ANNUAL REPORT 2019-2020 LEADING the FUTURE of ENERGY Annual Report 2019-2020 2 Corporate Overview Statutory Reports Financial Statements Page 04 Page 22 Page 126 CONTENTS Corporate Overview 01 1. IEX Leading the Future of Energy 05 2. Mega Trends in Energy 06 3. Chairman’s Message 08 4. MD & CEO’s Message 09 5. Defining India’s Energy Future 11 6. Building a Futuristic Energy Marketplace 12 7. The Indian Gas Exchange 13 8. Social Connect 14 9. Board of Directors 17 10. About IEX 18 11. IEX Leadership Team 20 12. IEX Over the Years 21 Statutory Report 02 1. Management Discussion & Analysis 23 2. Directors’ Report 41 3. Corporate Governance Report 88 4. Business Responsibility Report 114 Financial Statement 1. Standalone Financial Statements 127 03 2. Consolidated Financial Statements 178 3 Annual Report 2019-2020 01 Corporate Overview 4 Corporate Overview Statutory Reports Financial Statements Page 04 Page 22 Page 126 IEX is leading the future of energy with innovation and technology We endeavor to be the architect of next-generation sustainable energy solutions ensuring competitive, transparent, and reliable access to energy. Through continuous innovation underpinned by technology to establish energy marketplaces for delivering affordable and reliable energy to consumers. 5 Annual Report 2019-2020 Megatrends for Energy Decarbonization, Decentralization, Digitization, and Democratization will drive the future of energy across the world. India will be no different. These four megatrends will lead to sustainable, reliable, and affordable energy for the future. These shifts will also lead to a sectoral transformation from a system based on centralized generation, transmission, and distribution to one that integrates distributed generation, supply chain automation, and low carbon technologies. In addition, they will further the development of digital products that would optimize power flow to end consumers, thus making them more powerful. 6 Corporate Overview Statutory Reports Financial Statements Page 04 Page 22 Page 126 DECARBONIZATION 2030 will be a milestone year for India as it strives to achieve two significant commitments: the 2030 Agenda for Sustainable Development Goals and the Paris Agreement to ensure 40 percent of installed power capacity in the form of non-fossil sources. India’s energy sector accounts for a sizeable percentage of global greenhouse gas emissions (GHG). If not addressed with urgency, this will lead to a severe economic and humanitarian crisis. Renewable Energy (RE) will occupy a central role in the evolving energy dynamics in India, both from an energy security and sustainability perspective. The Government has set aggressive RE targets of 175 GW by 2022 and 450 GW by 2030. The National Renewable Energy Policy as highlighted in the Electricity Act 2003 amendments, is a step in the right direction. New hybrid energy solutions will lead the future. Energy storage will also play a crucial role in facilitating large-scale integration of RE generation without compromising grid security. The Government is already working to address this with efforts to improve storage technologies in conjunction with renewable energy investments. DECENTRALIZATION The distribution of small-scale generation across the transmission and distribution network will be driven by localized generation. The addition of off-grid rooftop solar, grid integrated rooftop solar, and microgrids supported by the policy framework, is driving decentralized generation and creating a new breed of ‘prosumers’ who are both producers and consumers of energy. The Government also launched the ‘Kisan Urja Suraksha evam Uhaan Mahaabhiyan’ (KUSUM) scheme to replace diesel pumps and grid- connected electric tube wells for irrigation by solar irrigation pumps; with a buy-back arrangement for farmers’ surplus solar energy at a remunerative price. The Indian Government envisages 40 GW of decentralized solar energy solutions by 2022. The transformation of the automobile sector into electric mobility will be a key beneficiary of decentralization. With a capital outlay of Rs 10,000 crores, policies like FAME II are allowing for models such as virtual power plants through the integration of vehicles with grids. Innovative decentralized RE hybrid models for competitive charging stations will also emerge. DIGITIZATION Decarbonization and decentralization will require increased focus on automation and technology to optimize the end to end supply chain across generation, transmission, and distribution. The addition of intelligent control systems and internet-enabled software can enable optimization of power plants and grids. In addition, large-scale upgradation to Smart Metering, IoT based applications, and Smart Grid technologies are driving digitization