The Government decision to allow foreign direct investments up to 49 per cent in power exchanges is a move forward.

But, the country’s merchant power market is not mature enough to attract many foreign players at this moment, says industry players.

“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).

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.

The Cabinet Committee on Economic Affairs (CCEA) allowed FDI limit of 26 per cent and FII limit of 23 per cent on the paid up capital in power exchanges.

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.

“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.

(This article was published on September 14, 2012)
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