MCX, IEX Sign Licensing Agreement to Launch Electricity Derivatives

The Multi-Commodity Exchange of India (MCX) has entered into a licensing agreement with Indian Energy Exchange (IEX) to launch Electricity derivatives.

The Multi-Commodity Exchange of India (MCX) has said it has entered into a licensing agreement with Indian Energy Exchange (IEX) to launch Electricity derivatives. The derivatives will be linked to IEX spot electricity prices on the MCX trading platform.

The agreement is subject to necessary approvals from the central government and the concerned regulators.

“This shall lay the groundwork for a vibrant electricity derivatives market in the country. The launch of electricity derivatives shall provide an effective risk management avenue and help the value chain participants to hedge price risks and protect their revenue margins,” MCX said in a statement.

The launch of electricity derivatives will provide an effective risk management avenue and help the value chain participants to hedge price risks and protect their revenue margins, it said. With this India will also join a select group of developed countries that offer electricity derivatives on an exchange platform, the statement added.

In August, IEX launched the Green Term-Ahead Market (GTAM) on its power trading platform after receiving approval from the Central Electricity Regulatory Commission (CERC). CERC accorded its approval through an order dated August 17, 2020. The IEX had filed a petition with the CERC regarding the same in 2018; at a time when India witnessed the expansion of open access consumers who were looking for avenues other than power purchase agreement (PPA) to trade power.

According to an IEX release, “The market will offer trade-in four types of green term-ahead contracts -Green Intra-day contracts, Day-ahead Contingency contracts, Daily Contracts and Weekly contracts. There will be separate contracts for Solar and Non-Solar energy to facilitate Solar and Non-Solar Renewable Purchase Obligation (RPO) fulfilment.

According to the commission’s order, renewable energy traded on GTAM will account towards the RPO of entities. The minimum quantum for bidding will be 220 kW and tick size will be 0.1 MW. For GTAM transactions interstate transmission charges and losses will be waived off. CERC has also asked IEX to incorporate appropriate provisions in its “Bye-laws, Rules and Business Rules” with respect to the introduction of GTAM contracts and submit it within two weeks.