Exiting from a PPA is a very contentious issue, and several discoms in the past have tried to exit from expensive PPAs, without much success.
By Somit Dasgupta
The Central Electricity Regulatory Commission (CERC) has allowed two of Delhi discoms to exit their power purchase agreements (PPAs) signed with NTPC for its Dadri I generating station. The discoms want to exit from the PPA (which has the blessing of the Delhi Electricity Regulatory Commission) since the cost was exceedingly high, at Rs 6.5 per unit. In an era of merit-order dispatch, where a discom first buys power from its cheapest PPA before moving up the stack, power from Dadri I was not getting scheduled at all. However, the two discoms had to pay Rs 35 crore per month as fixed charge, payable irrespective of whether power is scheduled or not. Fixed charge is primarily the cost charged by the generator over and above the fuel cost.
Exiting from a PPA is a very contentious issue, and several discoms in the past have tried to exit from expensive PPAs, without much success. Nearly all discoms have signed more PPAs than they actually require, which means that they unnecessarily pay a fixed charge to a number of generators whose power they don’t schedule.
The CERC, while giving its decision, has relied on section 17(2) of its tariff regulations (2019-24) which states that after completion of 25 years of the PPA, the discoms have the first right of refusal. In such a case, the generator is then free to sell its power to whosoever it chooses. Why 25 years? Mostly because, in this period, the generator can be reasonably expected to have recovered its investment in the plant, including depreciation and return on equity. That being the case, there is little logic why a discom should continue to pay fixed charge, since power purchase cost is fully reimbursable to the discom and is accounted for in the tariff that the consumer finally pays. Consequently, it is the consumer who gains if the payment of fixed charge is discontinued.
What makes Dadri I power expensive? Is it the age of the plant? No. Rather, the issue is the location of the plant. Generators located far away from the coal mines incur a large cost on coal transportation; this ensures that they don’t get a schedule under the merit-order dispatch. This explains why the Delhi discoms don’t want power from Dadri I, but want it from Rihand and Singrauli plants (also NTPC’s) that are even older but situated near coal mines.
Pertinent to point out, there are similarly placed plants as Dadri I. These are the gas stations, Anta and Auriya (also NTPC’s), and are not getting a schedule because of high variable cost. But fixed charge is being paid by the discoms. In fact, Anta and Auriya are even older than Dadri I. All gas-based plants in India are running at an average capacity utilisation of 22-25%, due to non-availability of domestic gas—imported gas is not economically viable. Why the Delhi discoms have not moved similar petitions for Anta and Auraiya as well is not known, but, in all likelihood, this is only a matter of time.
The CERC decision, though, is not the end of the story. As already mentioned in its order, the discoms have to approach the Union ministry of power to get their share from Dadri I de-allocated. Incidentally, the national load dispatcher had refused to stop allocating Dadri I power to the Delhi discoms until the ministry issues fresh orders. The ministry had itself issued guidelines on the March 22 that the discoms can exit the PPAs after 25 years, if they so desire; but, this was followed by a clarification on July 5, that the discoms have to give up the ‘entire’ share. The Delhi discoms, of course, want to surrender their ‘entire’ share. It would be interesting to see how quickly the ministry acts on its own guidelines. NTPC may also choose to go on appeal before the Appellate Tribunal for Electricity (APTEL) or the courts. Consumers in Delhi will have to wait for sometime before they can celebrate.
The author is Senior visiting fellow, Icrier, and former member, CEA