With the Supreme Court disposing of the long-pending matter between the Securities and Exchange Board of India (SEBI) and Central Electricity Regulatory Commission (CERC) regarding regulatory jurisdiction of electricity derivatives, as per the terms of the agreement reached upon by both entities, the CERC will regulate all physical delivery-based forward contracts whereas the financial derivatives will be regulated by SEBI.

“This has opened the gate for the introduction of longer duration delivery-based contracts in the power exchanges, which has been currently restricted to only 11 days due to the pendency of the case.

“This will enable discoms and other large consumers to plan their short-term power procurement more efficiently,” said the Power Ministry in a release.

“Similarly, commodity exchanges such as MCX can now introduce financial products – electricity futures – which will enable discoms and other large consumers to effectively hedge their risks of power procurement,” it further added.

Significant development

This is a significant development, and has the potential to change the landscape of the power market in the country. This will bring in newer products in the power/commodity exchanges, and attract increased participation from genco, discoms and large consumers, which will eventually deepen the power market.

This will further deepen the power market from the present level of 5.5 per cent of the volume to the targeted volume of 25 per cent by 2024-25.

It is to be noted that the Power Ministry took the initiative of resolving the jurisdictional issue between SEBI and CERC with regard to various forms of contracts in electricity for the efficient regulation of electricity derivatives by constituting a committee on October 26, 2018, under the Chairmanship of the Additional Secretary, Ministry of Power, with representatives from Department of Economic Affairs (Ministry of Finance), Central Electricity Authority, Central Electricity Regulatory Commission (CERC), Power System Operation Corporation Limited (POSOCO), Security Exchange Board of India (SEBI), Indian Energy Exchange, Power Exchange of India Limited and Multi Commodity Exchange, to examine the technical, operational and legal framework for electricity derivatives and to give recommendations.