Government to offer flexibility to discoms to end long term power contracts

New Delhi, The Government has proposed to free both power producers and consumers from continuing with contracted obligation once the tenure of a power purchase agreement expires.

The move is expected to provide flexibility to both procurers (mainly Discoms) and generators (power projects) to look for meaning contracts post expiry of a PPA, one where discoms can get the option to buy cheaper power available in the market while generators could look at new consumers either under long term contract or through price discovery on exchanges.

The changes have been brought out by the power ministry through draft proposals on which is it seeking stakeholders comments before regulations could be finalised. The stakeholders have been asked to submit their comments suggestions by December 24, 2020.

In its proposal, the ministry has said that states with long-term PPAs with the interstate central generating stations, whose tariff is determined by the Commission, and which are due to expire in the future, can choose to give up the contracted power after the completion of the PPA tenure of 25 years.

Such a mechanism could be availed by the states procuring relatively costlier power from the central generating stations. Also, states looking to convert their long term PPA into shorter term agreements or look to buy power from exchanges to meet exigencies could also relinquish PPA after expiry of its tenure.

Power ministry officials said that the proposed guidelines would also help in making power generation more efficient as generators knowing that their contracts could be rescinded would strive to make their projects more competitive. Also, with PPAs being freed up, such surplus power would be available for deficit states at competitive price.

Under the proposed regulations, the first right of refusal would test with discoms meaning contracted power will be freed only with the consent of discoms. Also, discoms looking to end PPAs would serve at least three month notice to generators to help them prepare for the situation.

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