanthala Nagar, Bangalore, Karnataka – 560025 creating Thematic & Quantamental curated stock/ETF portfolios. Data analysis is the heart and soul behind our portfolio construction & with 50+ offerings, we have something for everyone. CIN of the company is U74999KA2020PTC132398. For more information and disclosures, visit our disclosures page here.