Daily price limits, an important risk management tool to check excessive volatility, have also been prescribed

FPJ News Service mumbai

Electricity derivatives mark the next phase of India’s power market reforms. As India marches toward its net-zero commitments and a greener grid, a deep and liquid electricity derivatives market will be essential for a reliable, sustainable, and investor friendly power sector, Sebi chief Tuhin Kanta Pandey said on Friday.

Speaking at a ceremony to launch the electricity futures segment at the National Stock Exchange, Pandey said, the capital market regulator, in consultation with the Central Electricity Regulatory Commission, has put in place safeguards to ensure that electricity derivatives remain true to their intended purpose.

Many of these measures draw from the best practices that have already been established in the equity derivatives segment. “We have started with monthly contracts. Monthly contracts in case of other energy commodities, like natural gas and crude oil, have been well accepted by market participants. 

"Electricity has been categorized as a highly volatile commodity, thereby attracting a high initial margin requirement. This will discourage undue speculative activity. Additional margins may be imposed in times of heightened volatility,” Sebi chief said. Daily price limits, an important risk management tool to check excessive volatility, have also been prescribed. This will protect investors from sudden and extreme price movements, especially during sudden demand supply imbalances.

India has made significant progress in strengthening its energy sector in recent years. The country is successfully balancing the twin goals of meeting rising electricity demand and promoting sustainability. According to the International Energy Agency, 85% of the increase in global electricity demand over the next three years will come from emerging and developing economies.