Electricity Derivatives on MCX & NSE: What They Are and Why They Matter

Image Source: Business Today

If you’re curious about the latest buzz in India’s financial markets, electricity derivatives are now trading on both MCX and NSE. Zerodha Varsity recently broke down what this means for everyone from power companies to everyday investors, so here’s the lowdown in plain English.

What Are Electricity Derivatives?

Think of electricity derivatives as futures contracts—like those for gold or oil—but based on the price of electricity. You’re not trading actual power lines or units of electricity. Instead, you’re trading contracts that settle in cash, depending on how electricity prices move.

Each contract on MCX or NSE covers 50 megawatt-hours (MWh) of electricity.
The contracts are cash-settled, so there’s no physical delivery. Settlement is based on the spot price from the Indian Energy Exchange (IEX) at expiry.
You can trade these contracts from 9:00 AM to 11:30 PM, and you can take positions in lots as small as 1 or as large as 50.

Who Uses These Contracts?

Power producers can lock in prices to protect against falling rates.
Distribution companies (discoms) can hedge against sudden price jumps.
Big businesses with huge electricity bills can manage their costs.
Regular investors and traders can speculate or diversify their portfolios.

Why Launch Electricity Derivatives Now?

India’s electricity market is getting more dynamic, with more renewables and more price swings. Traditional long-term power deals don’t offer much flexibility, so these new contracts give everyone a way to manage risk and plan better.

What’s Next?

As the market grows, expect to see more contract types—like options—and even more participation. For now, electricity derivatives are a big step toward a more flexible, transparent, and investor-friendly power market.

Sources: Zerodha Varsity, Economic Times, Teji Mandi, Powerline, MCX, NSE, India Today