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SEBI Clears Electricity Derivatives to Strengthen Power Market Dynamics

The Securities and Exchange Board of India (SEBI) has approved the launch of electricity derivatives on the Multi Commodity Exchange (MCX), marking a significant step toward deepening India's power markets and enabling better risk management. These derivatives, including futures, options, and swaps, will allow power generators, distributors, and large commercial and industrial (C&I) consumers to hedge against electricity price volatility—particularly important as India's renewable energy (RE) share grows.

India's current power procurement relies heavily on long-term Power Purchase Agreements (PPAs), covering over 90% of electricity trade. However, many discoms are reluctant to enter new PPAs due to financial constraints, leaving around 40 GW of RE capacity idle. Electricity derivatives can fill this gap by offering a regulated platform for price discovery and forward contracts, enabling better demand forecasting and planning for energy storage systems (ESS).

The instruments will also help manage sudden price surges or collapses—such as those seen during high solar generation periods—by providing a forward price curve, which is crucial for investment decisions. With the launch of electricity derivatives, market liquidity is expected to increase, attracting new participants like speculators and financial investors, thereby enhancing transparency and depth in power pricing. This move is seen as essential for India's goal of achieving 500 GW of non-fossil fuel capacity by 2030.