Electricity or power trading is likely to generate more traction in the coming months as exchanges are gearing up for the new National Electricity Policy (NEP), likely to be unveiled by the government shortly.

The Indian Energy Exchange (IEX) is planning to launch forward contracts for electricity trading beyond the currently available T+11 (today+11) day maturity while the BSE is planning to start power exchange early next year, sources said.

BSE has already started mock trading for the same and it has partnered with PTC India, ICICI Bank and few other state electricity companies. Going ahead, BSE will also launch futures trading in electricity since it falls under the regulatory ambit of the Securities and Exchange Board of India (SEBI).

High potential

Spot market power trading in India is regulated by the Central Electricity Regulatory Commission (CERC). India generates more than 1,300 billion units of electricity annually and nearly 10th of this is traded in the short-the term market through bilateral deals between power companies on the IEX and Power Exchange India (promoted by NSE). Apart from direct bilateral deals, the size of the short-term market is more than ₹50,000 crore. New energy procurement and sale contracts like day-ahead contracts through power exchanges and short-term contracts form a huge portion of the trading volumes.

Also see: India’s renewables boom set to lift power exchange spot trading

IEX, a listed power exchange, earned net profits of ₹213 crore during the last financial year, which shows the potential that the market carries for exchanges since power trading is still in its nascent stage in India. IEX has put out a paper for public comments ahead of the launch of forward trading contracts. IEX also has a tie-up with the Multi Commodity Exchange (MCX) for futures trading in electricity contracts. It will require SEBI nod for both new futures products.

Long-dated electricity contracts beyond 11 days come under futures and options trading framework regulated by SEBI, and spot trading falls under CERC. SEBI is yet to issue norms on various aspects of futures trading in electricity. It has allowed only derivatives on deliverable items in recent times to reduce speculation and bring the commodities derivatives closer to real markets and make them more useful. In electricity markets too, SEBI is likely to take the same approach, experts said.

Expanding market

The government is considering expansion of the size and reach of competitive power markets or spot trading with a view to buy 25 per cent of the total electricity supply through power exchanges by the end of 2023-24. The move is likely to be a part of the NEP.

BusinessLine had reported earlier this month that India’s total power generation, excluding renewable and captive power plants, stood at 1,15,654.66 million units (MU) as of July. Of this, 14.72 per cent was transacted through short-term deals, 7.67 per cent through bilateral (traders and term-ahead contracts on power exchanges and directly between distribution companies), 5.05 percent through the ‘day ahead’ market and real-time market of power exchanges, and 2 per cent through deviation settlement mechanism.

According to CERC, of the total electricity procured in 2019-20, the short-term market accounted for 10 per cent. The balance was procured mainly by distribution companies through long-term contracts and short-term intra-State transactions. Although total short-term trading is around 14-15 per cent of total power supply volume, most of this is bilateral PPAs. Exchange trading is 5 per cent. The Power Ministry wants to increase this 5 per cent to 25 per cent by FY24.

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