1. Introduction

Electricity exchanges and electronic trading platforms have become important institutions in modern electricity markets. Unlike conventional bilateral electricity contracts, exchanges provide organized mechanisms through which generators, distribution companies, traders, and eligible consumers can buy and sell electricity through standardized contracts.

In India, the governance of electricity exchanges is primarily undertaken by the Central Electricity Regulatory Commission (CERC) under the Electricity Act, 2003, particularly its powers concerning regulation of inter-State electricity trade, development of the power market, and framing of regulations. The CERC (Power Market) Regulations, 2021 provide the principal regulatory framework for power exchanges and other market platforms. (CERC)

The governance problem is therefore broader than simply regulating buying and selling of electricity. It involves market design, licensing, price discovery, competition, market surveillance, payment security, grid security, transparency, prevention of manipulation, data governance, and coordination between electricity and securities regulators.

2. Meaning of Electricity Exchanges and Trading Platforms

An electricity exchange is an organized electronic marketplace where eligible participants submit bids to buy or sell electricity under standardized contractual arrangements.

Major functions include:

collection of buy and sell bids;

matching of bids;

price discovery;

determination of cleared quantities;

scheduling of electricity;

settlement of transactions;

management of market information;

risk management; and

compliance with grid and regulatory requirements.

The Indian power-market framework has developed from relatively simple day-ahead trading into multiple products. CERC records that the first exchanges began operations in 2008 and that the market subsequently expanded to include day-ahead contingency, intra-day, daily and weekly contracts, followed by the Real-Time Market. (CERC)

3. Legal Framework in India

A. Electricity Act, 2003

The Electricity Act, 2003 is the foundational legislation.

Several provisions are particularly relevant:

Section 12

It establishes the licensing framework for activities such as transmission, distribution and trading.

Section 14

The provision deals with grant of licences, including inter-State trading licences under the regulatory jurisdiction of CERC.

Section 66

Section 66 is especially significant because it directs the appropriate Commission to endeavour to promote the development of a power market.

This provides the statutory foundation for developing organized electricity markets and exchange-based mechanisms.

Section 79

Section 79 establishes the jurisdiction and functions of CERC, including matters concerning inter-State electricity and trading.

Section 178

Section 178 empowers CERC to make regulations within the scope of the Electricity Act.

Consequently, the governance of exchanges is not merely contractual. It is embedded within a statutory regulatory structure.

4. CERC Power Market Regulations, 2021

The CERC (Power Market) Regulations, 2021 constitute the central regulatory framework for India's organized power market.

The regulations seek to establish a comprehensive market structure capable of accommodating different electricity-market products. CERC stated that the regulations came into force on 15 August 2021. (CERC)

The framework covers matters such as:

recognition and registration of power exchanges;

eligibility requirements;

governance of exchanges;

market contracts;

business rules;

risk-management arrangements;

market surveillance;

information disclosure;

settlement;

prudential requirements;

OTC platforms; and

regulatory supervision.

Thus, an electricity exchange is treated as a regulated market institution, rather than simply a private electronic marketplace.

5. Recognition and Registration of Power Exchanges

A central governance principle is that an entity cannot simply establish an electricity exchange and commence operations without regulatory approval.

CERC determines whether the proposed exchange satisfies the applicable statutory and regulatory requirements.

India has historically had multiple exchanges. CERC records that IEX and PXIL began operations in 2008, while HPX subsequently received approval to operate as a power exchange. (CERC)

This creates a balance between:

Competition

and

Regulatory control.

Too little regulation could create opportunities for market abuse, while excessive restrictions could reduce competition and innovation.

6. Governance of Price Discovery

One of the most important functions of an electricity exchange is price discovery.

Electricity has unusual characteristics:

it is difficult to store economically at large scale;

supply and demand must remain balanced in real time;

demand fluctuates continuously;

renewable generation can be variable;

transmission constraints can affect available supply.

Consequently, exchange-based price discovery must account for both market bids and physical grid conditions.

A typical process is:

Buy bids + Sell bids → Market clearing → Price discovery → Quantity allocation → Scheduling → Settlement

The regulator must therefore ensure that the price formation mechanism is:

transparent;

non-discriminatory;

rule-based;

technically reliable; and

resistant to manipulation.

7. Market Coupling

An important recent development is market coupling.

Historically, individual power exchanges could independently match bids and determine prices. Market coupling seeks to coordinate bids across exchanges through a common clearing mechanism.

CERC's 2025 proceedings specifically concerned implementation of market coupling in the Day-Ahead and Real-Time Market segments. (CERC)

The underlying governance issue is significant:

Should competing exchanges independently determine market prices, or should a common market-clearing mechanism determine a coordinated market price?

The question involves competition, efficiency, price discovery, technological architecture, and the institutional position of individual exchanges.

CERC's 2025 order records that the proposed mechanism involves centralized matching of bids from different power exchanges to arrive at a uniform market-clearing price. (Aptel)

8. Governance of Different Electricity Products

Electricity exchanges no longer deal exclusively with conventional day-ahead contracts.

