Regulatory safeguards have been put in place to reduce speculation, ensure stable pricing: Sebi chief on electricity futures

India’s upcoming electricity derivatives market will be backed by regulatory safeguards to curb speculation and ensure stable pricing for market participants, Sebi Chairman Tuhin Kanta Pandey said. He was speaking at the launch of the NSE Electricity Futures in Mumbai on July 18.

“We’re putting in place safeguards to ensure these instruments serve their intended purpose, this includes monthly contracts, additional margin requirements on high-risk positions, and daily price limits to check volatility,” he said.

The monthly contracts, launched on July 14, modeled on global energy commodities like natural gas and coal, are expected to become high-volume, low-speculation instruments. “This will reduce excessive speculation,” Pandey added.

CERC, SEBI and NSE are jointly spearheading this initiative, aiming to plug the structural gap caused by the absence of forward price signals in India’s power market, he said. “Electricity derivatives will offer power producers and industrial consumers a regulated platform to hedge against price volatility and plan more effectively by managing price uncertainty, mitigate revenue risks, and attract investments into the power sector,” Pandey said adding that electricity is a unique economic commodity that has historically been traded through long-term contracts. With derivatives, he added that they were bringing in another layer of financial flexibility into the system,” he said.