india

Updated: Aug 26, 2019 00:36 IST

The Centre has formed a high-level group to make recommendations for changing the structure and system of power sale and purchase in the country, according to an order issued in this regard. This is a part of the Bharatiya Janata Party-led National Democratic Alliance government’s key agenda of ushering in major power sector reforms including 24x7 uninterrupted power supply.

Special power secretary Sanjiv Nandan Sahai will lead the group, which will recommend reforms needed in Power Purchase Agreements (PPAs) and for increasing competitiveness in the power markets.

The group will also include representatives from Central Electricity Authority of India, Central Electricity Regulatory Commission, Power System Operation Corporation Limited and the Union power ministry.

According to the Union power ministry’s order cited above, the group has been formed for “deepening of the power markets in India”.

It will study the present system of power sale and purchase, which is predominantly governed by PPAs, power trading and other modes of transactions in power sale and purchase.

The order said the group will prepare a report to make the recommendations within six months. HT has accessed a copy of the order.

“There is going to be a major reform in the power sector. Our effort is to bring in more competition so that power prices become competitive. This will help the common man and the industry. If we want to be a developed country, we need to have a power sector which is sustainable and viable,” Union power minister RK Singh said.

The PPAs have been blamed for stressing the power sector. Andhra Pradesh’s decision to renegotiate tariffs of all renewable projects has stalled major projects led to weaker cash flows and unpaid dues for developers.

“PPAs are legally binding documents and once a document has been signed, it cannot be amended. We have strongly objected to Andhra’s decision to revise these contracts. This is going to impact the whole investment atmosphere, which will go for a toss. Not just this sector, it will have an impact on other sectors also,” a power ministry official said, requesting anonymity.

Singh said the group will also examine whether PPAs need to be completely restructured.

Power distribution companies have historically entered into long term PPAs with the generating firms for the supply of power and appropriate regulatory commissions determine tariffs.

Power exchanges or electricity markets have also been introduced in the Indian

market.

“We have experience of more than a decade of operation of power exchanges in India.

The share of short term power consists of around 10% of the total power procured in the country. The power procured from power exchanges consists of around 3-4% of total power procured in the country. The comparatively smaller proportions of power procured through power exchanges result in lower depth and higher volatility of power prices in the power exchanges,” the order said.

Officials said the power sector has witnessed a huge growth in terms of capacity addition during the last few years.

But it is reeling under stress as the mismatch in demand and

supply has led to stressed power assets or non-performing assets (NPAs).

According to the 37th Standing Committee On Energy report, about 34 power plants in the country amount to about ₹1.40 lakh crore NPAs.

“Several factors such as capacity addition without tied-up PPAs with Distribution Companies (DISCOMs), coal supply issues, the inability of DISCOMs to

pay to generators, regulatory issues, the inability of promoters to infuse equity, tardy implementation etc have resulted in the inability of these coal-based power plants to service their debts,’’ said another power ministry official, requesting anonymity.

The official added a competitive market will lead to lower power prices and boost the industry.

“For this, we also need to ensure coal is freely available and the mandatory condition of having PPAs for purchasing coal should be done away with. The power minister has written to his coal ministry counterpart for the same.”