The regulatory framework has developed several categories, including:

Day-Ahead Market

Electricity is traded for delivery on the following day.

Real-Time Market

Electricity is traded much closer to the actual time of physical delivery.

CERC approved the Real-Time Market in 2020 to provide an organized mechanism for trading electricity closer to real-time. (CERC)

Green Markets

Green Day-Ahead and other renewable-energy products enable market participants to transact renewable electricity.

CERC approved the Green Day-Ahead Contract in 2021. (CERC)

Term-Ahead Markets

These allow contracts extending beyond immediate day-ahead transactions.

Ancillary Services

Power exchanges can also facilitate markets associated with ancillary services. CERC approved exchange-based ancillary-services market segments under the 2021 Power Market Regulations and the 2022 Ancillary Services Regulations. (CERC)

This expansion demonstrates that exchange governance has moved from simple electricity trading toward multi-product electricity-market governance.

9. Governance of Market Participants

An exchange requires rules governing who can participate.

Participants may include:

generators;

distribution licensees;

electricity traders;

open-access consumers;

qualified industrial consumers;

renewable-energy participants; and

other permitted market participants.

The regulatory framework must address:

eligibility;

registration;

financial capacity;

bidding obligations;

payment security;

scheduling;

default;

compliance;

information disclosure; and

disciplinary consequences.

This protects the integrity of the market.

10. Market Surveillance

Electricity exchanges require continuous surveillance because market participants may possess substantial information about:

generation availability;

transmission congestion;

demand forecasts;

fuel availability;

outages;

renewable generation;

market prices.

Potential problematic conduct can include:

manipulation of bids;

artificial scarcity;

coordinated bidding;

withholding;

misuse of confidential information;

false market signals; and

strategic bidding designed to distort price formation.

CERC's institutional structure specifically includes market monitoring functions. Its Economics Division handles matters concerning power exchanges and prepares monthly and annual market-monitoring reports. (CERC)

11. Grid Security and Exchange Governance

An electricity exchange cannot be governed independently from the physical electricity system.

A transaction concluded on an exchange ultimately has to be physically scheduled through the electricity grid.

Therefore:

Market transaction → Scheduling → Transmission network → Physical delivery

If market transactions exceed available transmission or generation capability, grid-security problems can arise.

Consequently, exchange governance must be coordinated with:

Grid Controller of India;

Regional Load Despatch Centres;

State Load Despatch Centres;

transmission utilities;

CERC;

State Electricity Regulatory Commissions.

This distinguishes electricity exchanges from ordinary financial marketplaces.

12. Payment and Settlement Governance

Electricity trading creates financial risks because electricity is delivered continuously but payment may occur according to settlement cycles.

Exchange governance therefore requires:

clearing arrangements;

payment security;

collateral;

default mechanisms;

settlement timelines;

risk-management systems.

The objective is to prevent the failure of one market participant from producing a chain reaction affecting other participants.

13. OTC Trading Platforms

Not all electricity transactions occur through centralized exchanges.

The Power Market Regulations also contemplate Over-the-Counter (OTC) platforms.

CERC has dealt with applications for registration to establish and operate OTC platforms under the Power Market Regulations, demonstrating that the regulatory framework extends beyond conventional exchanges. (CERC)

An OTC platform generally facilitates bilateral transactions while providing a regulated electronic infrastructure.

This raises an important governance question:

How much standardization and transparency should be required for transactions outside the centralized exchange?

The answer is important because excessive opacity can undermine market transparency, while excessive regulation may discourage legitimate bilateral transactions.

14. Governance and Competition

Electricity exchanges operate in a competitive environment.

India has multiple exchanges, including:

Indian Energy Exchange (IEX);

Power Exchange India Limited (PXIL); and

Hindustan Power Exchange (HPX).

CERC's regulatory framework must therefore balance:

Competition among exchanges

with

integrity of the electricity market.

Competition can encourage:

innovation;

lower transaction costs;

better technology;

new products;

improved services.

At the same time, concentration can create concerns regarding:

market power;

dependence on one platform;

control over price discovery;

technological dependence.

These concerns are especially relevant to the debate over market coupling.

15. Relationship Between CERC and SEBI

An important legal issue concerns the boundary between physical electricity contracts and financial contracts.

The Supreme Court's 6 October 2021 order resolved a jurisdictional dispute between CERC and SEBI through an agreed regulatory framework. CERC's subsequent order records the distinction: CERC regulates physical-delivery contracts, while SEBI regulates financial contracts. (CERC)

This distinction is important because an electricity exchange may potentially host products having characteristics resembling financial instruments.

The regulatory classification therefore depends not merely on the name of the contract but on its legal and economic characteristics.

16. Important Case Laws and Regulatory Decisions

1. Power Exchange India Ltd. v. CERC — Power Exchange Regulation

CERC's proceedings concerning PXIL illustrate the principle that a power exchange operates under continuing regulatory supervision.

