The Multi Commodity Exchange of India Ltd. (MCX) has received the green light from the Securities and Exchange Board of India (SEBI) to launch electricity derivatives, marking a key milestone in the evolution of India’s energy trading ecosystem.
The move, also supported by the Central Electricity Regulatory Commission (CERC), is being hailed as a transformative step that will enable power generators, distribution companies, and large consumers to hedge against price volatility in electricity and manage pricing risks more effectively.
MCX Managing Director and CEO Praveena Rai called the development "pivotal" for India’s commodities ecosystem. “These contracts will offer participants a reliable, transparent, and regulated platform to manage power price risks, which are becoming more dynamic due to renewables and market-based reforms,” she said.
Rai further noted that the introduction of electricity derivatives aligns with India’s focus on renewable energy and the expanding open access power market. "Electricity derivatives can serve as a vital bridge between the physical and financial sectors," she added.
For power distribution companies (discoms), these derivatives will be a valuable tool to reduce financial uncertainty. Discoms often face revenue losses due to sudden spikes in power procurement costs, especially during periods of peak demand or low renewable generation. With the ability to lock in future electricity prices through derivatives, discoms can plan their power purchases more efficiently, avoid cost overruns, and improve budget predictability. This could lead to more stable tariffs for consumers and help discoms improve financial health, reduce dependence on state subsidies, and enhance overall operational efficiency.
MCX currently holds about 98% market share in commodity futures trading by value in FY2024-25. The exchange said the launch of electricity derivatives reinforces its role as a leader in commodity trading innovation and supports India’s broader goal of becoming a developed economy under the ‘Viksit Bharat’ vision.
The new contracts are expected to bring greater efficiency to the power market, offering tools for better price discovery and risk management amid rising energy demand and volatility triggered by green energy transitions. MCX said more details about the product specifications and timelines will be shared in due course.
