The Union power ministry has issued a notification enabling discoms to either continue or exit the power purchase agreement (PPA) after its term.
The notification gives flexibility to power generators to sell the relinquished power in any mode after the exit of the state/discom from the PPA. The state will have to provide six months of advance notice and clear all past dues before exiting.
As per the notification issued by the Union power ministry, states/discoms which have signed long-term PPAs with the central generating stations (CGS) which are due to expire in the near future, can opt to relinquish the entire allocated power (firm and unallocated share) post the completion of the PPA tenure, which is 25 years from the date of CoD (commercial operations date) or as specified in the PPA.
Advance notice
The state will have to give six months advance notice, clear all past dues and get approval from the state commission, which, while examining the request, has to ensure that adequate power is tied up with the state/discoms to meet the state’s electricity demand. Once a state exits the PPA, it will not be allowed to take back under the same PPA conditions. Power supply from other projects shall continue as per the terms of the PPA.
BPSA
Prior to 2000, PPAs were signed region-wise under bulk power supply agreement (BPSA) with power projects. As per this notification, if a discom is opting to discontinue a PPA from a particular plant under BPSA, it will have to mandatorily give up PPAs with all plants in that region (as per the BPSA), which have crossed 25 years of age (even if other plants have a low tariff.)
Illustrative examples
A report by ICICI Securities (I-Sec), quoting the case of Uttar Pradesh said that if UP decides to exit from PPA with Unchahar, it will mandatorily have to relinquish PPA with other plants of NTPC in the northern region which have exceeded 25 years since CoD, which includes Rihand, Singrauli, among others. BPSA holds good for gas power plants as well.
Further, an analysis by I-Sec suggests that in the current scenario, only Delhi may exercise exiting from PPAs under this notification. Delhi currently procures around 90 per cent of the power supplied by the four Dadri (Phase 1) units aggregating 840 mw. If it does so, it will have to relinquish around 10 per cent, which it is currently procuring from Singrauli (2,000 mw), as per the BPSA.
Source: Report by ICICI Securities