For example, PXIL has had to seek approval for amendments to its business rules and compliance with the Power Market Regulations. (CERC)

Legal significance:
Exchange rules are not entirely private contractual rules. They remain subject to regulatory approval where required by the statutory framework.

2. CERC — IEX and PXIL Real-Time Market Orders, 2020

CERC's orders in the IEX and PXIL petitions approved the Real-Time Market.

CERC's later regulatory order records that RTM was approved through orders dated 29 May 2020 in the respective petitions. (CERC)

Significance:
The case demonstrates that exchanges require regulatory approval when introducing materially new market products.

3. IEX/PXIL/HPX — Ancillary Services Market Orders

In 2023, CERC considered applications by IEX, PXIL and HPX for introduction of ancillary-services market segments.

The petitions were brought under the Power Market Regulations together with the Ancillary Services Regulations, 2022. (CERC)

Significance:
Electricity exchanges can become platforms not merely for energy trading but also for grid-support services.

4. Supreme Court Order dated 6 October 2021 — CERC/SEBI Jurisdiction

This is particularly significant for electricity exchanges because of the overlap between electricity-market regulation and securities-market regulation.

The resulting regulatory understanding distinguishes:

physical-delivery electricity contracts → CERC;

financial contracts → SEBI.

CERC expressly relied upon this jurisdictional settlement when approving longer-duration exchange contracts. (CERC)

Significance:
It establishes the importance of regulatory classification of exchange products.

5. CERC Market Coupling Proceedings, 2025

CERC considered implementation of market coupling in the Day-Ahead and Real-Time Market segments. (CERC)

The subsequent litigation also demonstrates that exchange governance can intersect with securities-market concerns where regulatory decisions may affect the commercial position of a listed exchange operator. (Aptel)

Significance:
Market architecture itself can become a regulatory and judicial issue.

17. Principles of Good Governance of Electricity Exchanges

A sound governance framework should incorporate the following principles:

1. Transparency

Market rules, clearing mechanisms and material market information should be transparent.

2. Non-discrimination

Participants should have equal access subject to objectively defined eligibility requirements.

3. Market integrity

Rules should prevent manipulation and abusive conduct.

4. Competition

Multiple exchanges and market platforms should be able to compete within a common regulatory framework.

5. Grid security

Financial market outcomes cannot be separated from physical grid constraints.

6. Financial security

Adequate collateral and settlement mechanisms should protect participants against default.

7. Regulatory independence

The regulator should be capable of supervising exchanges without undue influence from market participants.

8. Technological resilience

Exchanges must maintain reliable electronic trading, clearing and communication systems.

9. Data governance

Market data should be protected while appropriate transparency is maintained.

10. Regulatory coordination

CERC, SEBI, Grid Controller of India and other relevant authorities must coordinate where their jurisdictions intersect.

18. Emerging Governance Issues

Electricity exchanges are entering a new regulatory phase because of:

renewable-energy penetration;

battery storage;

distributed energy resources;

electric vehicles;

artificial intelligence;

automated bidding;

demand response;

cross-border electricity trade;

ancillary-service markets;

market coupling; and

increasingly sophisticated algorithmic trading.

For example, automated algorithms can submit large numbers of bids in extremely short periods. This creates new questions concerning:

Who is legally responsible for an algorithm's market conduct?

Similarly, battery-storage operators may act as both buyers and sellers, complicating traditional regulatory classifications.

19. Challenges in Governance

A. Concentration

If a single exchange becomes dominant, questions may arise concerning market power and price discovery.

B. Conflicting regulatory jurisdictions

Physical electricity regulation and financial-market regulation may overlap.

C. Algorithmic trading

Automated bidding creates surveillance and accountability problems.

D. Cybersecurity

Because exchanges are critical electricity-market infrastructure, cyberattacks could affect both financial transactions and physical grid operations.

E. Renewable intermittency

Large-scale renewable generation increases the need for real-time and balancing markets.

F. Market coupling

Coupling can improve coordination but simultaneously changes the role and commercial incentives of individual exchanges.

G. Information asymmetry

Unequal access to information concerning outages, congestion or generation can affect market fairness.

20. Conclusion

Governance of electricity exchanges and trading platforms represents an important branch of modern electricity law. In India, the framework is primarily built around the Electricity Act, 2003, CERC's statutory powers, and the CERC (Power Market) Regulations, 2021.

The regulatory model attempts to reconcile several objectives:

competitive markets + transparent price discovery + grid security + financial stability + consumer interests + technological innovation.

The development of Real-Time Markets, green markets, ancillary-services markets, OTC platforms and market coupling shows that electricity exchanges are evolving from simple trading venues into complex market-governance institutions. CERC's recent proceedings concerning market coupling further demonstrate that the legal design of the exchange itself can have significant consequences for electricity-market structure. (CERC)

Ultimately, effective governance requires that electricity exchanges remain competitive, transparent, technologically resilient, financially secure and closely integrated with physical-grid regulation. The emerging legal challenge is to preserve these principles while accommodating increasingly automated, decentralized and interconnected electricity markets.