NSE's new futures to hedge power price fluctuation loss
National Stock Exchange (NSE) is set to launch a new security called 'Electricity Futures' in order to hedge losses due to electricity price fluctuations.
This will allow power buyers, sellers, traders, and retailers to manage the price risk. The electricity supply and distribution market is bundled and this product will help them unbundle, NSE said. There will be no direct delivery of electricity that will take place. DISCOMS, generators, traders and industries can now lock future prices. It is a monthly product that will be settled in cash and is expected to bring some certainty to short-term market of electricity as a commodity, which is currently volatile. Quarterly, annual and Contract for Difference (CfD) markets will also be launched subsequently said Harish K. Ahuja, Head of Sustainability, Power , Listing and Social Stock Exchange at NSE while talking to the media.
Power generators will hedge revenue, distribution companies hedge costs and traders bring liquidity according to NSE's factsheet on the product.
A unit of the product will be 50MWh and the maximum order size will be made for 2500MWh. Positions can be held for up to 30 lakh MWh or 20% of the market wide open positions, whichever is higher for all the electricity contracts combined together.
For individual clients, the maximum position is 3 lakh MWh or 5% of the market wide open position , whichever is higher for all the electricity contracts combined together.
Mr. Ahuja said that the product was designed keeping in mind that power was a public good and speculation may not be possible as electricity is not storable. All over the world, five exchanges , namely Intercontinental Exchange (ICE) which owns the NYSE, New York Mercantile Exchange, European Energy Exchange, NordPool (a pan-European power exchange), and NASDAQ has it in Europe.
The date of launch will be announced by two to three weeks , said Mr. Ahuja.
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