In a noteworthy initiative aimed at promoting fairness and equity within the power sector, the Ministry of Power has issued comprehensive clarifications pertaining to the procurement of power by distribution companies (Discoms) following the expiration of Power Purchase Agreements (PPAs). These fresh directives were prompted by concerns voiced by generating companies (GENCOs) who found themselves in a challenging predicament.
The core issue revolves around Discoms selectively opting to source electricity from power plants with lower costs, often overlooking those with higher operating expenses. This practice resulted in an imbalance, leaving generating companies burdened with a portfolio of more expensive assets, while Discoms benefited from cheaper power sources, all at the expense of the generators.
Upon meticulous examination of the matter, it has been reaffirmed that both parties involved in the PPA, namely the Generator and the Buyer, should possess equal rights. Upon the conclusion of a PPA, both parties are absolved from the obligations of supplying or procuring power from each other, thereby upholding the principle of bilateral freedom within the power sector.
The Ministry of Power (MoP) has unequivocally stated that any unilateral decisions by either party are untenable. The expiration of a PPA signifies the termination of a contractual arrangement, allowing both the generator and the procurer the autonomy to independently determine their future actions.
In light of this, the Government of India has chosen to rigorously enforce this legal standpoint. Post PPA expiration, both parties are afforded the liberty to decide whether to enter into another agreement for the purchase or sale of power. Alternatively, the generator has the option to sell power through exchanges or enter into bilateral agreements with entities of their choosing. This approach ensures the establishment of a fair and competitive marketplace.
Furthermore, the government has introduced a scheme that consolidates Central Generating Stations (CGSs) operated by central public sector undertakings (CPSUs) whose PPAs have lapsed. These stations will be bundled with gas-based power and offered for sale to interested buyers. The pricing of power will be transparent and uniform for all purchasers from the pool, guaranteeing an equitable allocation of resources.
The Ministry of Power issued the scheme for pooling tariff rates of plants with expired PPAs on April 20, 2023, replacing the previous guidelines issued in March 2021 and the subsequent clarification in July 2021. This new scheme aims to create a level playing field for both parties involved and is expected to enhance resource adequacy in the country’s power sector.
To implement this scheme effectively, the Central Electricity Regulatory Commission (CERC) has been directed to take the necessary steps to establish regulatory provisions for its operationalization.
It is important to note that the guidelines issued by the Ministry in March 2021 and the clarification in July 2021 have been superseded by the Ministry of Power’s scheme dated April 20, 2023. State Discoms may now requisition power from the pool after the expiration of their current PPAs, following the provisions outlined in the scheme issued by the Ministry.
This development represents a significant step toward creating a fair and competitive power sector that benefits both generators and distribution companies, ultimately contributing to a more robust and balanced energy landscape in India.
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