India's MCX launches electricity futures to hedge against weather-driven demand changes

The Multi Commodity Exchange in India will launch India's first electricity contracts on Thursday. This tool allows power generators, distributors and large industrial users to manage their risk.

MCX announced in a Tuesday statement that the exchange would initially offer cash-settled contract for the current three-month period and for the next three months. However, they will be made available thereafter for all twelve calendar months.

Praveena Rai, the managing director of the exchange, said that the goal was to meet the needs of the sector, deepen the energy markets and support sustainable market-driven pricing.

The weather has always been a major factor in India's energy demand. During the summer, the heat is at its peak and the need for power drops with the seasonally moderate temperatures that accompany the monsoon rainfall. The weather has become more unpredictable, with heatwaves and unexpected rainfall.

Indian utilities currently rely on a combination of long-term agreements (up to 25 years) for their base load needs, and short-term contracts through power exchanges in order to meet peak demand.

According to the Indian government, electricity losses caused by poor infrastructure and expensive long-term power purchase, as well as subsidised supply, has left India's distribution firms with debts in excess of $9.5 billion.

The National Stock Exchange of India will begin trading similar monthly electricity futures on July 14th, the operator announced last week. (Reporting by Rajendra Jadhav; Ediitng by Joe Bavier)

(source: Reuters)