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Last Updated:  13 Sept 2023

The Ministry of Power (MoP) has recently announced that distribution companies (DISCOMs) will have the opportunity to procure power from a common pool once their existing power purchase agreements (PPAs) have expired, following the provisions laid out in a program introduced by the Ministry back in April.

In April, the Ministry had issued a program aimed at pooling tariffs for coal or gas-based thermal power plants, particularly those with expired PPAs. This initiative comes at a crucial time when India is transitioning towards non-fossil fuel energy sources, with a growing demand for electricity. The program’s main objective was to ensure a stable and sufficient supply of resources within the grid for various purposes, including peaking, balancing, flexing, and redistributing benefits like reliability and cost-effectiveness among beneficiaries.

This April program effectively supersedes previous government notifications. Notably, the Ministry had issued notifications on March 22, 2021, and July 5, 2021, which permitted DISCOMs to continue procuring electricity even after their PPAs had expired. However, some DISCOMs opted to discontinue purchasing power from facilities with higher operational costs while continuing to source electricity from more economical sources. This situation raised concerns among power generators, who were left with costlier assets, while DISCOMs benefited from cheaper alternatives, all at the expense of the generators.

After careful deliberation, the government has now decided that, upon the expiration of a PPA, both parties (DISCOMs and generators) can enter into new agreements for power purchase or allow the generator to sell power on the open market or to other entities. This decision grants DISCOMs the flexibility to choose their power sources.

Furthermore, the government has determined that central generating stations with expired PPAs will be aggregated into a common pool, alongside gas-based power. The power from this pool will be offered to any interested buyers at a transparent and uniform rate, ensuring fairness for all purchasers.

To facilitate the implementation of this program, the Central Electricity Regulatory Commission has been tasked with taking the necessary actions. It’s worth noting that in 2021, the Ministry of Power had already provided DISCOMs with the option to either continue or exit from PPAs for projects that had completed 25 years of operation or reached the specified tenure outlined in the PPA with central generating stations.

Source: https://powermin.gov.in/sites/default/files/webform/notices/Withdrawal_of_the_Guidelines_dated_22nd_March_2021_and_5th_July_2021_regarding_the_Discoms_PPA.pdf