The Cabinet Committee on Economic Affairs (CCEA) has decided to permit foreign investment up to 49 per cent in Power Trading Exchanges in compliance with SEBI Regulations; Central Electricity Regulatory Commission (Power Market) Regulations, 2010, Commerce and Industry Minister Anand Sharma said after the Cabinet meeting here.

Of this, total Foreign Direct Investment (FDI) should not exceed 26 per cent while investment by Foreign Institutional Investors (FII) should be restricted to 23 per cent of the paid-up capital.

Currently, there are two exchanges in the country namely Power Exchange India and Indian Energy Exchange.

"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 per cent 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 per cent, under the automatic route, is permitted in the power sector (except atomic energy).

The existing policy includes generation, transmission and distribution of electricity as well as power trading, subject to the provisions of the Electricity Act, 2003, Sharma added.

He said, however, there is no specific dispensation under FDI policy for power trading exchanges.

The existing FDI policy permits foreign investment, up to 49 per cent (FDI & FII) in infrastructure companies in securities markets, namely, stock exchanges, depositories and clearing corporations, in compliance with SEBI Regulations.

Of this, the FDI limit is 26 per cent while FII investment is limited to 23 per cent of the paid-up capital.

While FII investment is on the automatic route, FDI is allowed under the government approval route. Foreign investment in commodity exchanges is also allowed on the same lines.

Power trading is the purchase of electricity for resale thereof. A power trading exchange provides an organised platform for fair, neutral, efficient and robust price discovery; extensive and quick price dissemination; and price risk management for the generators, distributors, traders, consumers and other stakeholders in the power sector.

Power trading exchanges are transparent electronic platforms which help promote competition in power markets.