Amid COVID-19 Lockdown, Power To Be Scheduled Despite 50% Reduction in Payment Security

The Ministry of Power’s order will come into effect till June 30, 2020


Considering the outbreak of coronavirus (COVID-19), which has severely affected the economy, the Ministry of Power (MoP) has issued a directive which states that the power may be scheduled even if the payment security mechanism (PSM) is reduced by 50% against the initial contract. The order will be valid until June 30, 2020.

In this context, the ministry issued a circular regarding the opening and maintaining of adequate Letter of Credit (LC) as payment security mechanism under the power purchase agreements (PPAs) by the distribution licensees.

“Due to this (COVID-19 pandemic), many consumers of the distribution companies (DISCOMs) are unable to pay their dues. This has critically affected the liquidity position of the DISCOMs, thereby impairing their ability to make timely payments of generating and transmission companies and maintaining Letter of Credit,” states the circular.

DISCOM dues are one of the greatest challenges faced by renewable generators. At the end of January 2020, DISCOMs owed renewable energy generators ₹62.19 billion (~$856.2 million) in overdue outstanding payments. Overall, as of January 2020, DISCOMs owed power generators ₹870.25 billion (~$11.98 billion).

Now the burden of non-payment of electricity charges by consumers is being passed on to the generators.

Last year, the ministry had issued an order directing the load despatch centers to ensure the establishment of an adequate payment security mechanism as per the contract before the power is dispatched. Subsequently, clarifications, including additions to the order were issued from time-to-time.

In June 2019, Mercom reported that R.K.Singh, Union Minister of State for Power and New and Renewable Energy, announced the approval of a proposal to make it mandatory for distribution licensees to open and maintain adequate LC as payment security mechanism under PPAs.

Later in August 2019, the Ministry of New and Renewable Energy (MNRE) issued a clarification regarding fixed charges in the newly issued payment security mechanism regulations. The ministry had then stated that in the case of solar, wind, and small hydro projects, the fixed charge would be the tariff at which power is purchased by the DISCOMs.

Earlier, the ministry had also directed that entities which fail to maintain adequate security mechanism as per contract will not be allowed to procure power from the power exchange and will not be granted short-term open access.

The Government of India (GoI) led by Prime Minister Narendra Modi has called for a 21-day lockdown in the country which has also led to restrictions on the movement of citizens and opening of both private and public offices among other establishments.

Earlier, the MNRE issued an official memorandum stating that time extensions in scheduled commissioning of renewable projects due to the disruption of supply chains will be treated as a ‘force majeure’ event.

In a recent online survey conducted by Mercom India Research, almost 70% of the respondents said their business would be affected by over 15% because of the Coronavirus, while 83% of the survey participants expect solar component supply shortages because of Coronavirus. The Coronavirus pandemic is proving to be the solar industry’s biggest challenge this year, and the repercussions are being felt across industries all over the globe. Read Mercom’s in-depth report here.