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area of supply of the Discom or other factors may change the requirement of the contracted power considerably. • Huge cost implications: The Discoms have to pay the capacity charge irrespective of the power consumed by the Discom. If the Discom over contracts than its actual power requirement, the Discom will have to pay the capacity charge for the entire 25 year period for the power it does not even require. In such a scenario, the only option left for the Discom is to pay fixed cost to the generating stations on the declared available capacity, save variable cost to the extent generator is not asked to generate. Globally, all countries have moved away from long term contracts, since predicting the status of the sector 25 years in advance with certain level of accuracy is difficult. A discom may either over contract or under contract. The prices can change considerably making the Discom worse off because of signing a PPA at high cost. Infact, this is the situation currently being witnessed in India, in the past decade, POWER SECTOR PPAs were signed by the Discoms for variable charges between Rs4- 6 per unit and sometimes even above that. The situation now is that the prices in the short term market are below Rs 3 per unit on a daily basis. West Bengal has recently done a medium term contract for 6 months by inviting bids and conducting a reverse auction and has managed to source 500 MW of RTC power at rates between Rs2.7-Rs 2.9. This is now forcing Discoms to look for ways to get out of the high cost PPAs signed by them earlier Case Study • Scenario 1: Long Term PPA for projected base load of next 25 years (selling surplus in the market) • Scenario 2: Long term PPA for the base load of the current year (buying deficits from the market). Way forward for Long Term PPAs It will be premature to say that Discoms should altogether stop signing long term PPAs, since they want to ensure security of supply for a longer period but an in-depth analysis is required for assessing the accurate requirement of the PPA. Below are a few suggestions which can help Discoms to take an informed decision on how much quantum should be tied up in long term PPA. • PPA for base demand only: As a thumb rule, the PPA should be signed for the base demand only, the seasonal variations and peak should be arranged through the medium and short term market. This will help Discoms to limit over contracting the PPAs and save on the capacity charge as the peak and seasonal quantum is not required throughout the year. • PPA on rolling basis: While projecting the demand for the 25 years, the PPA should be signed for the base load expected for the next 5 years only. Every year the demand for the next 5 years should be re assessed and additional PPAs can be signed if required to meet the base load. • A cost benefit analysis can be conducted at this point to ensure the cost for contracting more than the base load and the monetary benefit of meeting that demand through the PPA instead of the other available medium and short term option. Particulars Scenario 1: PPA for BL of next 25 year Scenario 2: PPA for BL of recent year Remarks/Assumption Base Load (MW) 12,000 12,000 Peak Load (MW) 18,000 18,000 Base demand 25 yrs (MW) 18,000 18,000 Long Term Contract (MW) 18,000 12,000 Shortage/Surplus off peak (MW) 6,000 0 Surplus of 6000 MW in Scenario 1 Peak Shortage/Surplus (MW) 0 -6,000 Shortage of 6000 MW in Scenario 2 Fixed Cost for long term/day (64.8 Cr) (43.2 Cr) Avg. Fixed cost:Rs 1.5/unit Variable Cost for long term/day (172.8 Cr) (115.2 Cr) Avg. variable cost:Rs 4/unit Cost for short term peak/day - (12.96 Cr) Peak of 6 hours (Price Rs3.6/unit*) Cost for short term off peak/day 33.48 Cr - Off peak of 18 hours (Price 3.1/unit*) Net Result NR (204.12 Cr) (171.36 Cr) Net cost payable by Discoms per day Benefit/Loss per day (NR Scenario 2 – NR Scenario 1) 32.76 Cr Saving per day as per above calculations if contracted only for recent year base load Brackets indicate the cost payable by the Discom. *Average Exchange peak and off peak price for FY 14-15 79 energetica INDIA · JAN | FEB16


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