Government may further ease FDI norms

NEW DELHI: After allowing foreign players to invest up to 49 per cent via the primary market in power
exchanges, the government may raise the ceiling for single-player foreign investment in the sector from five per cent to 15 per cent.

“The finance ministry was earlier reluctant to the idea of raising the cap on individual investors. However, now that the market is maturing, it is reconsidering the proposal and is already taking consultation from the Central Electricity Regulatory Commission,” said a senior official from the finance ministry.
The proposal was raised earlier also but the government was not keen considering low trade volumes and large regulatory compliance. Now that the market is getting bigger, it makes more sense.

Currently, India has two power exchanges – Indian Energy Exchange and Power Exchange of India. All the trading in these exchanges is being regulated by the Central Electricity Regulatory Commission.
“The government may make some announcement in this regard in the Budget. This, together with the recent reform, will attract many investors to invest in power exchanges,” the official added.

The government had raised the ceiling for stock and commodity exchanges for individual investors to 15 per cent in 2016. According to the official cited above, the move can be significant as the power market is growing at a healthy clip.

According to a Crisil report, the short-term power market is expected to grow at a compounded annual growth rate of 20 per cent between FY17 and FY22. Also, the share of power exchanges in short-term volumes market has grown to 34.5 per cent from just 10.9 per cent in fiscal 2010.

According to Siva Subramanian from India Ratings and Research, these reforms may not have immediate result but will have a long-term impact.

“The power exchanges market in India is at a very nascent stage right now. The government’s decision reflects a longer-term vision where it expects more IPOs of energy exchanges.”

Earlier, FII/FPI purchases were restricted to the secondary market alone. On Wednesday, the government decided to allow these entities to invest in power exchanges through the primary market as well. Some experts believe the government will allow spot trading of renewable energy in the future.

In August last year, the CERC dismissed IEX’s proposal to introduce spot trading of renewable energy on its platform, saying the market is not yet ready.