MCX has received permission to set up a power exchange, which is expected to become functional in the first half of next year, and for the first time power will be traded like a share or a commodity on an exchange in the country.
MCX deputy managing director Joseph Massey said: "With the exchange in place, the capacity utilisation of various power plants will improve. There is lot of underutilized captive capacity at present which will get unlocked."
Price signals from the exchange will encourage producers to sell surplus power or produce it specifically for selling it on the exchange. Besides, the power exchange will make investors and financial institutions more comfortable in funding new projects, MCX deputy managing director Joseph Massey said.
On the cost of power that would be bought through the mechanism of the power exchange, he said it will depend on demand and supply situation, which will get reflected in the bids submitted by participants. It will determine the price at which power would be bought or sold, he said.
On the possible quantum of power likely to be traded on the exchange, Massey said: "It is for the first time a power exchange is being set up and we know that over long term it has large potential. As India grows and power situation improves, there would be significant short term market for power like in developed countries and the exchange will be the most important institution to trade short term power."
Globally exchange traded power market can be anything between 15 to 40 per cent of the total available power, he added.
Explaining as to how the exchange will function, Massey said the process of buying power through exchange is different from the existing system where power is bought or sold after negotiations. On the exchange, both buyers and sellers will put their bids but will not know details of the other party to the trade.
Even payment for the power bought through the exchange will be made by the buyer to the exchange which will in turn pay money to the seller.
He said trading is a commercial activity and will take place under both - shortage as well as surplus - scenarios and power exchange will be suitable for both short term and medium term requirements.
He said MCX is currently in the midst of setting up the power exchange for which it has received approval of CERC.
The electronic system of the exchange will be similar to what is used for commodity trading but order matching system will be different. Trading in power would commence in the first half of next year, he said.
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