IEX: From Monopoly to Market Coupling

By Shyam Sundar B

OVERVIEW

The Indian Energy Exchange (IEX) has emerged as the country's leading platform for short-term electricity trading, largely due to its early entry, deep market liquidity, and effective price discovery mechanisms. This strong market Existence has enabled the company to provide Exceptional financial results, reflected in high profitability, Minor debt, and leading returns for shareholders.

That said, a regulatory shift could reshape the competitive view. Beginning in January 2026, the Central Electricity Regulatory Commission (CERC) will roll out market coupling, a system where price discovery will be controlled across all exchanges. This change may weaken IEX's edge in pricing and pave the way for competitor platforms to attract users through cheaper fees or improved user experience. While IEX remains financially sound, its future market power will be based on how effectively it manages this phase.

Perks of IEX

The Indian Energy Exchange (IEX) has maintained a strong position in India's power market primarily due to its initial advantage. Upon its launch in 2008, electricity trading in India was largely reliant on long-term Power Purchase Agreements that committed both buyers and sellers to fixed tariffs. IEX established a flexible spot market that enabled distribution companies and power generators to engage in transactions more effectively, and by being the leader in creating this platform, it quickly attracted a significant number of participants. This early advantage promoted considerable liquidity on the exchange, which is vital for any trading system. The arrival of buyers and sellers not only helped swift transaction execution but also initiated a network effect—an increase in participation improved price discovery, at the same time attracting even more users.

With this liquidity, IEX emerged as the most dependable platform for discovering competitive electricity rates. For distribution companies, this represented an opportunity to cut costs by acquiring power at prices often lower than those outlined in their long-term agreements, while for power generators, it offered a broader selection of buyers willing to pay fair rates. This benefit directly resulted in financial strength for the firm. Operating with a lean model, IEX mainly profits from transaction fees of just a few paise per traded unit, but the massive volumes processed have allowed it to generate hundreds of crores in revenue, sustain industry-leading profit margins exceeding 65%, and remain nearly debt-free while consistently achieving a high return on equity.

In addition to its financial advantages, IEX’s leading position provided it with credibility and trust in a heavily regulated industry. Market participants regarded it as the primary choice for trading, further setting its leadership role. This strong reputation enabled IEX to lead the development of new offerings such as the day-ahead market, the real-time market, and the green day-ahead market for renewable energy. By promoting innovation and influencing the evolution of electricity trading in India, IEX supported its status as the key center for short-term power trading. Collectively, these elements—initial market advantage, liquidity, effective price discovery, financial strength, and a leading spirit in innovation—formed the fundamental benefits of IEX’s dominance in the energy exchange sector.

Perks to pitfalls

Although IEX has experienced a big phase of market leadership, this strength likewise reveals specific weaknesses. A major issue is its heavy dependence on the day-ahead market (DAM), which accounts for nearly 50% of its earnings. Such reliance on one sector renders the business model vulnerable to regulatory modifications, and this risk is beginning to materialize with the Central Electricity Regulatory Commission's announcement to implement market coupling starting January 2026.

What is Market Coupling?

Market coupling involves Merging buy and sell bids from the three power exchanges: IEX, Power Exchange India Limited (PXIL), and Hindustan Power Exchange Limited (HPX), in order to determine a unified market clearing price (MCP).

Currently, each power exchange individually gathers its own buy and sell offers to determine its own Market Clearing Price (MCP).  The process of market coupling in electricity markets aims to fit in trading platforms to promote efficiency, transparency, and accurate price discovery across linked markets.

 Does market coupling affect IEX?

Market coupling offers advantages for consumers since it promotes increased competition and transparency in electricity pricing, and it also boosts liquidity across exchanges to help minimize price changes.

Typically, investors sell IEX shares because of concerns regarding market coupling, given that the exchange holds a substantial market share of about 90 percent in the electricity sector. A balanced competitive landscape among exchanges could jeopardize its role in determining prices. Additionally, any movement of volumes or trading preferences away from IEX towards other power exchanges could negatively impact IEX's revenue due to reduced fee income.

In the last month, the IEX share price has increased by approximately 11 percent on the BSE, compared to a 4 percent rise in the benchmark Sensex index. Since reaching its 52-week low of ₹151 per share, the stock has risen by 39 percent.

Recently, the company's shares dropped by 30% following the approval of Market Coupling regulations for the Day-Ahead Market (DAM) by Central Electricity Regulatory Commission, which is slated to be implemented by January 2026. To guarantee consistent price discovery, power exchanges will take turns serving as Market Coupling Operators. Grid India will serve as a backup operator, create software for Term-Ahead coupling, and carry out a three-month pilot program.

IEX's decreasing control is expected to lead to a reduction in its market share from more than 80% in FY25 to 50% by FY28, as a result of new market coupling regulations taking effect in January 2026. With competitors aiming for rapid expansion, one is seeking a 33% market share, and PXIL is also joining the competition, which will elevate the competitive pressure.

We perceive medium-term potential in IGX for IEX but anticipate a reduction of its stake to 25%. Valuing IEX at a multiple of 20 times FY27 P/E, significantly lower than its historical average of 35 times, reflects changing market conditions. Return on equity is expected to decrease to 27% from the previously estimated range of 35-40%. However, stronger trading volumes or limited competitive pressures could provide potential for upside.

Uncomfortable Journey ahead?

The implementation of market coupling in the Day-Ahead Market (DAM) and Real-Time Market (RTM) could lead to a significant shift in trading volumes to alternative exchanges. This poses a challenge for IEX. IEX's market share in the DAM and RTM is predicted to reduce to approximately 60% over the coming years. With Market coupling established, the Only method for power exchanges to remain competitive will be through adjusting transaction fees.

Transaction fees are the primary source of income for power exchanges. Given IEX's strong market position, it can afford to impose higher charges compared to other exchanges. Revenue from these transaction fees, which accounts for approximately 75% of IEX's earnings, could face a setback. For example, if IEX were to lose 50% of its market share in the Day Ahead Market (DAM), this could lead to an approximate 25% decrease in the company's revenue, as per analysts' predictions. It is important to note that IEX will continue to be the leading platform, a status unlikely to change in the near future. However, its dominance in the Indian power trading sector will start to weaken.

What is unfavorable news for IEX shareholders, however, is quite beneficial for power trading in India. Coupling will create a fair environment for all competitors. It will especially enhance transparency, improve price discovery, and reduce power prices in the spot market. It’s important to note that India’s power market is projected to triple in size by 2030 due to significant growth in renewable energy. This indicates that the role of power exchanges must expand. Since renewable energy is variable, spot trading will be crucial in this context. At present, transactions of power in the open market account for less than 10% of India’s total electricity, compared to up to 50% in international markets. It is evident that India has considerable progress to make, and coupling is one of the initiatives that could drive this change.

Conclusion

Essentially, the journey of IEX explains how entering the market early, ensuring liquidity, and Promoting innovation can establish a market leader with remarkable financial stability and credibility. Its Importance has certainly transformed short-term power trading in India, improving the efficiency and transparency of electricity markets. However, with the introduction of market coupling, the very foundations of this supremacy are being challenged. By eliminating its pricing edge, regulators are creating a more fair competitive environment where aspects such as user experience, cost effectiveness, and service quality will determine competitiveness. For IEX, the present challenge is to utilize its strong financial foundation and established reputation to adapt to this evolving landscape. If it manages to adapt effectively, it can maintain its leadership in a more competitive arena; if it fails to do so, its existing advantages may quickly become drawbacks.