Power producers face Rs 1,000-crore loss as CERC bars payment till plants begin operations

Power producers have opposed Central Electricity Regulatory Commission’s new norm of not mandating any payments for power they supply to grid before start of commercial production as it may lead to heavy losses.

An association of power producers on January 23 wrote to CERC on the new provision for so-called infirm power, seeking a review of the norm. The decision to not pay for infirm power will lead to a huge loss.

Thermal power generators can incur an expense to an extent of Rs 1,000 crore during the 6-12 month trial period towards infirm power before they achieve commercial operation of the plant.

“All generating stations will face serious financial constraints in conducting the testing and commissioning activities to complete the trial run operation, as there will not be any source of funding for the fuel expenses.”

Normally, lenders do not fund fuel expenses,” the Association of Power Producers wrote to CERC.Earlier, the regulatory regime allowed recovery of some price/cost towards fuel expenses of the infirm energy injected into the grid.

Such recovery was in the form of either actual fuel cost or applicable rate. There was no situation where a generating company was deprived of any recovery for the infirm energy injected into the grid.

CERC last month amended this provision to provide for ‘nil’ payment for infirm power. This will lead to substantial loss for the plant even before it starts commercial operation because infirm power typically flows for 180 days to 1 year.

This will particularly impact merchant power plants that sell power in the market and do not have long-term power purchase agreements. The situation is also challenging for power plants acquired through NCLT proceedings, on an ‘as-is, where-is’ basis.

The Association said for a certain category of generating station, the fuel expenses incurred to complete the trial run get added to the capital cost, rendering the end consumer to pay about 8-10 paise per unit higher capacity charge for the entire term of the PPA.

For others, the recovery of quoted tariff starts only after the commercial date of operation.”Hence, if there is no means for recovery of fuel expenses for the infirm energy injected either from the grid or beneficiary, it will adversely impact the viability of the project.

This problem will be more in cases where PPAs are already signed based on the assumption that the generator will be able to recover a certain amount for the infirm energy,” it said.

“Further, merchant power plants selling power in the power exchanges will also be deprived of any mechanism to recover legitimate expenditures incurred during the generation of infirm power.”

As per the extant rules of the central government, a thermal generating station is not entitled for supply of linkage coal till declaration of commerciality.

In other words, testing and commissioning activities have to be carried out by consuming alternate costlier domestic or imported coal which severely hurts the financial condition of the generating companies, it said.

“The regulation will result in enrichment by some beneficiary at the cost of new generating stations coming into operation. While the generator will have to inject infirm power without receiving any compensation for costs incurred, particularly fuel costs, the injected power will become part of the energy mix which shall be drawn by the beneficiaries and be paid for,” it said.

The revenue generated from selling the infirm power will flow into a state’s fund designed to balance grid imbalances. “However, the generator will not receive any share of this revenue for its infirm power injected, despite having incurred the costs for its production.

This creates a situation where the state or drawee profits from the sale of power that was generated at the expense of the generator,” the association said.

The CERC, it said, should bear in mind that most of the state electricity regulatory commissions adopt the regulations promulgated by CERC and as a result, the intra-generating companies may also be subjected to serious financial constraints, if similar regulations as per the present amendment by CERC, are adopted by them.

“In our view, sudden adoption of such a diagonally opposite concept by the CERC is not in the interest of any stakeholders of the power sector. This will be detrimental to consumer interest as well since it will either increase cost or delay capacity additions.

The proposed regulation may seriously impact the government of India’s stated capacity addition program of 80 GW of coal based thermal power plants,” it said, seeking changes in the regulations to ensure the recovery of fuel expenses incurred till the successful completion of trial run by thermal power plants.