What is market coupling, and why is it shaking up IEX?

What is market coupling?

Market coupling is an economic model used in energy markets to create a single, uniform price for electricity across different trading platforms.

Under this mechanism, bids and offers collected from all power exchanges are aggregated and cleared together, resulting in one market-clearing price for the day-ahead or real-time markets.

Currently, IEX acts as India’s leading platform for spot electricity price discovery.

Why is market coupling being introduced?

The Central Electricity Regulatory Commission (CERC), in its July 23 order, said that the reform is aimed at improving price discovery and market efficiency.

According to CERC, the objectives of market coupling are: discovery of a uniform market clearing price for day-ahead or real-time markets; optimal use of transmission infrastructure; and maximisation of economic surplus across buyers and sellers.

Under the phased rollout, the day-ahead market segment will transition to a round-robin market coupling model by January 2026.

The term-ahead and real-time markets will be integrated later, following pilot studies and consultations, according to CERC.

Under the new framework, power exchanges will take turns acting as the market coupling operator, while Grid-India will function as a backup and audit operator.

All exchanges have been directed to share market data with Grid-India and the CERC to facilitate implementation.

Why now?

The CERC order follows the conclusion of a four-month shadow pilot programme conducted between December 2024 and March 2025.

The pilot found that coupling the day-ahead market resulted in welfare gains of ₹38 crore (0.3%) with negligible impact on prices due to skewed liquidity, while real-time markets coupling yielded marginal welfare gains of ₹72 lakh (0.01%).

Coupling the real-time markets with Security Constrained Economic Dispatch (SCED) generated net savings of ₹1.4 crore per day despite a slight increase in average cost per MWh, and it reduced price volatility. However, the pilots also highlighted the need to harmonise bid structures and clearing algorithms across exchanges for a smooth rollout.

What's next?

The regulator has directed Grid-India to develop software to run shadow pilots for coupling term-ahead markets and submit operational feedback. It has also asked power exchanges to share necessary data to support the rollout and has initiated consultations to draft regulatory amendments needed for full implementation.

What does this mean for IEX?

Analysts warn that market coupling could erode IEX’s dominance in price discovery and affect its market share. IEX currently enjoys a near-monopoly in price setting for spot power markets. After coupling, its platform will merely act as a bidding window without a unique role in price discovery.

Brokerage Bernstein called the order “worse” than expected and cut its target price on IEX shares to ₹122 from ₹160 to "reflect full impact of market coupling".

The stock was set for its seventh straight session of losses, as investors priced in concerns that increased competition and uniform pricing would compress IEX’s margins and dent its stronghold in the segment it has led for years.