The government has taken the decision to ban electricity futures after considering views of the Power Ministry, FMC and the Consumer Affairs Ministry.
The Power Ministry has been objecting futures trade in electricity since its launch in 2006, the official said, adding that FMC gave its ascent for ban recently after seeing poor trade volumes.
"The electricity contracts did not attract significant trading interest. Accordingly, no futures contracts would be permitted to be traded in electricity futures for the time being," according the FMC directive issued to the exchanges.
FMC, which regulates 23 commodity exchanges, has said that it would review the ban at a suitable time, with feedback from the ministry and market players.
At present, futures trading in electricity is being done by the Multi Commodity Exchange (MCX) in weekly and monthly contracts. However, the ban would not extend to spot trading in electricity, which is done by Power Exchange of India Ltd and regulated by the Central Electricity Regulatory Commission (CERC). This trade is similar to that in any agri commodity, where the spot market is regulated by various states under the respective APMC laws, while a future trade is governed by the Forward Contracts Regulation Act, with the FMC at the helm of jurisdiction, explained sources.
Officials said the ban would be reviewed by the FMC at a suitable time, with feedback from the ministry and market players.
The country's total power capacity is 162,367 Mw, with the state sector contributing around 52.5 per cent, the central sector 34 per cent and the private sector 13.5 per cent. The average shortage is 10-12 per cent, peaking at 20-25 per cent.
Industry analysts said availability of coal and water is the major limiting factor. Fuel is more than half the cost of production, followed by operating expenses. Coal shortage is an important issue.
Source- Economic Times