MCX launches futures trading in electricity

09 January 2009

The Multi Commodity Exchange of India Ltd (MCX) has launched futures trading in `electricity,' whereby electricity will be available for futures trading.

MCX, which received the approval from commodity market regulator Forward Markets Commission (FMC) for trading in electricity futures, launched weekly and monthly electricity contracts today.

The first trade was executed in March monthly contract at Rs7,300 per MWh.

''This is another significant milestone and a moment of pride for the Indian commodity markets. India has joined the select group of developed countries which offers electricity futures on an exchange platform. With this MCX has now further diversified its basket of energy products after crude oil, furnace oil, natural gas and aviation turbine fuel. Now the entire industry will be able to mange price risk on energy related raw material or output better on MCX which already account for 98 per cent of the entire energy related future market,'' said Joseph Massey, MD & CEO of MCX.

''The large number of participants (including inter-state generating stations (ISGS), distribution licensees, state generating stations, CPPs and IPPs, electricity traders and others) are exposed to price risk due to uncertain demand & supply and volatile prices. The launch of electricity futures will smoothen the price curve in the medium to long run that will help the market participants to facilitate price discovery and take informed decision looking at the futures prices,'' added Massey.

The total annual market size (electricity generation) in 2007-08 was Rs2,00,000 crore (for 665 million MWh at Rs3,000 per MWh), ie, about 665 billion units. The present short term market per year is around 4 per cent to 5 per cent of the total market, ie, Rs13,500 crore (30 million MWh at Rs4500 per MWh) which is equivalent to about 30 billion units.