Have you heard of an electronic exchange to trade electricity? Soon, online power exchanges will be a reality in India.

Most probably, to begin with, two power exchanges will come up in the country this year. First will be from India's largest commodity bourse - the Multi Commodity Exchange.

And the second out of a joint venture company being promoted by NTPC Ltd [Get Quote], Power Grid Corporation of India Ltd, Power Finance Corporation [Get Quote], National Hydroelectric Power Corporation and National Commodities and Derivatives Exchange Ltd.

Power Ministry officials said applications for both ventures have been filed before the Central Electricity Regulatory Commission.

The MCX-sponsored power exchange has been named Indian Energy Exchange Ltd.

The power exchange is meant for streamlining power trading in the country, which is in a mess at present. At present, electricity is traded bilaterally at mutually agreed rates in India.

A power exchange for electricity trading would help streamline power trading along with standardising electricity as a tradable product, a power ministry spokesman revealed.

He said the exchange would also provide a payment security mechanism to buyers and sellers. The recently released draft of India's first integrated energy policy suggested the creation of a power exchange.

A power exchange, just like stock and commodity bourses, acts as a platform for buying, selling and trading of electricity. No such exchange exists in India now.

CERC also issued guidelines for setting up and operation of the power exchange.

According to officials, the CERC will allow operational freedom to the exchanges within an overall regulatory framework. National Thermal Power Corporation, Vidyut Vyapar Nigam Ltd, National Commodity and Derivatives Exchange Ltd and Power Trading Corporation of India have also shown interest in setting up the power exchange.

Energy trade is a big conundrum for several countries in the world. In America, lawmakers are now looking to have a better understanding of the regulation of energy trading. In fact, lawmakers in US feel that more studies were needed to ensure fairness and transparency in energy trade.

The recent boom in energy trading, which critics partly blame for higher prices, has led to oil prices that more accurately reflect the balance between supply and demand.

The Commodity Futures Trading Commission said in a study said daily energy trading more than doubled for near-term contracts expiring within three months, and trading in contracts expiring in three years or more rose by more than 260 per cent.

These markets have experienced greater participation from nearly every type of trader, the study said. This rise in oil trading contributes significantly to improved price efficiency - the degree to which the price of a commodity reflects accurate market information.

Increased participation by both commercial and non-commercial traders can enhance market quality in commodity markets, the study said.

Last year, US Senate investigators studying the issue said energy trading by banks and speculators is partly to blame for rising oil and gas prices that have led to massive profits for oil companies.

The traditional forces of supply and demand cannot fully account for these increases, said a report by a US Senate panel. The report said energy traders should be required to give out more information about their activities on foreign and over-the-counter exchange.