Unveiled at a time of record domestic coal production, the Coal Exchange Rules, 2026, are a case of better-late-than-never. They will create a broad market-based mechanism through regulated trading platforms for the lynchpin of India’s energy system — coal. They are aimed at enhancing price discovery, transparency, access for small consumers, as well as, one would hope, reduce bilateral agreements that are often opaque and come with a whiff of graft, too often. Today, most coal transactions between producers and buyers take place through long-term contracts, primarily for the power sector, followed by auctions, imports and captive mining. While India’s commodity exchanges are well established, they function largely as financial markets rather than physical delivery platforms. Coal exchanges, however, appear closer in design to power exchanges, which, despite modest volumes, play a role in price discovery, market signalling and the development of secondary markets. As if to prove this point, coal exchanges are expected to serve the non-regulated sector, which relies on Coal India auctions where coal is often sold at a premium to the highest bidder. Power exchanges are not merely niche trading platforms; they serve as points of reference for the broader power market. They have enhanced price discovery and served as a balancing market without replacing long-term power purchase agreements. Initially the power exchanges were only balancing shortages, but eventually the spot prices became a barometer of the broader power market indicating scarcity, surplus and system stresses for all electricity stakeholders. Perhaps the first role of coal exchanges could be to open up inventories, allowing surpluses to balance out shortages across India.

The templates for the two exchanges are not very different though the specific rules framed by the Coal Controller Organisation of India will determine the success of coal exchanges. Just as with the successes, the failures of power exchanges can also serve as lessons learned for coal. Coal is not as fungible as electricity, which once generated is the same everywhere requiring only minimum standards. Coal quality varies widely. Therefore, robust standards and quality assurance are as important as contract design, liquidity creation and enforcement. The latter set of requirements will ensure that major producers and consumers are drawn to the coal exchanges. The emphasis should be on facilitating participation of retail consumers unlike power exchanges, which are dominated by discoms. Coal India’s stance will be crucial. Besides safeguards against volatility, dispute resolution mechanisms and improved transportation logistics will be important too, since the coal exchanges will be physical delivery platforms.