Power play: NSE sees electricity derivatives market surging to $475 billion
electricity derivatives market
in India is projected to scale between $175-475 billion (₹14-39 lakh crore), with rising demand from generators, distribution companies and industrial consumers seeking to hedge price volatility in the energy sector. The National Stock Exchange (NSE) has launched monthly electricity futures contracts to tap this opportunity and deepen market participation.
In a detailed presentation, NSE stated that electricity derivatives could reach a volume of 8,000 billion units (BU) annually, benchmarked to global markets. India's current power generation stands at 1,900 BU, and the short-term market accounts for 16% of all transactions, or roughly 300 BU. The new contracts aim to offer hedging certainty beyond the day-ahead and bilateral deals that dominate this segment.
The contracts are based on the volume-weighted average price (VWAP) of the Day Ahead Market (DAM) across all power exchanges and are cash-settled. Trading units are set at 50 MWh with a tick size of ₹1/MWh. A total of 12 monthly contracts will be available in a cycle.
Client-wise open interest is capped at 3 lakh MWh or 5% of market-wide open interest, whichever is higher. Members can hold up to 30 lakh MWh or 20% of market-wide open interest.
'By offering long-term pricing visibility, these futures can reduce price risk for generators and ensure procurement stability for DISCOMs,' NSE said in its presentation. Generators facing falling spot prices can hedge by locking in rates on futures, while consumers can secure stable rates against expected price surges.
Globally, electricity derivatives are known to reduce volatility by up to 50%. In the US and EU, such instruments are widely used by energy firms, retailers, and heavy industries. NSE aims to replicate this success with phased rollout of quarterly, annual, and contract-for-difference (CFD) variants.
In India, OTC bilateral trading and DSM transactions still dominate the non-PPA market. NSE's product seeks to offer transparency, standardisation, and a hedging option across sectors including industry, hospitality, and large retail.
The exchange added that electricity derivatives will also support power sector reforms by allowing better demand forecasting and enhancing reliability of supply for large users.
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