Rapid Fire
Electricity Derivatives
- 17 Jun 2025
- 2 min read
The Securities and Exchange Board of India (SEBI) has approved the launch of electricity derivatives on Multi Commodity Exchange (MCX) to enhance electricity price risk management, and support the integration of renewable energy (RE).
- Electricity derivatives are financial instruments that help Gencos, Discoms, and large industrial consumers hedge against fluctuations in power prices by trading on future electricity output.
- Electricity futures contracts, options, and swaps will enable players to hedge risks, ensure supply certainty, and improve demand forecasting—key for deploying energy storage systems (ESS).
- It will boost liquidity, allow participation by hedgers, speculators, and investors, and separate financial settlement from physical delivery—deepening the short-term power market.
- The move supports India’s broader clean energy vision—over 50% (500 GW non-fossil fuel) of installed capacity from RE by 2030 and net-zero emissions by 2070, needing USD 250 billion investment annually till 2047.
Derivatives are contracts whose value depends on underlying assets or indicators such as currencies, stocks, or commodities, and include instruments like forwards, futures, and options.
- A futures contract is a legal agreement obligating the buyer and seller to transact an asset at a predetermined price on a specific future date, regardless of market price at expiry.
- An option gives the holder the right, but not the obligation, to buy (call) or sell (put) an asset at a specified price before or at a certain date, for a premium.
- A swap is a private agreement to exchange cash flows or financial instruments over a specified period, e.g., interest rate, currency, or commodity/electricity swaps.
| Read More: Options Writing |
