Power Ministry lowers minimum duration for PPAs with thermal plants to 5 years

India’s Power Ministry has taken two significant decisions to ensure the availability of adequate resources in the power grid for peaking, balancing, and flexing. The first decision is to lower the minimum duration for Power Purchase Agreements (PPAs) with thermal plants from 10 years to 5 years. The second decision is to issue a scheme for tariff pooling for power plants whose PPAs have expired.

According to the Power Ministry, the discoms are not finding value in pooling and will be able to opt-out from the pool after 5 years. The move is expected to ensure the availability of adequate resources in the power grid for peaking, balancing, and flexing.

The scheme's implementation is set to begin from July 1, 2023. The Power Ministry believes that it is prudent to continue operating efficient thermal capacities of Central Public Sector Undertakings (CPSUs) whose PPAs have expired.

The Power Ministry has adopted a selective approach for power procurers exiting from PPAs. The Ministry believes that a hasty exit by power procurers may lead to the shutdown of significant thermal capacities. This would be detrimental to the power grid, as gas-based capacities, capable of fast ramp-up, would also need to be shut down.

The scheme for tariff pooling is expected to provide much-needed relief to the thermal power industry. The decision to lower the minimum duration for PPAs with thermal plants is expected to boost investment in the sector.