Govt gives discoms the option to exit PPAs after end of term

  • The new guidelines allow gencos to sell power on long-term, medium-term basis or in day-ahead, term-ahead and real-time power exchange markets after discoms’ exit

  • The government has also worked in a clause that mandates distribution companies to clear their dues before they can avail the option to exit PPAs

New Delhi: Paving the way for power distribution companies (discoms) to exit power purchase agreements (PPAs) after the expiry of the term, the government has released a set of guidelines on Wednesday. The new guidelines are aimed at not only giving discoms the alternative to exit PPAs, but also power generating companies (gencos) to sell power in any mode, be it on long-term, medium-term basis or in day-ahead, term-ahead and real-time power exchange markets. PSU Watch had first reported in December 2020 that the Ministry of Power was working on a proposal to allow discoms to exit PPAs.

According to the guidelines, willing discoms may relinquish their share from eligible Central government gencos after the expiry of the PPA, ie on completion of 25 years from the date of commissioning of the plant or a period specified in the PPA. The request for relinquishment of power supply from gencos can be submitted only after the approval of the State Commission, who would ensure the adequacy of the power tied up with the discoms to meet the electricity demand.

States/Discoms will have to give six-months’ notice before exiting PPA

States and discoms will be required to give six-months’ notice declaring their intention to exit PPAs in cases where they have long-term PPAs with the Central Generating Stations (CGS) which are due to expire in the near future, and where power generating stations have already completed 25 years. “Any share for Central Generating stations, once relinquished by the State, will not be allowed to be taken back by the State under the same PPA conditions,” said the document.

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“For Nuclear Power Generating Stations, the mechanism of relinquishment of power after completion of term of PPA shall be as decided by the Department of Atomic Energy as the tariff of Nuclear Power Generating Stations is determined by the Department of Atomic Energy on recommendation of CEA,” said the Ministry of Power.

Discoms’ dues must be cleared for them to exit PPAs

In order to address the pervasive issue of dues owed by discoms, the government has also worked in a clause that mandates distribution companies to clear their dues before they can avail the option to exit PPAs. “The relinquishment of such power will be considered only after the State/discoms have cleared all the past dues. The State/Discoms shall continue to be liable to make all the eligible payments/dues as per the prevailing rules/regulations to the Generators whose share of power has been relinquished till final settlement,” said the Ministry of Power.

What are alternatives for gencos after discoms exit PPAs?

The gencos, whose PPAs have been relinquished by states and discoms, will be free to sell relinquished power under various avenues, like tie-up with other buyers for long-term, medium-term (five years) or short-term PPAs through competitive route. They can also sell power in the exchanges, including day-ahead, term-ahead and real-time markets. They will also be able to reallocate power to willing buyers, as per the provisions of reallocation of power from CGS. 

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