Leading commodity derivatives platform Multi Commodity Exchange (MCX) said in an exchange filing it will launch Electricity Futures Contract from July 10 in an effort to meet the rising demand for structured electricity price risk management instruments.
"This contract is a step toward deepening India’s energy markets and supporting the broader goal of sustainable, market-driven power pricing," Praveena Rai, MD & CEO of MCX said, adding that the launch will address real market needs.
The contract, which got regulator's nod in June, will follow Sebi's Daily Price Limits with an initial slab of 6%, extendable up to 9% on a given day. Initial margin requirement for the contract is a minimum of 10% or volatility-based margins, whichever is higher, said MCX. Client level position limits have been capped at 3 lakh MWh or 5% of the market-wide open interest, whichever is higher.
There will be four electricity futures contracts - the current month and three future months. The first trading day will be the first business day of the launch month, and the last day of the contract will be the business day immediately preceding the last calendar day of the contract expiry month. Indian Energy Exchange (IEX) has more than 90 percent market share in electricity spot market and IEX Day Ahead Market (DAM) prices will be the underlying for MCX Electricity Futures.
MCX said the launch is timely as the electricity sector has been seeing 'significant growth' along with the need to manage price stability, fluctuating demand, fuel costs, and other market developments.
"The Electricity Futures contract will help power generators, distribution companies, large industrial consumers, and financial participants with a transparent, liquid, and reliable hedging mechanism. It will also promote investors with a widely used commodity to add to their portfolio," the company statement added.
Read More: What are Electricity Futures and how will they impact the power sector?
Rishi Nathani, the CBO for MCX sounded very bullish on the commodity derivatives market and said the latest contract will help in price discovery and is suitable for 'all kinds of investors'.
"It is important both for volatility and also for electricity players to plan future production, so it is useful for both power producers and investors," Nathani said, adding, "This is not just about trading any contract but about developing India's power transition."
Shares of MCX were sharply lower in trade, down by over 3.5 percent on July 8.
MCX is launching its contract ahead of NSE, which will unveiling its electricity futures contract on July 14.
On growing competition in the segment, Rai noted that their view is to keep it simple. "Using the spot exchange, where IEX holds over 90% of the market share, gives a clear, transparent reference point. It allows any investor or participant to look at historical data to make informed decisions. They’ll be able to analyze how the electricity market responded during different scenarios: monsoons, exceptional rainfall, seasonal fluctuations, etc. This rich dataset will aid in forecasting, insight-building, and more accurate budgeting," she said.
Rai added that she sees significant opportunity in the space for all players. "Globally, the derivative-to-physical market ratio is around 3x, that gives you an idea of the addressable market size here. Of course, it won’t reach that scale overnight. It will evolve over time," she said adding that they are actively engaging with market participants and believe that broader industry involvement will drive awareness, participation, and overall market depth.
"At this stage, market share isn’t the key focus the priority is enabling the right ecosystem and success factors to tap into this opportunity. As this develops, we expect the market to demand more specialized offerings, such as renewable-linked (green) contracts or long-term agreements. These exist globally and can be adapted locally as the ecosystem matures with better awareness and stakeholder alignment," she said adding that there’s room for multiple players, and once the market deepens, competition will naturally play its role.
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