Market Coupling in India’s Power Sector: Promise vs. Execution Challenges

Explanantion with proper context and a Q&A format: Market Coupling in Power Sector: Industry Flags Execution Risks

1) Context: What Is Market Coupling in Power Sector?

In India, electricity is traded on three main exchanges:

• IEX (Indian Energy Exchange) – has ~90% market share.

• PXIL (Power Exchange India Ltd.)

• HPX (Hindustan Power Exchange)

Currently, buyers and sellers choose which exchange to trade on. But there's a problem: IEX has all the liquidity, so naturally, everyone prefers it. The newer exchanges struggle.

To solve this, the government proposed market coupling — where a central system will collect all bids from all exchanges, match the best buy/sell offers, and declare a single price for electricity across India.

This system is designed to improve:

• Transparency

• Price discovery

• Fair competition

2) Q&A: Challenges in Implementing Market Coupling

Q1: What is market coupling trying to solve?

Problem: All buyers go to IEX because it has more sellers, and vice versa. New exchanges can’t grow.

Solution: Pool all trades in one place (like UPI for power), and let a neutral operator match the best rates - regardless of which exchange you placed the order on.

Q2: Sounds good. So why is the industry worried?

The industry - especially IEX and big participants - are worried about how this will be implemented. Concerns include:

Q3: Who will run this central system?

Challenge: The current proposal gives control to the Grid Controller of India Ltd. (state-owned). Exchanges fear this may lead to:

• Conflict of interest

• Slow response time

• Lack of commercial innovation

They want a neutral, independent operator, not a government body.

Q4: Will it affect the business model of exchanges like IEX?

Yes.

• Currently, exchanges make money from high trading volumes.

• If all trades are pooled and matched centrally, liquidity is no longer an edge.

• IEX fears it may lose its dominance, and revenues could fall.

Q5: Are there international examples of this?

Yes, Europe uses market coupling for cross-border electricity trade. But:

• Those are mature, digitally advanced markets.

• India still has transmission bottlenecks, data latency, and state-level complications.

So copy-pasting the model may not work without groundwork.

Q6: What's the risk for investors and consumers?

• If poorly implemented, it may disrupt power availability or pricing in short-term markets.

• For companies like IEX, it could impact growth and profitability.

• For new players like PXIL and HPX, it’s a potential game-changer, but only if execution is clean.

Bottom Line

Market coupling can democratize power trading in India — making it fairer, more efficient, and technology-driven.

But for it to succeed:

• Governance must be transparent and independent.

• Implementation must be technically sound and phased.

• Concerns of dominant players like IEX must be acknowledged but not allowed to block reform.