The Supreme Court has disposed of the long-pending dispute between the Securities and Exchange Board of India (SEBI) and the Central Electricity Regulatory Commission (CERC) regarding regulatory jurisdiction of electricity derivatives after an agreement by the two agencies.
The verdict would enable distribution companies (DISCOMs) and large consumers to plan their short-term power procurement efficiently. Similarly, commodity exchanges like Multi Commodity Exchange (MCX) can now introduce financial products like electricity futures, which will enable DISCOMs and other large consumers to hedge their power procurement risks.
The introduction of financial products is significant and can potentially change the power market landscape in the country. It would bring newer products into power and commodity exchanges and attract increased participation from generation companies, DISCOMs, large consumers. This will eventually deepen the power market, the Ministry of Power said.
The ministry said that it took the initiative to resolve the jurisdictional issue between SEBI and CERC concerning various forms of contracts in electricity for efficient regulation of electricity derivatives by constituting a committee on October 26, 2018. The committee submitted its report on October 30, 2019.
CERC will regulate all the physical delivery-based forward contracts based on the committee’s recommendations, while SEBI will control financial derivatives. This has paved the way for the introduction of longer-duration delivery-based contracts in the power exchanges. The contracts have been restricted to only 11 days due to the pendency of the case in court.
This will further deepen the power market from the present level of about 5.5% to the targeted volume of 25% by 2024-25.
According to Prabhajit Kumar Sarkar, MD and CEP, Power Exchange India Limited (PXIL), “Financial contracts including electricity derivatives can also now be launched by exchanges regulated by SEBI, thus paving the way for suppliers and consumers to hedge their power transaction risks effectively. This is a major inflection point for the power sector and especially the power markets in our country, and we look forward to serving all power consumers most efficiently.”
According to the ministry, commodity derivatives in electricity other than non-transferable specific delivery (NTSD) contracts will fall under the regulatory purview of SEBI. A joint working group of SEBI and CERC will be constituted with terms of reference as agreed in the committee’s report.
In May this year, CERC granted Pranurja Solution Limited (PSL) registration rights to establish and operate a power exchange. It is the third power exchange in the country after India Energy Exchange (IEX) and PXIL.
Mercom reported that IEX traded 1.68 billion units of renewable energy in the third quarter of the calendar year 2021. The exchange-traded 8.99 BU of energy during September, with a 59% YoY growth, across all market segments.