MCX to Launch Electricity Futures on July 10, Bolstering Energy Derivatives Market
The Electricity Futures Contract is meticulously designed to cater to the specific needs of the energy market
Alpha Desk
July 08, 2025 / 13:53 IST
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Particulars | Details |
---|---|
Launch Date | July 10, 2025 |
Contract Availability | All 12 calendar months |
Initial Trading Months | Current and next three months |
Trading Unit | 50 MWh |
Quotation | Indian Rupees per MWh (excluding taxes and levies) |
Tick Size | ₹1 per MWh |
Settlement Mechanism | Cash settled based on Volume Weighted Average of Unconstrained Market Clearing Price (UMCP) of Day Ahead Market (DAM) at Indian Energy Exchange (IEX) for all calendar days in the expiry month |
Daily Price Limits (DPL) | Initial 6%, extendable up to 9% |
Initial Margin Requirement | Minimum 10% or volatility VaR based margins, whichever is higher |
Client Level Position Limits | Capped at 3 lakh MWh or 5% of market-wide open interest, whichever is higher |
Launch Details and Market Significance
MCX, India’s leading Commodity Derivatives Exchange, announced the impending launch of its Electricity Futures Contract, a strategic initiative to strengthen its commodities portfolio. The exchange had secured the necessary approval from the Securities and Exchange Board of India (SEBI) in June 2025, paving the way for this new offering. The introduction of electricity futures is considered timely by MCX, given the significant growth and evolving dynamics within the electricity sector. The market is currently grappling with the need for enhanced price stability, managing fluctuating demand, volatile fuel costs, and broader market developments. This new contract is poised to provide a transparent, liquid, and reliable hedging mechanism, which is crucial for various stakeholders in the power ecosystem.
Contract Specifications
The Electricity Futures Contract is meticulously designed to cater to the specific needs of the energy market. It will be available for trading across all 12 calendar months of the year, offering comprehensive coverage for participants. Initially, trading will commence for the current month and the subsequent three months, allowing for immediate and near-term risk management. Each trading unit for the contract is set at 50 MWh, with prices quoted in Indian Rupees per MWh, exclusive of any applicable taxes and levies. The tick size, representing the minimum price fluctuation, is set at ₹1 per MWh.
The settlement mechanism for the contract is cash-based, determined by the Volume Weighted Average of the Unconstrained Market Clearing Price (UMCP) of the Day Ahead Market (DAM) at the Indian Energy Exchange (IEX). This calculation will encompass all calendar days within the expiry month, ensuring a robust and representative settlement price. To maintain market stability and prevent excessive volatility, the contract will adhere to SEBI’s Daily Price Limits (DPL), starting with an initial slab of 6%, which can be extended up to 9% on a given trading day. Furthermore, the initial margin requirement for participants will be a minimum of 10% or volatility VaR based margins, whichever is higher, ensuring adequate collateralization. Client-level position limits are capped at 3 lakh MWh or 5% of the market-wide open interest, whichever is higher, to manage concentration risk.
Strategic Implications and Management Outlook
The Electricity Futures Contract is expected to be a vital tool for a diverse range of market participants, including power generators, electricity distribution companies (discoms), large industrial consumers, and financial participants. It will enable them to effectively manage their exposure to electricity price volatility, which is influenced by factors such as demand-supply dynamics, weather conditions, peak loads from various sectors (industrial, commercial, residential, agricultural), and festive seasons. Beyond hedging, the contract also offers an opportunity for investors to diversify their portfolios by adding a widely used commodity.
Ms. Praveena Rai, MD & CEO, MCX, emphasized the strategic importance of this launch. She stated that electricity is a critical commodity whose price volatility is determined by numerous factors. Ms. Rai highlighted that the introduction of Electricity Futures reaffirms MCX’s commitment to developing innovative and forward-looking products that directly address real market needs. She further added that this contract represents a significant step towards deepening India’s energy markets and supports the broader national objective of achieving sustainable, market-driven power pricing, which is an essential pillar for realizing the vision of ‘Viksit Bharat’.
MCX’s Market Position
Multi Commodity Exchange of India Ltd. (MCX), operational since 2003, has established itself as India’s leading commodity derivatives exchange. The exchange holds a dominant market share, accounting for approximately 98% in terms of the value of commodity futures contracts traded during the financial year 2024-25. With a pan-Indian presence, MCX serves as a dynamic platform for the Indian commodity market ecosystem, offering dual advantages of fair price discovery and efficient risk management. The exchange provides trading opportunities across a diverse range of commodities, including bullion, energy, metals, and agri commodities, as well as sectoral commodity indices. MCX has also forged strategic alliances with various international exchanges and both Indian and international trade associations, further solidifying its position in the global commodity derivatives landscape.