By Subhash Narayan
New Delhi, Dec 9 (IANS) After prolonged delays, India may soon open derivatives market for the power sector allowing both power generators and consumers to enter into futures contract and use it as a new hedging tool to mitigate price volatility and other associated risks.
Introduction of pure play futures and options as products on power trading platform would be a major reform initiative that would help in developing a robust and vibrant energy market. The introduction of the derivate products has got delayed over jurisdictional issues between market regulator SEBI and power regulator CERC.
Sources privy to the development told IANS that Securities and Exchange Board of India (SEBI) and Central Electricity Regulatory Commission (CERC) have now reached an understanding to allow futures trading in electricity.
The former is expected to oversee the functioning of all financially traded electricity forwards while the latter would regulate physically settled forward where electricity is delivered on future date at the contracted price.
"Decks have been cleared for the start of electricity futures market in India with regulators reaching broad understanding on how to go about while allowing derivative instruments for market participants. They will still have to get concurrence of the Supreme Court that was overseeing the issue of electricity futures jurisdiction between SEBI and CERC," said an official source.
The source added that there may further delays on account of economic slowdown that has also impacted power demand. Futures and options work best in a rising market where players need to hedge their positions to minimize losses. But government is looking at introducing new products early next fiscal.
While India presents a large power market with installed generation capacity of close to 365 GW and large number of participants from both private and public sector, it is yet to offer futures trading option that is hallmark of all mature markers.
Though electricity is available in surplus now, its trading is limited and only through spot contracts (upto 11 days) on exchanges. Forward trading in electricity started in 2009, but the matter soon ended in court over jurisdictional issues.
"Introduction of electricity futures would be welcome development for the sector. For any mature market, future and options is a must. This should not been seen as instruments facilitating speculation but the one that promotes hedging and allows price discovery in medium term markets with mitigation of counter party risk,"
said Rajesh K Mediratta, IEX director (business development). IEX is the largest power trader in the country.
Once future trading is started, power exchanges such India Energy Exchange (IEX) would be in a position to offer derivative instruments to participants. This could be electricity futures with a clear delivery based schedule (delivery at a price on future date) and other derivative instruments such as call and put options. This will help both generators and consumers to mitigate risks by hedging their positions through derivative instruments.
Start of derivate instruments would also be helpful for the sector at a time when spot power prices have fallen on exchanges due to industrial slowdown and the demand for electricity has also come down. Futures market will provide such indications in advance.
Power producers can sell their perceived surplus in futures and consumers, who foresee higher consumption and a price rise, can buy power on the same platform.
Trading in electricity futures will also be helpful as power prices are volatile. Those who buy or sell power in the spot market will benefit directly from this. That apart, dealings via an exchange would be safe as its clearing house provides a system of guarantee that mitigates counter party credit risk.
There is still, however, some fear that these products would concentrate the commodity with a handful of players, who could then control prices. But with low demand and a surplus situation now, this looks unlikely.
By Anjana Das
New Delhi, Jan 22 (IANS) The Union Budget 2020 may unveil a scheme on production linked benefits to attract hi-tech manufacturing in semiconductors, and microprocessors to India, apart from giving tax incentives to solar electric charging infrastructure, computers, and servers for its thrust in manufacturing of global products to reduce imports.
To make it look more attractive to MNCs to opt for domestic electronics manufacturing in India, the Budget may dish out production-linked subsidies for companies involved in semiconductor fabrication. This is aimed at inviting global semiconductor, and microprocessor companies to set up plants in India.
Earlier also, the government had announced schemes for setting up semiconductor plants in the country.
The National Policy for Electronics, 2019, argues for special support for developing core competencies in the strategic sub-sectors like fabless chip design industry.
The government could provide tax incentives to high-tech manufacturing plants in the fields of solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computers, servers, and laptops.
For 'Make in India', there may be investment-linked income tax exemptions under Section 35AD of the Income Tax Act and other indirect tax benefits.
Many global semiconductor companies such as ARM, Qualcomm, Intel, Cadence and Texas Instruments have set up design and software development infrastructure here but per se, chip manufacturing plants are still elusive for India.
Intel, AMD and ARM for microprocessors, and Qualcomm, Samsung and MediaTek are the names in this segment globally who also cater to the telecom segment and their chips are imported by Indian companies.
The Indian requirement for chips are completely met through imports. The Indian semiconductor component market is expected to be worth $32.35 billion by 2025, growing at a compunded annual growth rate of 10.1 per cent between 2018 and 2025, according to the Indian Electronics and Semiconductor Association (IESA), an industry body.
China, on the contrary, is building a homegrown chip programme, eyeing adoption of local semiconductors in 70 per cent of its products by 2025, up from 16 per cent currently.
In last few years, the Indian government has launched a slew of schemes to boost local manufacturing of electronic goods. Total production of electronic goods in value terms more than doubled from $31.2 billion in FY15 to $65.5 billion in FY19, led by mobile phones, shows data from the Reserve Bank of India's report.
(Anjana Das can be contacted at email@example.com)