Govt cuts PPA contract period from 25 years

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New Delhi | Published: May 7, 2015 1:53:41 AM

To improve the chances of power developers entering into concessional fuel-supply agreement with coal producers...

To improve the chances of power developers entering into concessional fuel-supply agreement with coal producers, the government has amended the provisions of the power procurement guidelines for Case 1 power plants by bringing down the contract period of long-term power purchase agreements (PPAs) to seven years and above from 25 years earlier.

Any PPA with a duration of 7 years to 25 years will also have the provision of extension by another 5 years subject to an agreement between buyer and seller. This will be applicable for Case-I coal-based power plants that are built on design, build, finance, own and operate (DBFOO) model.

This is likely to ease the situation for power plants that find it difficult to supply power due to inability of Coal India (CIL) and its subsidiaries to supply fuel to those having PPAs with tenure of less than 25 years. Due to inadequate production, CIL and subsidiaries have only been considering plants with long-term (25-year tenure) PPAs on priority for FSAs.

“The amendment is aimed at breaking the vicious circle where a power plant becomes ineligible to participate in bidding for PPA in absence of fuel supply agreement (FSA) and the latter is not available because the developer would find it difficult to enter into power supply contract with tenure of 25 years,” a power ministry official told FE.

He added that with rising CIL’s production augmented by surrendered FSAs from those developers which have won mines in recent auction, more coal will be available for fulfilling demands of developers.

With coal production lagging the demand, Coal India has been signing FSAs with assurance of supply for only 65% of the annual contracted quantity (ACQ). This assurance has been available only to developers with PPAs of 25-year duration.

Further, the amendments have also relaxed the earlier condition of maximum seven bidders in the request for qualification phase in the bidding process for PPAs in an effort to increase competition.

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