Government plans auctions for power plants without PPAs

NEW DELHI: The government expects to conduct auctions next month to help idling power plants that do not have power purchase agreements (PPAs).

The power ministry is working on a demand aggregation model, whereby demand from all states will be aggregated by a nodal agency and tariff-based competitive bids will be invited from power generating companies.

In the first round, bids for 2,500 mw capacity for a period of less than seven years are likely to be called, a senior government official said. "We are working on aggregation model. Today states are in need of power but are not signing power purchase agreements as they do not want to sign long-term pacts and get tied to fixed costs," he said on condition of anonymity.

Another official said the proposal is at an advanced stage and the bid documents are likely to be finalised this month. "Power Finance Corp has been appointed the nodal agency for implementation of the scheme.

"We expect the scheme to prove beneficial to discoms, the generating companies and the banks," said the official, who did not wish to be named.

"The term of the power purchase agreements is yet to be decided but can be anywhere between five to seven years. The bidding is likely to take place next month," he said.

The proposal aims at helping the idling power projects tie-up medium-term contracts and service debt. In the present model, a proposed market mechanism is being worked out to reduce the burden of fixed costs payment by discoms to power plants in case of no or limited purchasing power. At present, states have to pay at least the fixed charges to power generation companies when they back down from offtake of contracted power capacity.

Electricity distribution companies have not called long-term contracts in the past few years. Industry experts cite low demand, subdued spot power prices and falling prices of renewable energy as the reasons for lack of PPAs, though the government says the electricity demand has been growing at a healthy rate and has picked up slightly in the last few weeks.