Power producers may face Rs 1,000-cr loss after CERC bars payment till plants begin operation

The Association of Power Producers has expressed strong opposition to the Central Electricity Regulatory Commission’s (CERC) recent regulation that eliminates payments for power supplied to the grid before the start of commercial production. In a letter dated January 23, the association called for a review of the norm, stating that it could lead to financial losses for power producers.

The amendment mandates zero payment for infirm power—the electricity generated during the trial run of a plant before commercial operations begin. This trial period typically lasts 6-12 months, during which power producers incur substantial expenses.

“Infirm power usually flows for 180 days to a year, and with no compensation, this will result in heavy financial losses for the plant even before commercial operations commence,” the letter stated.

Thermal power generators, in particular, could face expenses of up to ₹1,000 crore during the trial period.

“This will particularly impact merchant power plants that sell power in the market and do not have long-term power purchase agreements (PPAs). The situation is also challenging for power plants acquired through NCLT proceedings, on an ‘as-is, where-is’ basis,” the letter said.

Earlier, the regulatory regime has always allowed recovery of some price/cost towards fuel expenses towards the infirm energy injected into the grid. Such recovery was in the form of either actual fuel cost or applicable rate. There was no situation where a generating company was deprived of any recovery for the infirm energy injected into the grid.

“All generating stations will face serious financial constraints in conducting the testing and commissioning activities to complete the trial run operation, as there will not be any source of funding for the fuel expenses. Normally, lenders do not fund fuel expenses,” the Association of Power Producers said in its letter.

It said that for a certain category of generating station, the fuel expenses incurred to complete the trial run get added to the capital cost, rendering the end consumer to pay about 8-10 paise per unit higher capacity charge for the entire term of the PPA. For others, the recovery of quoted tariff starts only after the commercial date of operation.

“Hence, if there is no means for recovery of fuel expenses for the infirm energy injected either from the grid or beneficiary, it will adversely impact the viability of the project. This problem will be more in cases where power purchase agreements are already signed based on the assumption that the generator will be able to recover a certain amount for the infirm energy,” it said.

Further, merchant power plants selling power in the power exchanges will also be deprived of any mechanism to recover legitimate expenditures incurred during the generation of infirm power, the letter said.

As per the rules of the central government, a thermal generating station is not entitled for supply of linkage coal till declaration of commerciality. This means that testing and commissioning activities have to be carried out by consuming alternate costlier domestic or imported coal which severely hurts the financial condition of the generating companies.

“The regulation will result in enrichment by some beneficiary at the cost of new generating stations coming into operation. While the generator will have to inject infirm power without receiving any compensation for costs incurred, particularly fuel costs, the injected power will become part of the energy mix which shall be drawn by the beneficiaries and be paid for,” it said.

The association also said tha the generator will not receive any share of the revenue for its infirm power injected, despite having incurred the costs for its production. “This creates a situation where the state or drawee profits from the sale of power that was generated at the expense of the generator,” the association said.