Power Play: Govt may not allow BSES to exit PPA with NTPC

By: |
July 06, 2021 4:40 AM

The right to allocate or de-allocate power from plants owned by CPSEs lies with the Central government, so the CERC order can take effect only with its consent.

The company has recently received the approval of the Union ministry of new and renewable energy to set up a 4,750 MW renewable energy park at Rann of Kutch in Khavada, Gujarat.The company has recently received the approval of the Union ministry of new and renewable energy to set up a 4,750 MW renewable energy park at Rann of Kutch in Khavada, Gujarat.

Even though the Central Electricity Regulatory Commission (CERC) has allowed BSES to walk out of a power purchase agreement (PPA) with NTPC’s Dadri-I thermal plant, giving other discoms in the country hope that they could also exit costly PPAs with the state-run producer, the Union power ministry may come to the aid of the CPSE. Sources said the ministry would take the stand that old PPAs could be revoked only en masse, rather than one at a time.

The right to allocate or de-allocate power from plants owned by CPSEs lies with the Central government, so the CERC order can take effect only with its consent. The Union power ministry issued guidelines in March on how discoms could exit PPAs from plants which have crossed 25 years of operations.

The guidelines states that “in case of bulk power supply agreements, the state/discom may relinquish entire allocated power from such projects which have completed 25 years since commissioning of the project”.
BSES had struck composite agreements with a number of generating stations of NTPC including Singrauli, Rihand Stage I, Anta, Auraiya, Dadri Gas, Unchahar Stage I and Dadri-I. If BSES objects to procuring power from the Dadri-I plant citing old age, it will also have to relinquish electricity supply from Singrauli and Rihand units, which had completed 25 years even before Dadri-I.

BSES had informed CERC that the Dadri plant supplies power at an average cost of Rs 6.50/unit, making it one of the costliest power stations providing electricity to the National Capital Region. However, a senior NTPC official told FE that the tariff of the plant is Rs 3.93/unit, but the actual tariff realised is higher because the two BSES discoms do not utilise the full capacity of the plant. The discoms have to pay fixed charges of about Rs 35 crore per month to the Dadri-1 plant, even if it does not source electricity from the unit.

Under contractual requirements, discoms have to continue paying fixed cost to thermal power plants to recover the projects’ capital expenditure and cover debt obligations even when they do not procure electricity. The fixed charges payable to older plants are lower because most of the capital expenditure and debt obligations have already been covered from them. The fuel cost is also low for plants like Singrauli and Rihand as they are located near coal mines.

The Dadri unit is located far from the mines, which increase their fuel cost due to high rail freight rates for coal transportation, making it unattractive to buyers.

Rajasthan has also recently decided to stop procuring electricity from NTPC’s Anta and Auraiya gas power plants, both of which have completed 25 years of operation. However, it has not indicated anything about stopping power supply from the Rihand and Singrauli units, which also supply power to the state.

As per the Centre’s regulations, states can exit the PPAs from old plants only after six months from issuing such relinquishment notice. Before issuing such notice, the discom has to approach the state electricity regulator to ensure that the entity has sufficient arrangements in place to meet its power demand. After leaving long term arrangements, their dependency is likely rise on short-term and mid-term supply arrangements. “Prices are volatile in the spot markets and during peak hours, rates even rise to Rs 10/unit,” a sector veteran pointed out.

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