Electricity futures contracts will help control power costs: NSE

New Delhi, June 26 (IANS) National Stock Exchange (NSE) Chief Business Development Officer Shriram Krishnan said on Thursday that electricity futures contracts can play a vital role in helping businesses manage and control their power costs effectively.

In an exclusive conversation with IANS, Krishnan explained that electricity futures allow buyers to lock in power prices for future dates.

"This helps fix electricity costs in advance. If, in the future, spot electricity prices rise beyond the locked-in rate, businesses can receive the difference through cash-settled monthly electricity futures contracts," he said.

"This can be a great way for businesses and other electricity consumers to manage power costs efficiently," he added.

Krishnan noted that as environmental, social, and governance (ESG) considerations become increasingly important worldwide, they are also influencing electricity costs.

Citing an example, he noted that if solar energy generation becomes widespread, electricity costs might fall.

However, if power demand suddenly exceeds the planned supply, prices could spike. In such cases, electricity futures contracts become especially useful as a hedging tool.

Addressing concerns around speculation, Krishnan emphasised that electricity futures are not designed for speculative trading but are instead meant for genuine hedging purposes.

"Any entity with consumption above 60,000 units can benefit from this," he said.

"If electricity represents a significant line item in your profit and loss statement, this product can offer meaningful advantages," he added.

Earlier this month, the NSE announced that it had received approval from the Securities and Exchange Board of India (SEBI) to launch monthly electricity futures contracts.

The exchange said the goal of launching these contracts is to offer a reliable risk management tool to market participants to hedge against price volatility in the electricity market.

Additionally, it aims to encourage capital investment across the electricity value chain -- from generation and transmission to distribution and retail.

--IANS

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