The National Stock Exchange of India (NSE) on Wednesday said it has received an approval from markets regulator Sebi to launch monthly electricity futures contracts.

The launch aims to provide market participants with effective hedging tools against electricity price volatility, enable more accurate price signals in the power sector and encourage capital investments across the electricity value chain — generation, transmission, distribution and retail.

“This approval is only the beginning of NSE’s vision for a broader electricity derivatives ecosystem. Plans are underway to gradually introduce contracts for difference (CFDs) and other long-duration electricity derivatives such as quarterly and annual contracts subject to regulatory approvals,” Ashishkumar Chauhan, MD & CEO of the NSE, said in a statement.

The exchange said that a calibrated and phased approach will ensure both market integrity and investor confidence.

It is crucial for the spot and futures electricity markets to evolve in tandem to create a cycle of liquidity and stability.

A financially-settled futures market will allow participants to hedge their risks effectively, while a robust day-ahead spot market will ensure reliable price discovery, the exchange said.

NSE was the first stock exchange in India to establish an electricity exchange, launching Power Exchange India Limited (PXIL) in 2008.