IEX says FDRE surplus and merchant BESS can lift volumes

IEX said FDRE projects can require 4x to 5x the energy needed for their contracted delivery profile, creating variable surplus that developers can sell on exchanges, while most of India’s roughly 4 gigawatts of commissioned battery energy storage system, or BESS, capacity has been developed through the merchant route.

How does IEX say FDRE creates exchange supply?

IEX said FDRE contracts can require developers to create substantial additional capacity to meet the delivery profile in a power purchase agreement, or PPA. Management said this can be 4x to 5x the energy required for contracted delivery in some cases. That additional generation is not fixed because renewable output varies with solar and wind conditions.

IEX said a developer cannot readily sign another PPA for this volatile residual output. Instead, where surplus generation is available, the developer can bring it to an exchange platform. This is the mechanism IEX identified for adding variable renewable supply to spot markets rather than committing the output under another long-term bilateral agreement.

The company did not quantify the number of FDRE projects, the renewable capacity supporting them or the share of Q2 FY27 electricity trading generated by FDRE surplus. Its comments therefore describe a potential source of exchange volumes, not a reported FDRE-volume contribution or a forecast for a specific market segment.

Why does IEX expect merchant BESS to use exchanges?

IEX said most of the roughly 4 gigawatts of BESS capacity commissioned in India so far has been created through the merchant route. Unlike a project selling solely through a fixed offtake arrangement, a merchant BESS operator can charge and discharge power around changing market conditions and seek available arbitrage on an exchange.

Management said developers are building such BESS capacity because they see value in market prices, then bringing capacity to the exchange to capture the best available arbitrage. IEX did not disclose a split of the 4 gigawatts by state, developer, exchange product or the exact proportion operating as merchant capacity.

IEX pointed to a large gap between daytime and evening prices and high supply deficits during the year discussed on the call. Management said those conditions leave room for exchanges to absorb BESS arbitrage activity. It did not disclose the size of the price gap, a storage-specific trading volume or an expected return over the next two to three years.

Can IEX quantify FDRE and storage-linked trading today?

No, IEX said it cannot segregate Real-Time Market, or RTM, volumes between FDRE contracts, solar contracts and wind contracts. Management said RTM volumes have grown at a high rate over the past two to three years and increased significantly in the current year, with a good part of the growth coming from renewable generators and renewable power supply.

The lack of a separate volume measure means IEX did not provide a comparison of FDRE- or BESS-linked trading in Q2 FY27 against Q2 FY26. It did identify a segment-level shift: renewable variability is contributing to RTM activity, while surplus FDRE generation and merchant BESS are potential sources of further short-duration exchange supply.

IEX also contrasted RTM with the Day-Ahead Market, or DAM. Management said RTM volume represented about 41% of total volume in the first seven months of the year, compared with about 35% for DAM. It said RTM has expanded at roughly 30% to 35% compounded annual growth since its June 2020 launch, while DAM growth was about 2% to 5% on that basis.

What market conditions are affecting IEX electricity volumes?

IEX said supply uncertainty during the second quarter encouraged buyers to secure electricity through intraday, day-ahead contingency and term-ahead contracts. Management attributed that behaviour to a weak monsoon and said buyers sought power in advance when availability, particularly during evening hours, was uncertain.

By end-October, IEX said prices had corrected to about Rs 4 per unit and power availability had improved in both DAM and RTM. Management said volumes had then begun increasing in the two markets. This changed the backdrop from the earlier quarter, when elevated demand and uncertainty shifted some activity toward bilateral and term arrangements.

The company said term-ahead activity is divided mainly between monthly and weekly contracts, which account for a little more than 70% of total term-ahead volume, and day-ahead contingency and intraday contracts, which account for less than 30%. This mix is distinct from the immediate balancing role IEX expects RTM to play as variable renewable generation rises.

What BESS capacity outlook did IEX give for 2032?

IEX management said about 80 gigawatts of thermal capacity was under construction and 43 gigawatts of BESS capacity had already been awarded under a viability-gap-funding scheme. It added that states had awarded battery systems and independent power producers were also awarding projects through the merchant route.

Management expects battery capacity alone to exceed 100 gigawatts by 2032, alongside planned additions intended to meet projected peak demand of 388 gigawatts by that year. This is management’s expectation, not commissioned capacity: it contrasts with the roughly 4 gigawatts of BESS that IEX said had been commissioned so far.

For IEX, the key distinction is how the added capacity participates in the power market. Its call separated BESS projects using merchant arbitrage from FDRE portfolios carrying delivery obligations but producing variable excess output. The transcript does not state how much of the 43 gigawatts awarded under viability-gap funding will ultimately trade through exchange products.

Conclusion

IEX’s central point is that renewable portfolios oversized for FDRE delivery and merchant BESS could broaden the supply available to exchange markets. The numerical basis is management’s statement that some FDRE projects require 4x to 5x contracted energy and that most of roughly 4 gigawatts of commissioned BESS is merchant-led, although IEX cannot yet isolate their contribution to RTM volumes.

The next marker is whether awarded storage becomes operational: management cited 43 gigawatts of BESS awards and expects battery capacity to exceed 100 gigawatts by 2032. IEX also identified the daytime-to-evening price gap, RTM’s 41% share of first-seven-month volume and power availability after end-October as factors that could shape merchant storage participation.