Futures trade in power to be banned

The Union ministry of consumer affairs, in consultation with the Forward Markets Commission (FMC), has taken an “in principle” decision to stop all futures trading in electricity. FMC will soon issue a notification, say officials.

Sources said the decision to ban the trade, which began in 2006, has been taken following inputs from the power ministry. “The power ministry has been opposing futures trading since 2006, citing the acute shortage of power, which distorts the trading scenario, especially in the futures market. However, the ministry of consumer affairs first wanted to test it out and thus permission was given to start power trading in 2006. However, with very low trading volumes and viability of the feedback of the power ministry, it has been decided to ban futures trading in electricity for the time being,” said the sources.

At present, futures trading in electricity is being done by the Multi Commodity Exchange (MCX) in weekly and monthly contracts. However, the ban would not extend to spot trading in electricity, which is done by Power Exchange of India Ltd and regulated by the Central Electricity Regulatory Commission (CERC). This trade is similar to that in any agri commodity, where the spot market is regulated by various states under the respective APMC laws, while a future trade is governed by the Forward Contracts Regulation Act, with the FMC at the helm of jurisdiction, explained sources.

Officials said the ban would be reviewed by the FMC at a suitable time, with feedback from the ministry and market players.

The country’s total power capacity is 162,367 Mw, with the state sector contributing around 52.5 per cent, the central sector 34 per cent and the private sector 13.5 per cent. The average shortage is 10-12 per cent, peaking at 20-25 per cent.

Industry analysts said availability of coal and water is the major limiting factor. Fuel is more than half the cost of production, followed by operating expenses. Coal shortage is an important issue.