Unprecedented changes in the power sector due to higher capacity, steep fall in bids for solar power projects, and inability of Discoms to purchase additional power for supplies in States, are forcing Discoms to take to shorter duration power purchase agreements. “Discoms have become wary of long-term PPAs as it has become difficult to predict with certainty how the dynamics in the power sector would pan out over say 10-15-25 years. Even projecting demand-supply situation for the next five years has become difficult,” Ashok Khurana, Director-General of Association of Power Developers, told BusinessLine.
Even merchant power plants, which were set up during 2009-14, due to huge projected demand for power then are forced to brace up for some challenges in the near term, he said. “The key lies in resolving the issue of handling a mix of energy sources — fossil and renewable — pro-actively by bringing equilibrium rather than in a reactive manner. One of the important suggestions that the Union Power Minister Piyush Goyal recently mooted is about the bundling of power from fossil fuel projects,” Khurana said. T Adibabu, Chief Operating Officer, Finance of Lanco Infratech, said, “The problem has been lately pronounced as the demand for power has not spiked up as expected. This means there is more supply than the demand.”
The cancellation of thepower purchase agreement in Uttar Pradesh for 3800 MW capacity is one such major development and an indication of how the power sector has changed so dramatically. The power from exchanges too is available at much lower rates at about ₹3-3.50 per unit. In fact this was ruling below ₹3 some days ago. “I see these changes as a transitory. The spirit of reforms encourage buyers to chose the source of energy for purchase. That means open access will be a major option for energy consumers. However, not all States encourage open access. It is encouraged in Tamil Nadu and Karnataka,” said Chintan Shah, Vice-President of Wind Turbine Manufacturers Association.
Even though the prices are falling, if the recent renewable energy bids are factored in, those who are looking at cheaper options having their own power unit is preferable, he explains. Merchant plants, which had come up in the backdrop of huge power cuts in several States, are suddenly faced with a tough situation as power is available at cheaper rates through exchanges. As per estimates, about 18,300 MW of merchant power is available in the country. Many of the IPPs have booked part of the supplies, some have set up for their own captive requirement and sell the excess as merchant power.
For instance, some of the gas-based plants whose PPAs have expired, have seen them getting renewed on a case-to-case basis, some for about a year and few others on a monthly basis, reflecting changing times. “We need to consider differential tariff based on time of supply as followed world over,” Khurana said. Completed projects without PPAs and a number of IPPs in the pipeline are faced with uncertainty due to these changes.