MCX, IEX spurt after SC decision paves way for power futures

Shares of MCX and IEX rose by 8.50% to 9.11% after the Supreme Court consented to allow the introduction of new market instruments for electricity trading.

Shares of Multi Commodity Exchange Of India (MCX) surged 8.50% to Rs 1977.55.

Shares of Indian Energy Exchange (IEX) rose 9.11% to Rs 698.50.

The Union power ministry said on Thursday that the Supreme Court has approved the introduction of new market instruments for electricity trading as per the terms mutually agreed between the Central Electricity Regulatory Commission (CERC) and the Security Exchange Board of India (SEBI).

CERC and SEBI had earlier moved to the Supreme Court to ascertain who will regulate electricity derivatives trading. On 6 October 2021, SC favorably disposed the matter in terms of the agreement reached upon by SEBI and CERC.

In 2018, the power ministry took the initiative of resolving the jurisdictional issue between SEBI and CERC with regard to various forms of contracts in electricity for efficient regulation of electricity derivatives by constituting a committee. The committee was chaired by the Additional Secretary, Ministry of Power with representatives from Department of Economic Affairs (Ministry of Finance), Central Electricity Authority, CERC, Power System Operation Corporation Limited (POSOCO), SEBI, Indian Energy Exchange, Power Exchange of India and Multi Commodity Exchange to examine the technical, operational and legal framework for electricity derivatives and to give recommendation in this regard. Committee submitted its report on 30 October 2019.

Based on the recommendations of the committee both SEBI and CERC have come to an agreement that CERC will regulate all the physical delivery based forward contracts whereas the financial derivatives will be regulated by SEBI.

The Union power ministry said that this has opened the gate for introduction of longer duration delivery-based contracts in the power exchanges which has been currently restricted to only 11 days due to the pendency of the case. This will enable the discoms and other large consumers to plan their short term power procurement more efficiently.

Similarly, the commodity exchanges viz. MCX etc. can now introduce financial products like electricity futures, etc. which will enable the discoms and other large consumers to effectively hedge their risks of power procurement.

"This is a significant development and has the potential to change the landscape of the power market in the country," the union power ministry said. This will bring newer products in the power/commodity exchanges and attract increased participation from genco, discoms, large consumers etc. which will eventually deepen the power market.

This will further deepen the power market from the present level of approximately 5.5% of the volume to the targeted volume of 25% by 2024-25, it added.

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