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MS. SHILPY DEWAN SENIOR EXECUTIVE, R&D, IEX Tying up Long Term PPAs by Discoms: How much is too much? In India, till now Discoms predominantly enter into long term Power Purchase Agreement for upto 25 years to manage their power requirement, the residual requirement, if arises, is met through medium and short term contracts Discoms have a great role to play to ensure the electricity being consumed each second is available to us uninterrupted. To ensure supply, Discoms enter into power purchase agreements with generators, traders to meet the power requirement in the area of their operation. In India, till now Discoms predominantly enter into long term Power Purchase Agreement for upto 25 years to manage their power requirement, the residual requirement, if arises, is met through medium and short term contracts. These PPAs constitute two payment streams: fixed charges based on capacity declared available by generators and variable charges based on the scheduled generation as required by Discom. On the face of it, it might look to be very simple and sorted but there are numerous complexities that the Discom has to consider before taking the plunge. Discoms are constantly burdened with the role to continuously make right choices in selecting right set of generators at right time to meet demand. It is important for the Discoms to give a serious thought while signing a long term power purchase agreement as: • The Contracts are for a long period and cannot be terminated: These long term contracts are mostly for a period of over 25 years and cannot be terminated before the end of the period. Therefore, a discom has to ascertain its demand projections and other factors for 25 years in advance before signing the PPA. The prices of power through other sources, demand in the Discoms managing surpluses in case of over-contracting: A loss-loss situation The recent change in the deviation settlement regulations has changed the way in which the Discom used to manage its surplus. Before the new regulations came into force, the utility, if surplus, had the option to under draw and get some predetermined compensation depending on the frequency of the grid. The variable cost of the plant in this way was compensated to some extent and it was not a complete loss to the Discom. The new regulations on deviations puts a limit on the quantity that a Discom can deviate from the schedule and attracts penalty if the deviation is beyond the permissible limit and now the Discom may end up paying both, variable cost to generator and penalty to system operator in case it under-draws beyond the permissible limit, and that too without using the electricity. Another option to manage this surplus is to sell it in the market. But since the maximum surplus will be in the off-peak hours, the price of power during this period is anyway going to be at its lowest and the utility may only be able to recover the variable cost or just a portion of it. The fixed cost will be payable by the Discom in both the scenarios, therefore, the Discom is better-off meeting its deficits from the market rather than being surplus and selling it in the market. Ideally, the discoms should sign long term PPAs only for the base load and balance requirement can be better managed through the medium and short term market. The case study below examines the two scenarios where the Discom has tied up PPA based on the projected base load for next 25 years and therefore is surplus in the current year vis-à-vis a scenario where Discom only ties up PPA for the base load of the recent year and purchases deficits from the market. POWER SECTOR 78 energética INDIA · JAN | FEB16


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