Power Ministry Mulls Shorter PPA Tenure to Help DISCOMs and Power Markets

The ministry said it was also considering pooling power from stations above 25 years old

December 30, 2022


The Ministry of Power is considering cutting the tenure of prospective long-term power purchase agreements (PPAs) to 12-15 years from the extant 25 years to provide more flexibility to the power distribution companies (DISCOMs) and promote the power trading markets further.

The ministry told the parliamentary standing committee on energy that it was considering amendments to the model PPA. The committee’s report was tabled in the Lok Sabha during its winter session.

The ministry’s reply came in response to the committee’s suggestions that a solution should be worked out for DISCOMs that are saddled with PPAs with a much higher tariff than the current market prices, which weighed down their financial performance.

Further, the power ministry said that it had already taken steps to transition to a shorter duration PPA regime, including providing the states with an option to exit PPAs signed with central generation stations on the completion of their tenure.

The ministry added that the move would ensure that generators are free to sell their power in the market while easing the financial burden on DISCOMs by releasing them from paying the high fixed charges without utilizing the capacity of old power projects.

The ministry said it was also considering a scheme for pooling power from the generating stations, which have completed 25 years. The program is intended to facilitate enhanced transactions through power exchanges.

The power ministry was replying to the committee’s observations that power exchanges were not robust enough currently, as only 5% of the total electricity generated was being procured through the exchanges.

Separately, while the committee advocated shorter PPA tenures, it said that maintaining the sanctity of contracts was crucial to building the confidence of all the stakeholders in the industry and fundamental for bringing investment into the sector.

“Renegotiation of PPAs unless mutually decided by the contracting parties is not desirable as it sends adverse signals to future investment,” it said.

In the past, DISCOMs have reneged on PPAs and even forced developers to renegotiate tariffs. It has threatened the sanctity of the contracts and imperiled investments in the sector.

For instance, the Appellate Tribunal for Electricity (APTEL) recently disallowed a unilateral reduction in tariff imposed by Uttar Pradesh DISCOMs, which the state regulatory commission further upheld.

In 2019, the Andhra Pradesh government decided to revisit the PPAs to bring down the tariff agreed upon by the parties in the contract.

The ministry assured the committee that states had been advised that the appropriate electricity commissions should ensure compliance with PPAs to maintain the sanctity of concluded contracts, which is essential to the foundation of the growth of the Indian electricity sector.