India’s MCX to launch electricity futures as hedge against weather-driven demand shifts

MUMBAI: India’s Multi Commodity Exchange will launch the country’s first electricity futures contracts on Thursday, providing power generators, distribution companies, and large industrial consumers with a tool to hedge their risks.

The exchange will initially launch cash-settled contracts for the current and next three-month periods, but they will subsequently be available for all 12 calendar months, MCX said in a statement on Tuesday.

The exchange’s managing director Praveena Rai said the goal is to address the sector’s needs, deepen energy markets, and support sustainable, market-driven power pricing.

Weather has always heavily affected India’s power demand, with needs peaking during summer heat and easing with the moderate temperatures accompanying the seasonal monsoon rains. However, increasingly erratic weather patterns, with more heatwaves and untimely rainfall, have made demand harder to predict.

Currently, Indian utilities rely mainly on long-term power purchase agreements spanning up to 25 years for base load requirements, supplemented with short-term purchases through power exchanges for peak demand.

Expensive long-term power purchases, subsidised supply, and electricity losses due to poor infrastructure, however, have left India’s distribution companies with debts of around $9.5 billion, according to the government.

India’s National Stock Exchange will open trading of similar monthly electricity futures from July 14, the bourse operator said last week.