Power Ministry clarification paves way for BSES discoms to exit NTPC PPA for 1st time

• The government has allowed discoms the freedom to terminate or continue the procurement of power from a particular project after completion of 25 years
• The move is a major reform for the power sector as it will help discoms terminate an old PPA if it fails to be economical in terms of power tariff

New Delhi: A clarification issued by the Ministry of Power on Tuesday has paved the way for BSES discoms to exit the power purchase agreement (PPA) with state-run NTPC Ltd, setting a precedent for the power distribution sector. The government has allowed discoms the freedom to terminate or continue the procurement of power from a particular project after completion of 25 years. The precedent is likely to prompt several other discoms to make similar requests. 

"In case of bulk power supply agreement also, the state/discoms may relinquish entire allocated power from such projects which have completed 25 years since commissioning of the project," the clarification said. The Power Ministry also said that discoms, if they wish, may also continue to draw power from old power stations, exercising the first right of refusal available to them under the terms of long-term PPAs.

Why allowing discoms to exit PPAs matters?

The move is a major reform for the power sector as it will help discoms terminate an old PPA if it fails to be economical in terms of power tariff. In addition, it will also push power generating companies to find ways to rationalise tariffs further in order to deal with the competition posed by other routes for procurement of power, like the real-time market (RTM), Green Term Ahead Market (GTAM), etc. 

Power Ministry gives flexibility to discoms

While giving flexibility to discoms, the Power Ministry has, however, said that the decision to exit PPAs cannot be done in parts. For instance, if there is a PPA for bulk purchase from a power station, the entire quantity would have to be relinquished by the discom after the completion of 25 years and not just parts of it. In cases where PPAs extend beyond 25 years, they cannot go beyond five-year period. 

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Also, gencos losing old PPAs would be free to sell such relinquished power in the open market through exchanges, tie-ups with other buyers desiring to go for long term or medium term PPAs or get the power reallocated to the willing buyers.

The backdrop

The clarification comes just days after the Central Electricity Regulatory Commission (CERC) ordered BSES discoms to exit PPA with NTPC's Dadri-I power generating station. "We are of the view that in terms of the PPA and the SPPA and the fact that the Dadri-I generating station having completed 25 years on 30.11.2020, the petitioners are eligible to exercise the first right of refusal as per the provisions of Regulation 17(2) of the 2019 Tariff Regulations," the order had said.

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