CERC-Sebi dispute: Supreme Court decision paves way for power futures

By: |
October 08, 2021 2:30 AM

The two regulators have agreed that CERC will regulate all physical delivery-based forward contracts, whereas financial derivatives will be regulated by Sebi.

It will also allow the introduction of the ‘market coupling’ mechanism for spot power trading, which could align spot prices within same geographical areas and time slots, across power exchanges.It will also allow the introduction of the ‘market coupling’ mechanism for spot power trading, which could align spot prices within same geographical areas and time slots, across power exchanges.

The Union power ministry said on Thursday that the Supreme Court has consented to allow the introduction of new market instruments for electricity trading as per the terms mutually agreed between the Central Electricity Regulatory Commission (CERC) and the Security Exchange Board of India (Sebi).

The two regulators had moved the apex court to ascertain who will regulate electricity deriva tives trading. Currently, electricity trading takes place in the Indian Energy Exchange (IEX) and Power Exchange India (PXIL) through the spot market mechanism. But trading through derivative instruments, such as futures and options trading, has remained constrained due to a 10-year-long legal battle over regulatory jurisdiction between Sebi and CERC.

The two regulators have agreed that CERC will regulate all physical delivery-based forward contracts, whereas financial derivatives will be regulated by Sebi.

Financial derivative products related to electricity can now be traded through commodity exchanges like MCX under the supervision of Sebi. The resolution of the issue has also paved the way for the introduction of longer duration delivery-based physical contracts, currently restricted to only 11 days, in the power exchanges.

It will also allow the introduction of the ‘market coupling’ mechanism for spot power trading, which could align spot prices within same geographical areas and time slots, across power exchanges.

“Distribution companies and other large consumers will be able to utilise such contracts (longer duration delivery-based physical contracts) to better plan their portfolio requirements in a more efficient and transparent manner,” Prabhajit Kumar Sarkar, MD and CEO of PXIL, said.

The power ministry said the move can potentially increase the share of electricity transactions through power exchanges from the current level of 5% to 25% of overall power generation by FY25. Pranurja Solutions, promoted by BSE, PTC and ICICI Bank, is currently procuring the necessary approvals for setting up another power exchange to compete with IEX and PXIL.

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