Of this, total Foreign Direct Investment (FDI) should not exceed 26% while investment by Foreign Institutional Investors (FII) should be restricted to 23% of the paid-up capital. In India, just 2-2.5 per cent of total electricity demand is traded in the exchanges. In Scandinavian countries up to 70 per cent of power is routed through exchanges. The Government promotes competitive tariff based on long term power purchase agreements (PPAs) between State electricity distribution companies and producers.
India has two power exchanges – IEX and Power Exchange India Ltd (PXIL). IEX trades nearly 95 per cent of spot electricity. Last month, IEX traded nearly 1.8 billion units.
"FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route," he said.
This is subject to the conditions that FII purchases shall be restricted to secondary market only, and no non-resident investor or entity, including persons acting in concert, holding more than 5% of the equity in these companies, he added.
The approval is expected to strengthen the power trading exchanges and to enhance the availability of power, as well as improve its distribution for inclusive development.
In view of the functions they perform, as also their utility in the transfer of power from surplus to deficit areas, these exchanges need to be promoted, through greater investment and latest technology, Sharma said.
Introduction of global best practices, concomitant with the induction of FDI, is expected to lead to higher service standards in power trading exchanges, he said. As per existing policy, he said, FDI up to 100%, under the automatic route, is permitted in the power sector (except atomic energy).
"India's exchanges are very young. Mostly, FIIs invest when companies are listed and market is mature. Here, power exchanges are not treated as mainstream. Customers come only when there is a shortage in supply," said Jayant Deo, Founding Managing Director and CEO and currently Advisor to Indian Energy Exchange Ltd (IEX).
"We see it as a huge positive step forward as it will provide the much needed clarity in this space and enable us to take existing dialogues to the next level. It will also allow power exchanges to utilise the technical know-how that comes along with investments from more developed markets," said Rupa Devi Singh, Managing Director & CEO of PXIL.
Source- DNA, Hindu