1 week ago
India’s Power Derivatives Market Starts Strong, Then Loses Momentum
Power derivatives are contracts that let buyers and sellers protect themselves against changing electricity prices.
They do not involve sending electricity from one party to another.
Instead, one side pays the other depending on how the market price changes.
India began trading these contracts in July 2025.
At first, trading was strong, but it later declined.
Many electricity buyers already use long-term agreements, so they do not need as many short-term contracts.
Most buyers are public electricity distributors, which may avoid trades that could cause losses.
The article says the market needs longer and more flexible contracts to grow.
India’s power derivatives market followed a decade-long regulatory dispute between CERC and Sebi.
CERC regulates physical delivery-based forward contracts, while Sebi regulates financial derivatives.
The first electricity derivatives product was launched by NSE and MCX in July 2025.
Combined derivatives trading fell from 7.5 billion units in August 2025 to 3.8 billion in March 2026.
Long-term power agreements, risk-averse discoms, and inflexible contracts have limited market growth.
- Who
- The Central Electricity Regulatory Commission, the Securities and Exchange Board of India, the National Stock Exchange, the Multi Commodity Exchange, and electricity buyers and sellers are involved.
- What
- India’s electricity derivatives market has seen declining trading volumes after its July 2025 launch.
- Where
- In India, through trading on the National Stock Exchange and the Multi Commodity Exchange.
- When
- The market launched in July 2025; trading fell from August 2025 through March 2026.
- Why
- The market faces limited demand because of long-term power purchase agreements, risk-averse public-sector distributors, and contracts that are too short and inflexible.
Market Expansion View
Cautious View
Role of flexible derivatives
Market Expansion View
Longer-tenor, more flexible products could help buyers and sellers hedge electricity-price risk and support market growth.
Cautious View
Existing long-term power purchase agreements already fix much of the electricity price, leaving limited need for derivatives.
Trading approach for distribution companies
Market Expansion View
Distribution companies could use derivatives to manage future price uncertainty more actively.
Cautious View
Public-sector distribution companies may avoid speculative positions because losses could create financial and personnel-related consequences.
Product design
Market Expansion View
Contracts should cover specific demand hours, run for 12 to 24 months or longer, and allow periods to span multiple months.
Cautious View
The current round-the-clock, four-month maximum product may not suit distribution companies’ needs, making participation less attractive.
Key facts
- Regulatory settlement
- CERC regulates physical delivery-based forward contracts, while Sebi regulates financial derivatives.
- Launch date
- The first electricity derivatives product was launched in July 2025.
- Available product
- A cash-settled monthly contract covering up to four months, including the month of entry.
- Trading platforms
- The National Stock Exchange and the Multi Commodity Exchange handle electricity derivatives trading.
- Volume decline
- Combined derivatives volume decreased from 7.5 billion units in August 2025 to 3.8 billion units in March 2026.
- Derivatives-to-DAM ratio
- The ratio declined from 1.29 to 0.50 over the period discussed.
- Long-term contracts
- About 90% of power is locked into long-term power purchase agreements, according to the article.
Sources
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