Introduction
Market coupling represents a transformative shift in how electricity markets operate, promising to create more integrated and efficient power trading systems. First introduced in the Central Electricity Regulatory Commission (Power Market) Regulations, 2021, market coupling aims to create a unified pricing mechanism across India’s three power exchanges by aggregating buy and sell bids to discover a uniform market clearing price (MCP). The Central Electricity Regulatory Commission (CERC) vide its Order dated 23rd July, 2025[1] has now approved the phased implementation of market coupling, beginning with the Day-Ahead Market[2] (DAM) in January 2026
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The announcement sent shockwaves through the market, most notably impacting the Indian Energy Exchange (IEX), which saw its stock price plummet by 28% as investors grappled with the implications of losing its dominant market position[3]. Understanding market coupling becomes crucial for comprehending the future trajectory of India’s electricity trading landscape.
Understanding Market Coupling: The Fundamentals
Market coupling is an economic mechanism that integrates bids and offers from multiple power exchanges into a single order book, enabling the discovery of a uniform market clearing price (MCP) across all participating platforms[4]. In simple terms, instead of each exchange operating independently with its own pricing, a Market Coupling Operator (MCO) aggregates all buy and sell orders to establish one reference price for electricity trading at any given time.
Currently, India operates three power exchanges: the Indian Energy Exchange (IEX), Power Exchange India Limited (PXIL), and Hindustan Power Exchange Limited (HPX). These platforms function as voluntary markets, each collecting bids independently and establishing their own market clearing prices. Under the proposed market coupling system, all these individual order books would be combined to create a unified pricing mechanism.
Europe in 2006 began Market Coupling with Belgium, France, and the Netherlands linking their day-ahead markets. This initiative gradually expanded to include 27 countries by 2021, creating one of the world’s largest integrated electricity markets[5]
The Current Market Landscape
India’s power exchange market presents a highly skewed picture in terms of participation and volume distribution with IEX dominating about 99% market share.[6]
Furthermore, Power exchanges currently account for only about 7% of India’s total electricity generation, with long-term power purchase agreements dominating the landscape at approximately 87% of total transactions. However, within the exchange-based trading, transactions of Day-Ahead Market and Real-Time Market represent more than 70% of all power exchange transactions, making the market coupling initiative particularly significant for these segments.
The CERC’s Market Coupling Initiative
Following extensive consultations and analysis that began with the release of a Staff Paper in August 2023 and subsequent comments from various stakeholders, the Central Electricity Regulatory Commission (CERC) has announced its decision to implement market coupling in a phased manner, starting with the Day-Ahead Market in January 2026. The implementation will follow a round-robin model, whereby power exchanges will serve as Market Coupling Operators (MCOs) on a rotational basis, with Grid-India acting as the fourth MCO for backup and audit purposes.
To understand the implication of its decisions, CERC conducted shadow pilot studies through Grid-India from 31st December, 2024 to 31st March, 2025, which benefits from coupling.
Theoretical Benefits of Market Coupling
The primary objective of market coupling is establishing a single, consistent price for electricity across all exchanges. A uniform reference price could serve multiple purposes:
- Simplified Market Operations: Traders and participants would deal with one price reference instead of multiple prices
- Enhanced Price Transparency: Market participants would have a clearer understanding of electricity values
- Reduced Arbitrage Opportunities: Price differences between exchanges would be eliminated
- Support for Financial Derivatives: A single reference price could facilitate the introduction of financial products in electricity markets
- Economic Surplus Maximization: by optimizing the matching of buyers and sellers across all platforms.
- Enhanced Market Liquidity: Combining order books from multiple exchanges could increase overall market liquidity by better price discovery, increased trading voluments, reduced price volatility, easier market access etc.
- Level Playing Field: Uniform pricing would eliminate the liquidity disadvantage that has prevented PXIL and HPX competing effectively
Technical and Operational Complexities
Implementation requires substantial infrastructure upgrades and software integration across exchanges. Key challenges include:
- Algorithm Harmonization: Developing a unified algorithm acceptable to all three exchanges while maintaining existing functionality presents significant technical challenges.
- Bid Structure Standardization: Standardizing the bid structures across platforms while preserving innovation capability requires careful consideration.
- Data Sharing Protocols: Establishing secure, reliable communication links for real-time data sharing between exchanges and the MCO demands robust technical infrastructure.
- Settlement Mechanism Consensus: Creating unified settlement processes while maintaining individual exchange responsibilities for their members presents operational complexity.
- Innovation Stagnation: Centralized price discovery could eliminate incentives for exchanges to develop new products or improve trading mechanisms.
- Timeline Concerns: Some consider the January 2026 implementation timeline overly ambitious.
Conclusion
There is both opportunity and challenge in the market coupling in India’s power sector.
Success will ultimately depend on CERC’s ability to design a system that achieves integration benefits while preserving competitive innovation and addressing legitimate stakeholder concerns.
As India’s power sector continues evolving toward greater market-based mechanisms, market coupling represents a critical juncture.
The ultimate test of market coupling’s success will be whether it delivers tangible benefits to electricity consumers through improved efficiency, better price discovery, and enhanced market competitiveness. Only time will tell if this ambitious initiative fulfills its promise of transforming India’s power trading ecosystem.
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[1] IN THE MATTER OF: Directions by the Commission for implementing market coupling in terms of the provisions of the Central Electricity Regulatory Commission (Power Market) Regulations, 2021. (2025). In CERC (Petition No. 8/SM/2025). https://cercind.gov.in/2025/orders/8-SM-2025.pdf
[2] electricity trading market which allows market participants to buy and sell electricity for the next day.
[3] Singh, N. (2025, July 25). IEX shares in free fall, nosedive 28%. What should investors do now? The Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/iex-shares-crash-15-as-cerc-clears-market-coupling-rollout-what-should-investors-do-now/articleshow/122872777.cms?from=mdr
[4] Shukla, S. (n.d.). List of stakeholders commented on staff paper on market coupling. CERC. https://www.cercind.gov.in/2023/draft_reg/Market-Coupling/Shri%20Shailendra%20Shukla.pdf
[5] (2025, July 28). EXPLAINER | How market coupling will change electricity pricing. Financial Express. https://www.financialexpress.com/business/industry-explainer-how-market-coupling-will-change-electricity-pricing-3929291/
[6] Supra [4]
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