South Asia Energy Series: Mitigating Power Market Risks with Electricity Derivatives
The USAID through the South Asia Regional Energy Hub (SAREH) (also referred as the “Hub”), organized an online session as part of the South Asia Energy Series on Electricity Derivatives on ‘Mitigating Power Market Risks with Electricity Derivatives’ on February 19, 2024. The ‘Hub’ is the coordination and communication platform within the USAID’s South Asia Regional Energy Partnership (SAREP) Program.
The session provided an overview of electricity derivatives, global experiences, expected products and key features, benefits, the status of the segment, and a pathway for utilizing electricity derivatives in conjunction with the physical delivery of electricity for risk mitigation.
Trading electricity in the short term through power exchanges had recently gained popularity in the South Asia region. However, engaging in short-term trading, particularly through power exchanges, exposed market participants to price volatility, arising from fluctuations in market demand and supply positions. Hence, recognizing the critical role that electricity derivatives played in hedging price risks, the session covered a range of relevant topics for participants from the South Asian region, such as Electricity Derivatives for Hedging Power Market Risks, Sharing of International Experiences on Electricity Derivatives and Use Cases for Power Sector Market Participants, Fundamental Concepts and exercises on Financial Derivatives and Electricity Derivatives, and Market Products and Procedures of Electricity Derivatives, including a Practical Session on Electricity Derivatives Trading.
The South Asia Energy Series brought together industry leaders from the Multi Commodity Exchange of India (McX – India’s largest commodity derivatives exchange) and PTC India (a prominent power trader in South Asia). Ms. Ruchi Shukla, Head of Energy at MCX, offered a comprehensive overview of Electricity Derivative Markets, including their international usage, India’s current market development, key product benefits, and the mechanics of pricing, trading, clearing, settlement, and participation. In his discussion Mr. Rajesh Cherayil, EVP at PTC India, provided valuable insights into the benefits of electricity derivatives for various market participants. He explored potential use cases through illustrative examples, covering both hedging and speculative strategies for generators, distribution companies (discoms), and C&I consumers.
The event’s comprehensive coverage extended to Market Products and Procedures, featuring a use case on the trading of Electricity Derivatives alongside physical electricity. The session was attended by 132 participants from 62 institutions, including representatives from utilities, regulators, system operators, traders, power and commodity exchanges, heavy industries, academia, and consultancy, showcasing the commitment to advancing the region’s energy landscape.
Agenda:
Presentations:
- Electricity Trader’s Perspective on Electricity Derivatives
- Electricity Derivatives: Mitigating Power Market Risks with Electricity Derivatives
Session Recording: