The National Stock Exchange (NSE) will launch a cash-settled monthly electricity futures contract in July 2025, Harish Ahuja, Head of Sustainability, Power / Carbon Markets, and Listing, at NSE told Moneycontrol on June 26.
Electricity futures is a financial contract where participants lock the price of electricity today for a specified month in the future. No actual power is delivered. Any eligible trading member, corporate buyer, generator, trader, or financial institution approved by SEBI (the Securities and Exchange Board of India) can trade in these futures.
"Apart from the usual supply and demand curve, the spot market in energy exchanges is also driven by desperation, which can induce unwanted volatility in the price of electricity. The presence of a futures market helps mitigate the volatility in the spot market as players get an avenue to hedge. So, eventually we will see a reduction in spot prices," Ahuja added.
Spot prices in India's power exchanges can experience significant spikes, especially during peak demand or due to supply-demand imbalances. While prices have recently fallen due to increased supply and reduced demand, they can still fluctuate sharply.
When asked how incidents like what we saw this month, when spot prices were near zero due to low demand and high supply of solar power, would be impacted, Ahuja said that in the electricity futures market such incidents would only be considered as `noise'. "This is because the contract will be based on the average price of 30 days and not the price at a particular hour," he explained.
Ahuja added that the electricity futures market, for the first time, will bring demand side elasticity in the Indian power market. "In the spot market, unless you are a power generator, a discom, or a trader with a licence from the Central Electricity Regulatory Commission (CERC), you cannot participate. In the electricity futures market, there is no such barrier. Anybody can trade. Hence, this will bring retail participation to the power market," he explained.
Sriram Krishnan, Chief Business Development Officer, NSE, said that in the initial months after the launch of electricity futures, the exchange will not charge a fee. "For the first six months, we are unlikely to charge a per transaction fee. We do this for all the new products that we introduce," he said.
The lot size or trading unit for electricity futures will be 50 MWh, which equals 50,000 units of electricity — suitable for bulk consumers. The maximum order size will be 50 times the trading unit. Trading will happen from Monday to Friday between 9 am to 11:30 / 11:55 pm. Unlike other commodities, the trading window for electricity futures has been kept till late night because the spot market demand sees a spike during the evening.
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The maximum permissible open position for individual clients will be 3 lakh MWh, or 5 percent of the market-wide open position, whichever is higher. For all the clients of a member collectively, it will be 30 lakh MWh or 20 percent of the market-wide position, whichever is higher.
India is the third largest power producer globally. It produced 1,900 billion units (BU) in FY25, according to the Central Electricity Authority (CEA). Considering global derivatives and their respective countries' generation benchmarks, India has a potential electricity derivative market size of 8,000 BU, Ahuja said.
Electricity futures prices will be decided by taking the 30-day weighted average of the spot price of the three energy exchanges — Indian Energy Exchange, Hindustan Power Exchange, and HPL Electric and Power. The participants could be power generators, distributors, traders, high-net-worth individuals, and retail participants such as malls, hotels and corporates.
Once the monthly electricity futures is launched in July, the NSE plans to launch quarterly and yearly electricity futures contracts three-six months later. The stock exchange will also explore contracts for difference (CfD) to enable renewable projects to achieve stable revenues over time. CfD is a financial contract that allows traders to speculate on the price movement of an asset without actually owning it.
NSE received formal approval from SEBI for the launch of monthly electricity futures on its platform on June 11.
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