Discoms can choose to discard plants, govt clarifies

by Jeremy

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BSES had said that it has to pay fixed charges of about Rs 35 crore per month to the Dadri-1 plant, even if it does not source electricity from the unit.

Removing the ambiguity regarding the rights of electricity distribution companies (discoms) while exiting power purchase agreements (PPAs) with old thermal generating stations, the Union power ministry has clarified that discoms have the freedom to choose the specific plants from which they want to stop sourcing power.

The clarification makes it easier for Delhi’s discom BSES to de-allocate its share of electricity from NTPC’s Dadri-I unit, and sends assuring signals to other discoms in the country which also hope to exit costly PPAs with the state-run producer.

The ministry said that a number of organisations had sought clarity on one of the clauses in the government’s PPA-exit guidelines issued in March, which stated that “in case of bulk power supply agreements, the state/discom may relinquish entire allocated power from such projects which have completed 25 years since commissioning of the project”.

As recently reported by FE, some sector experts interpreted the clause to stipulate that in case of composite PPAs with multiple power plants, discoms cannot selectively exit the contract for a specific generating station, and they will have to revoke procurement en masse from all units of more than 25 years.

The Central Electricity Regulatory Commission (CERC) has recently allowed Reliance Infrastructure-led BSES to approach the Union power ministry for relinquishing electricity supply contract from Dadri-I power plant, as the right to allocate or de-allocate electricity from CPSE units lies with the central government.

NTPC had claimed that BSES cannot object to procure power under composite agreements from the Dadri-I plant citing old age while continuing to avail electricity from Singrauli and Rihand plants, which had completed 25 years even before Dadri-I. Rajasthan has also recently decided to stop procuring electricity from NTPC’s Anta and Auraiya gas power plants, both of which have completed 25 years of operation.

In the latest clarification, reviewed by FE, the ministry explained that the specified clause referred to single projects of more than 25 years old, and further reiterated that discoms also has the “first right to avail” power from old power plants. “Accordingly, the state may choose to continue to take power from a project or projects or exit from a project or projects after completion of 25 years,” the clarification added. The CERC’s 2019 tariff regulations had also allowed discoms the “first right of refusal” for procuring electricity from old power plants.

“The power ministry clarification endorses BSES stand to exit from costly 25-year old PPAs,” a BSES spokesperson said, adding that “it will allow BSES discoms to source cheaper and green power for consumers of Delhi”. BSES had said that it has to pay fixed charges of about Rs 35 crore per month to the Dadri-1 plant, even if it does not source electricity from the unit.

Under contractual requirements, discoms have to continue paying fixed cost to thermal power plants to recover the projects’ capital expenditure and cover debt obligations even when they do not procure electricity. According to a recent report by Forum of Regulators, discoms in 12 states in the country cumulatively pay a hefty Rs 17,500 crore a year to generators for the power they don’t use.

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