“High volatility, high profit margin”: SEBI chief says generators, institutional investors will benefit from electricity derivatives
SEBI Chairman Tuhin Kanta Pandey said on Friday that domestic power consumption will double in the next 10 years given the current trend in the field. Pandy said India’s demand for electricity is growing and is expected to grow rapidly. His comments came a few days after the country’s first power derivatives were launched.
He also said generator and institutional investors will benefit from these contracts.
“Power has been under regulatory surveillance … It belongs to the commodity of energy … must be balanced in real time and historically as a physical contract,” said the head of SEBI at the launch of NSE’s monthly electricity futures contract.
Pandey said the global electricity market has been well established, and SEBI and CERC have taken a data-driven approach to creating these contracts as hedging tools.
“Starting from monthly futures will help investors hedge volatility… Generators will now be able to lock in prices. Price hedging mechanisms will help generators and institutional investors,” he said.
“High fluctuation commodities, high initial edge”
Pandy explained: “We will continue to ensure a safe regulatory environment… Electricity has been classified as a highly volatile commodity, attracting high initial margin requirements. This will prevent abnormal speculation. Additional profit margins may be imposed as volatility increases.”
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What are the electric derivatives used?
Initially covering this month and the next three months, the power contract is settled in cash.
Electric power-derived contracts play a crucial role in stabilizing the price of the electricity market, while supporting the transition to clean energy.
These tools enable participants to ensure financial certainty by hedging demand supply fluctuations and variability of solar and wind, such as solar and wind.
They also increase market liquidity and transparency, which is crucial to attract investment and planning infrastructure, as India targets 500 GW of renewable energy by 2030.
