FOrmer Secretary (Power) to Government of India, EAS Sarna said that there was need to revisit the existing format of the power purchase agreements (PPAs) for thermal power plants to eliminate the necessity of having to pay for deemed generation.
Sarna in a letter to Comptroller & Auditor General of India (CAG) and others has written that state power utilities signing PPAs with private companies with a “deemed generation” clause, which forces them to pay for the power they may not need during lean period, should be reviewed. Further special audit of private sector thermal plants is necessary to safeguard the public interest.
In his letter Sarna wrote, “In the liberalised regime introduced by amendments to the Electricity Act in 2003, the Centre and the States went berserk in clearing a very large number of thermal power projects, mostly coal-based, proposed by private companies, leading to a surplus thermal capacity which was meant to cater to the steady component of the electricity demand.
In the past, the Central Electricity Authority (CEA) used to exercise due diligence in regulating additions to thermal capacity so as to minimize the backing down of thermal plants. The liberalised regime of 2003 discontinued such a regulatory oversight, opening the floodgates to proliferation of private thermal generation capacity across the States.
Instead of assuming the risk of finding alternate consumers for the power generated by them, the private developers setting up thermal power plants took undue advantage of the over exuberance displayed by the States in inviting investments and forced them to sign PPAs with a deemed generation clause, thereby transferring the risk of finding an outlet for their power to the States. In the liberalised set up that exists today, the private developers should be persuaded to take on some risks.
The States ought to have so designed the format for competitive bidding as to obviate the scope for having to pay for the power they may not need during the off-peak hours. In such a case, it is for the private developer to find alternate sets of customers to absorb their surplus power.
The losses to the public exchequer on account of the “Deemed Generation” clause in the PPAs are mindboggling large. These are amounts that public sector utilities are forced to pay to private companies and indirectly, the huge cost burden is passed on either to the electricity consumers in the State.
As an immediate measure to stop this plunder of public money, there should be an embargo on additions to thermal power capacity, especially in the private sector. Simultaneously, there is need to revisit the existing format of the PPAs for thermal power plants to eliminate the necessity of having to pay for deemed generation. In the liberalised set up that exists today, the private developers should be persuaded to take on some risks.”
EAS Sarna requested the CAG to conduct a special audit of this across the States as otherwise the losses to the public exchequer would continue to mount to a formidable proportion. It is important that this issue is analysed thoroughly and the matter is posed for discussion in the Parliament and the State legislatures. Dre Kirkpatrick Authentic JerseyShare This