India has entered a new phase in the evolution of its power sector with the launch of electricity futures contracts on two of its leading exchanges, i.e., the Multi Commodity Exchange (MCX) on July 10, 2025 and followed by the National Stock Exchange (NSE) on July 14, 2025. This landmark introduction of electricity futures contracts represents a significant stride towards creating a more market-oriented, transparent, and risk-resilient electricity ecosystem. By enabling key stakeholders (including power generators, distribution companies (DISCOMs), industrial consumers, and traders) to hedge against price volatility, 'electricity futures' aim to bring stability and efficiency to one of India's most critical infrastructure sectors.
Understanding Electricity Futures Contracts
Electricity futures are standardized, exchange-traded financial contracts that allow market participants to lock in electricity prices for a future date or period. These contracts are cash settled which means that there is no physical delivery of electricity. Instead, gains or losses are calculated based on the difference between the contract price and the Day-Ahead Market (DAM) price published by the Indian Energy Exchange (IEX) at the expiry.
The initial offerings include monthly contracts for the current and next three months, with a planned rollout for all 12 calendar months. Some key features of these contracts are1:
- Lot Size: 50 MWh per contract
- Settlement: Cash-settled, eliminating the need for physical delivery or transmission scheduling
- Benchmark Price: DAM price published by IEX
- Eligible Participants: Generators, DISCOMs, large industrial consumers, traders, and speculators
- Trading Hours: Monday to Friday, 9:00 AM to 11:30/11:55 PM (MCX/NSE)
The Need for Electricity Futures in India India's rapidly growing power demand coupled with the increasingly unpredictable weather driven consumption peak and the transition toward a diversified energy mix (including renewables), have intensified the need for sophisticated risk management tools. The traditional model, based largely on long-term Power Purchase Agreements (PPAs) and limited short-term spot market activity, has offered limited flexibility and inefficient price discovery with only about 5% of power transactions occurred through exchanges2.
Electricity futures offer several advantages:
- A transparent price discovery mechanism based on real-time market conditions.
- Robust hedging tools to manage exposure to price fluctuations.
- Improved planning and budgeting for both suppliers and consumers.
- Increased liquidity and market depth, fostering greater participation and competition. Notably, the first day of trading on NSE witnessed over 4,000 contracts, translating to 200 million units of electricity and a turnover exceeding ₹87 crore. A volume-weighted average price of ₹4,368/MWh emerged, signalling strong initial traction and market interest.
Resolving a Decade-Long Regulatory Gridlock
The successful launch of electricity futures also signifies the resolution of a long-standing regulatory challenge. At the heart of this development lies the resolution of jurisdictional issues between the Securities and Exchange Board of India (SEBI) and the Central Electricity Regulatory Commission (CERC), which was essential to clearing the path for these products.
Historically, since Indian power producers and consumers operated primarily through long term and short-term power purchase agreements, and physical spot trading on exchanges like the IEX, trading in the electricity sector was under the regulatory oversight of CERC. However, as India's power sector matured, there was a growing push from market participants for risk hedging tools akin to those available in more developed economies, particularly financially settled electricity derivatives.
SEBI's Statutory Authority under the SCRA
SEBI derives its regulatory mandate for electricity derivatives from the Securities Contracts (Regulation) Act, 1956 (SCRA, 1956), which defines "securities" under Section 2(h) to include derivatives. Section 2(ac) further defines a derivative as a security derived from various instruments or contracts, including those linked to commodity prices or indices.
Section 9 of the SCRA, 1956 empowers SEBI to regulate derivative contracts and lay down conditions for their trade. Building on this, electricity was notified as a tradable commodity in 2016, marking the first formal step toward treating electricity as a financial instrument within the securities market framework.
CERC's Mandate under the Electricity Act, 2003
In contrast, CERC has long asserted regulatory jurisdiction over electricity contracts based on its authority under the Electricity Act, 2003 (EA, 2003). Section 79(1)(c) and (d) of the EA, 2003 empowers CERC to regulate inter-state transmission and tariffs and Section 178 authorizes CERC to frame regulations to carry out the EA 2003's objectives.
To resolve the conflict, a Committee on Efficient Regulation of Electricity Derivatives (Committee) chaired by Additional Secretary, Ministry of Power, was constituted on October 26, 2018. The Committee was tasked to examine the technical, operational and legal framework for electricity derivatives. The Committee in its report on October 30, 2019, inter-alia, recommended that ready delivery contracts and Non-Transferable Specific Delivery (NTSD) contracts, as defined under Section 2(ii) (a) of the SCRA, 1956, in relation to electricity shall be regulated by CERC. The Committee further recommended that all commodity derivatives other than NTSD Contracts, including electricity futures that are cash-settled and traded on exchanges, would fall within SEBI's jurisdiction.
Based on the recommendations of the Committee, both SEBI and CERC agreed that CERC would regulate all the physical delivery based forward contracts whereas the financial derivatives would be regulated by SEBI.3
The above terms of settlement were also accepted by the Hon'ble Supreme Court of India in the case of Power Exchange of India Limited through Vice President versus SEBI Etc.4
Consequently, electricity futures contracts which are traded on SEBI-regulated commodity exchanges and are cash-settled, and derive settlement prices from indices published by the physical power market (IEX), fall entirely under SEBI's purview, while power market platforms like IEX, under CERC, cannot list such instruments. This delineation brings certainty to market participants and aligns India's regulatory structure with global best practices.
Difference between Virtual Power Purchase Agreement and the Electricity Futures Contract
Notably, while the Virtual Power Purchase Agreement (VPPA) and the Electricity Futures Contract, both serve to hedge against power price volatility, their nature, structure, and regulatory treatment differ substantially. Unlike Energy Future contracts which is a standardised agreement traded on commodity exchanges, VPPA is a bilateral Over the Counter contract usually entered into between a corporate energy buyer and a renewable energy project developer. VPPAs are non-tradable and non-transferable contracts.
Further, in VPPA, the generator sells electricity to the grid at market/ spot price and the difference between the fixed and market prices is settled financially between the parties. While in electricity future contracts, no actual sale of electricity to grid is required and the settlement is based on the difference between the contract price and the final settlement price based on an index (e.g., average Day-Ahead Market prices for a particular region).
A Future-Ready Power Market
The introduction of electricity futures contracts is a milestone in India's journey toward building a modern, resilient, and competitive power sector. These contracts offer powerful tools for managing price risks, enhancing market transparency, and improving planning across the energy value chain. The resolution of the SEBI-CERC jurisdictional dispute has provided a robust legal foundation for these instruments and brought India in line with international norms.
As trading deepens and market liquidity grows, electricity futures are poised to become a transformative force for supporting India's energy security, catalyzing economic growth, and enabling a smoother integration of renewable energy into the grid. For stakeholders across the board, this marks the beginning of a new era in India's power market, one that is financially empowered, globally aligned, and future-ready.
Footnotes
3 https://www.pib.gov.in/PressReleasePage.aspx?PRID=1761701
4 Civil Appeal No. 5290-5291 of 2011, Order dated 06.10.2021
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