Government to Pool Tariff of Plants with Expired Power Purchase Agreements
The program will become operational starting July 1, 2023
The Ministry of Power has issued a program for pooling tariffs for coal or gas-based thermal power plants whose power purchase agreements (PPAs) have expired in the backdrop of increasing demand for electricity at a time when India is transitioning to non-fossil fuel sources.
The program ensures the availability of adequate resources in the grid for peaking, balancing, flexing, and redistributing benefits such as reliability and cost-effectiveness among the beneficiaries.
The program will become operational starting July 1, 2023.
Entities and responsibilities
Power generators must create a common pool of thermal generating stations comprising coal or gas-based plants that have completed their PPA period. They must inform existing beneficiaries one year before power is deallocated from the generating station and added to the common pool. They will develop a single window system (SWS) to facilitate the process of seeking the willingness of states/power distribution companies (DISCOMs) to sign PPAs from the common pool.
The SWS must provide information on the number of generating stations that will be part of the common pool, the capacity to be offered from each generating station, the uniform capacity charges, and energy charges (fuel-wise, in the case of gas stations). The SWS must also include information on new capacities likely to be added to the common pool over the next five years.
The generators also must provide information on all stations that have completed 25 years of operation load despatch centers, along with details such as station capacity and allocated shares of different beneficiaries from each station of the common pool.
Once DISCOMS express their interest, they will enter into PPAs with the common pool and seek approval from the state regulator. Load despatch centers will handle the scheduling and dispatch of power, while the ministry will allocate power based on the requisition received from the willing DISCOMs through the SWS.
Regulatory commissions will carry out regulatory changes to ensure the effective and timely implementation of the program. The Central Electricity Authority will coordinate all the activities related to implementing the program.
The common pool will comprise generating stations that have completed their earlier PPAs, and any station that completes its PPA period will be automatically added to the pool. Plants that have already completed their PPA period but have signed new PPAs post-expiry will be excluded. All central generating capacity that completes their PPA tenures in the future will be added to the pool.
The allocation of power from the common pool to the willing DISCOMS will be subject to signing a new PPA with the pool and ensuring compliance with the financial terms of the PPA signed with the generating company.
The pooled tariff mechanism requires the withdrawal of the unilateral right of DISCOMs to continue to draw power even after the expiry of PPAs to implement the proposed pooled tariff mechanism.
DISCOMs can submit their willingness for power allocation within 15 days of forming the common pool. The minimum period for power requisition is five years, and the DISCOMs must enter into a contract for a minimum of five years from the intended start date of power drawal from the common pool.
All the PPA holders will be made allocations from the common pool. The generating company will sell the power not allocated through alternative arrangements, such as power exchanges. The gains from selling this power will be shared with DISCOMs with PPAs in the pool.
The total capacity charge of the pool will be worked out by adding the capacity charges of each station in the pool as per the tariff regulations of CERC. The DISCOMs will be billed a uniform capacity charge in crores/MW based on percentage allocation and total capacity charge of power from the common pool. The DISCOMs will be billed a uniform energy charge computed based on station-wise weighted average pooled monthly uniform energy charge rate and final implemented schedule. There will be no incentive for the energy charge. Further, there will be a quarterly truing up of ECR billed to the DISCOMs.
Merit order list
The generators must declare the station-wise monthly ECR and the DISCOMs will stack power requisitioned from each station in the common pool into the merit order list. The generating company must fully utilize low-cost generation for supply to the beneficiary DISCOMs. Only the marginal power from the stations may be offered in the power exchanges in case of a surplus.
Under the pooled tariff mechanism, the generating company will bundle renewable energy power and supply it to the beneficiaries at a tariff less than the station-wise ECR of the common pool. The generating units must share benefits from regulatory mechanisms and operational gains, if any, with the beneficiaries.
Hydropower projects excluded
Hydropower-generating plants have zero marginal cost of generation with a useful life of 40 years and beyond. Moreover, their tariff reduces drastically with time. Hence, hydropower stations will not be part of the common pool.
In July 2021, the Ministry provided an option for DISCOMs to continue or exit from PPAs for projects that have completed 25 years of operation or the tenure specified in the PPA with the central generating stations.
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