of power distribution. These will help reduce Aggregate Technical & Commercial (AT&C) losses and attain financial viability. The Government of India’s proposal to shift to smart meters by 2022 to help minimize human intervention in metering, billing, and collection will aid ringing down commercial losses coupled with the choice of suppliers by consumers. DEMOCRATIZATION The future holds more empowerment of consumers with responsible consumerism and choices. With economic power in the hands of end consumers, a consumer will have several choices in terms of the supplier of energy, color of the energy, time of energy consumption, and price. This will herald true power on demand and help establish energy as a service concept in the country. The Indian Government is set to boost Renewables with a peer to peer (P2P) energy trading initiative. Increasing urbanization as a key factor driving India’s growth story and a migration towards Smart Cities, calls for a profound shift in how we power society. This will involve optimized energy utilization, management of energy resources, and active energy efficiency that will surface opportunities not merely for entrepreneurs and investors, but also for consumers. 7 Annual Report 2019-2020 Chairman’s Message The Government of India has taken several reform initiatives to strengthen the energy sector. In the power sector we have witnessed announcement of liquidity package for DISCOMs, household electrification through Saubhagaya scheme, investments in transmission capacities and regulations to revive stressed generation assets. On the policy front, the government intends to introduce Draft Electricity Bill, 2020 which is aimed at bringing significant reforms in the power sector. On regulatory front, the government intends to expand and deepen the power markets with their inherent strong benefits towards achieving ‘24*7 power for all’ vision and support industry and economic growth in an efficient and sustainable way. As we move towards decarbonizing India and building a sustainable energy economy, the government aspires to increase the share of natural gas in the country’s energy basket from 6% to 15% by 2030 as well as undertake significant investments for expanding the gas pipeline infrastructure. The recently announced Gas Exchange Regulations is a step in the right direction towards transforming the gas market. Dear Shareholders, In fiscal year 2020, your company recorded a 3.3% YoY India’s vision to become Atmanirbhar is pivoted on high growth in electricity volumes and 6% YoY profit growth. We industrial and economic growth as we overcome the worked towards investing in technology and deepening the challenges created by CoVID-19. The year gone by was power market through new products such as Real-Time- difficult for several nations across the globe as well as for Market (RTM) launched on June 1, 2020. I would like to India. However, India’s long-term growth story remains congratulate our shareholders on the launch of India’s first intact, fortified by pillars such as favourable demographics, nation-wide delivery based automated gas trading platform, proactive reforms, infrastructure investments, and building Indian Gas Exchange (IGX), which started operations on a sustainable energy economy. The demand for electricity June 15, 2020. Inaugurated by Hon. Minister of Petroleum is thus expected to grow manifolds in the years to come and Natural Gas & Steel Shri Dharmendra Pradhan, IGX will and will be a key driver of India’s growth story. transform India as a gas based economy. We look forward to exciting times ahead. Your company is equipped with all the right elements and has been leading “India’s aspiration to build a self-reliant the power market transformation over the last 12 years. economy with a thrust on manufacturing We will continue to work in collaboration with government, is dependent on our ability to develop a regulators, customers, and other stakeholders to develop the energy market as well as leverage new growth sustainable, competitive, and efficient opportunities for IEX to maximize shareholders value. energy sector” Satyanarayan Goel Non-Executive Chairman 8 Corporate Overview Statutory Reports Financial Statements Page 04 Page 22 Page 126 MD & CEO’s Message Rajiv Srivastava Managing Director and Chief Executive Officer Dear Shareholders, services that ease existing efficiency hurdles. IEX is well positioned to be a reliable ally to government, industry, and Fiscal year 2020 was both exciting and challenging. We civil society with simple and clear objectives of offering are proud to have made continued strides in providing flexibility, 24*7 energy supply and lowest price points. affordable and reliable access to energy to our customers through the flexibility,