A GUIDE TO ELECTRICITY FUTURES IN INDIA

India is today widely regarded as the third-largest power market in the world, having generated approximately 1,739 million Megawatt hours (or 1,739 TWh) of electricity in FY 2023–24. While India was once a net importer of electricity, the country’s expanding installed capacity and improved power infrastructure have shifted it to a net-exporter since 2016–17. With growing demand and the maturation of the electricity market, India now stands at the cusp of another major transformation—with the upcoming launch of electricity derivatives on MCX on July 10, 2025.

This marks a significant milestone for India’s power sector, enabling traders, consumers, and investors to manage price risks more effectively through financial instruments. Let us now demystify how electricity futures work, explore their benefits, and examine their implications for India’s energy ecosystem.

Why Electricity as a Commodity Derivative?

Electricity differs from other commodities in one critical aspect—it cannot be stored economically at scale. This makes its price highly sensitive to demand-supply dynamics, weather patterns, and grid constraints. As a result, electricity prices can be volatile, particularly in short-term markets.

In mature power markets globally, electricity is widely traded as a derivative commodity. Exchanges such as the European Energy Exchange (EEX), Intercontinental Exchange (ICE), and Singapore Exchange (SGX) offer electricity futures and options, helping stakeholders hedge against this volatility. By treating electricity as a tradable commodity, these markets enable:

• Efficient price discovery based on real-time demand.
• Liquidity for financial participants, including institutional investors and energy traders.
• Hedging tools for generators, DISCOMs, and large industrial buyers.

For India, where only 5% of transactions currently happen on power exchanges and the rest are tied to long-term PPAs, this is a critical step toward market modernization.

What Are Electricity Futures?

Electricity futures are standardized financial contracts that allow buyers and sellers to lock in electricity prices for future delivery. These contracts are traded on regulated commodity exchanges such as MCX and are cash-settled—meaning no physical delivery of electricity takes place. Instead, profits or losses are determined by the difference between the contract price and the spot market price at expiry.

How Do Electricity Futures Work?

• Exchange Trading: Electricity futures will trade under the symbol “ELECTR” on MCX. Contracts will follow a standardized format, similar to other commodity futures.
• Underlying Price: The benchmark for pricing is the Day-Ahead Market (DAM) price on the Indian Energy Exchange (IEX), which reflects the real-time value of electricity.
• Contract Specifications: Lot Size: 50 MWh per contract
  • Price Quotation: Per MWh
  • Tick Size: Rs 1 per MWh (translating to Rs 50 per tick per lot)
  • Settlement: Cash-settled at expiry based on the DAM price
  • Margins: Governed by the SPAN framework, as applicable to all derivatives 

Global Precedents and the Indian Approach

Globally, two models exist:

The Integrated Model: Spot and derivatives traded on the same platform (e.g., EEX).

The Split Model: Spot trading on one exchange and derivatives on another (e.g., ICE, SGX).

India is following the second model. After the Supreme Court judgment resolving jurisdictional overlap, CERC will regulate physical delivery-based forward contracts, while SEBI will regulate financial derivatives like futures. Exchanges such as IEX and PXIL handle physical delivery, while MCX will host financial contracts.

Advantages of Electricity Futures 

• Market Liquidity: As India’s renewable and thermal mix expands, so does the opportunity for diverse market participants. 
• Hedging Without Delivery Hassles: Cash settlement would help avoid physical bottlenecks.
• Risk Mitigation: Futures allow stakeholders to lock in costs, manage budget volatility, and hedge revenue risks.
• Transparent Pricing: Futures reflect aggregated market expectations, improving visibility and planning.
• Wider Participation: Generators, distribution companies, corporates, and financial investors can all trade electricity derivatives.

Conclusion

India’s move to introduce electricity futures is both timely and transformative. It creates a platform that supports risk management, enables better price discovery, and encourages efficient capital deployment across the power value chain. By treating electricity as a tradable commodity, India joins a growing list of nations modernizing their energy markets through financial innovation.

With increasing electricity demand, diversified energy sources, and a more interconnected grid, a robust derivatives market is now essential. The launch on MCX lays the groundwork for a future where India is seen not just as an emerging power market, but as a globally recognized, financially sophisticated one.