Ministry Issues Compensation Rules for Curtailing ‘Must Run’ Renewable Power

In the event of curtailment of supply from a must-run power project, the procurer must compensate at the rates specified in the PPA


Ministry of Power (MoP) has notified the Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021. The must-run rules apply to renewable energy projects, and are detailed under section 176 of the Electricity Act 2003.

Renewable energy projects including but not limited to wind, solar, wind-solar hybrid, hydropower sources, must be considered a must-run project per the rules. The power from these projects must not be curtailed. These projects are also not subject to regulations of merit order dispatch or other commercial considerations.

The only exceptions for curtailment of power from these projects must be technical constraints or grid security reasons. The Indian Electricity Grid Code (IEGC) provisions have to be followed for curtailment or regulation of power.

Compensation for power curtailed

The notification adds that in the event of curtailment of supply from a must-run power project, the procurer must compensate at the rates specified in the power purchase agreement (PPA).

Suppose the curtailment notice is issued before the start of the day-ahead market or real-time market at the energy exchanges, the generator is allowed to sell the unscheduled power in the exchange. The excess amount from such sales must be adjusted against any compensation payable per the power purchase agreement. In case of deficit, the procurer has to compensate the amount every month.

The final adjustment of the excess amount has to be made within one month of the close of the financial year.

Earlier, the draft stated that when the compensation rate is not specified in the PPA or the power sale agreement (PSA), the rate will be set at 75% of the PPA rate per unit.

The Appellate Tribunal for Electricity (APTEL), in a recent order, had ruled that the Tamil Nadu Generation and Distribution Corporation and the State Load Despatch Center (SLDC) must compensate solar developers for curtailment of power at 75% of the tariff listed in the PPA along with 9% interest.

The National Solar Energy Federation of India (NSEFI) had filed a petition before APTEL, challenging the State Commission’s earlier order dated March 25, 2019, regarding the curtailment of power by the distribution companies (DISCOMs) in Tamil Nadu.

Commenting on the notification, Aditya K Singh, Associate Partner at Link Legal, said, “This Rule read with the recent APTEL order will deter SLDCs to issue backing down instructions on frivolous grounds. Ministry should have also considered including APTEL’s observation on the grid security aspect. APTEL in NSEFI matter has listed out certain conditions to consider while claiming grid security. This rule suggests that the IEGC rule will be followed in cases of the curtailment of generation. IEGC Rules are very subjective, and concerned agencies have been relying on those rules to curtail like grid security.”

The renewable energy sector has been facing power curtailment issues for a long time now. The new compensation rules could only make the DISCOMs cautious in the future.

Intermediary procurers to purchase for DISCOMs

The rules also provide for the intermediary procurer to buy electricity for DISCOMs. The intermediary procurer will be an agency nominated by the central or state government. They can procure electricity through a transparent bidding process per the central government’s guidelines under section 63 of the Act for sale to one or more DISCOMs.

If multiple bids are received at different tariffs, the weighted average of all the selected bids will be considered. An appropriate regulatory commission may adopt the tariff based on the petition.

According to Aditya, “The rules allow exchange sale in cases of curtailment. In most cases, curtailment is for the reasons of transmission constraint. Will generating companies be able to sell in the exchanges during the curtailment period if backing down instructions are issued on transmission constrain ground? Further, the rule suggests that in the event of curtailment, developers will be compensated. Will this compensation be payable even in cases of curtailment due to grid security reasons? A plain reading of rule gives an affirmative answer.”

Earlier this year, MoP had issued a discussion paper on market-based economic dispatch (MBED) of power and has requested the stakeholders to provide their comments on the matter. It had proposed a new mechanism to bring down the cost of power for distribution companies and consumers. The Ministry believes that the proposed MBED mechanism would be a critical step in transitioning towards ‘One Nation, One Grid, One Price”.

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