NSE lays the ground work for an early launch of electricity futures

NSE to roll out monthly electricity futures contracts after Sebi approval, with future plans to introduce CfDs to offer price certainty for renewable energy firms

The National Stock Exchange (NSE) is set to launch monthly contracts for electricity futures and has begun registering market participants.

 

The exchange is also considering a later launch of ‘Contract for Difference’ (CfD) for renewable energy companies. The announcement of the launch is expected by mid-July, as discussions with market participants are ongoing.

 

NSE received approval from the market regulator for the launch on June 11. Similarly, the multi-commodity exchange (MCX) has also received approval from securities and exchange board of India (Sebi) to launch electricity derivatives.

 

Electricity futures are financial contracts that allow participants to lock in the price of electricity for a specified future month without involving any physical power delivery.

 

Market experts believe that these contracts will enable traders to lock in future prices, plan budgets, and reduce exposure to market volatility. For example, these contracts may help distribution companies (discoms) lock in peak season rates, allow industries to fix input power costs, and enable traders to take speculative or hedge positions.

 

Top three players in the power sector, accounting for 55 per cent of the market share, have already registered with NSE for trading electricity futures. Power generators, distribution companies, financial institutions, corporates, high-net-worth individuals (HNIs), and foreign portfolio investors will all be able to participate in this segment, according to Harish Ahuja, head of Sustainability, Power/Carbon Markets, and Listing at NSE. 

 

“We are starting with monthly contracts as we do not want the liquidity to split,” said Ahuja.

 

The minimum unit trading for these contracts will be 50MWh (50,000 units of electricity), with a minimum tick size of ₹1 per MWh. The exchange has also specified norms for open position limits for individual clients and on an aggregate basis, upper limits, and initial margin requirements. These contracts will be cash-settled based on the market index price, using the volume-weighted average of the DAM-UMCPs (Unconstrained Market Clearing Price) of the PXIL (Power Exchange of India Limited) for all calendar days of the expiry month as the index.

 

Further approvals from Sebi and CERC will be required for the launch of quarterly or annual contracts.

 

"Monthly electricity futures are just the first layer. They bring the short-term visibility needed to navigate today, but longer-term confidence needs more. CfD is being explored as the next addition, enabling renewable projects to achieve stable revenue over years, not just months,” said NSE.

 

As futures create price benchmarks, CfDs will use these to offer long-term price guarantees to renewable developers.

 

Several global exchanges already trade electricity derivatives, including EEX (Europe), PJM (USA), and ICE (UK). Sriram Krishnan, chief business development officer at NSE, said that the exchange has also sought approval from Sebi to launch derivative contracts for other commodities, excluding agricultural.