Electricity
Year 2009 is another significant milestone and a moment of pride for the Indian commodity markets. India has joined the select group of developed countries, which offers electricity futures on an exchange platform. With this MCX has now further diversified its basket of energy products after crude oil, furnace oil, natural gas and aviation turbine fuel.
India’s commodity futures exchange MCX (Multi Commodity Exchange of India Ltd), has launched futures trading in “Electricity” whereby electricity will be available for futures trading. This is the first time in India when electricity will be available for futures trading. MCX received the approval from market regulator Forward Markets Commission for launching weekly and monthly electricity contracts on 09 Jan 2009. The exchange will launch eight weekly contracts and four monthly contracts. The first trade was executed in the March monthly contract at Rs 7,300 per Megawatt hour (MWh).
Globally, Nordpool in Sweden, Norway, Finland, Denmark, Inter Continental Exchange in UK, Power next SA in France, European Energy Exchange in Germany, PLM in the US and Australian Securities Exchange in Australia offer electricity futures trading platform.
The contract-trading unit will be 1MWx24 hours with tick size as Rs 1 per mwh. The delivery will be optional for both buyers and sellers and due date rate will be the average of daily system prices of day-ahead market of Indian Energy Exchange (IEX) for delivery during the contract week/month.
It will trade through Monday to Saturday between 10 a.m. and 11.55 p.m., except Saturdays which will be from 10 a.m. to 2 p.m. At any point of time 8 weekly contracts and 4 calendar month contracts will be available for trading.
The total annual market size (electricity generation) in 2007-08 is Rs 2,00,000 crores (for 665 million mwh @ Rs 3000 / mwh), about 665 billion units. The present short term market per year is around 4% to 5% of the total market. Rs 13500 crores (30 million MWh @ 4500 per mwh) which is equivalent to about 30 billion units.
Trading in electricity futures will be helpful as power prices are volatile. Those who buy or sell power in the spot market will be benefited directly from this. Apart dealings via an exchange are always safe as its clearinghouse provides a system of guarantee that mitigates counter party credit risk. Electricity futures will attract huge market participation. Introduction of this facility will help get the true price in the market and will also rationalize the use of electricity. It will increase the depth of the market, where all sellers and buyers can come on one platform and trade.
