Model power buying pacts to be redrafted to junk long-term deals

The government is redrafting its model power purchase agreements (PPAs) to move away from long-term contracts.

"Long-term power contracts are no longer suitable for the Indian power system," a senior government official said. "Power procurement costs can be brought down through a mix of contracts of different tenures. State power distribution companies are no longer interested in getting stuck with long-term contracts."

He said medium and short-term contracts are most suitable as the country plans to deepen its electricity markets.

The Union power ministry has constituted a committee headed by REC Ltd chairman Sanjay Malhotra to look at changes in tenure of the PPAs, payment security mechanism, force majeure clause, and contracts reneging issues, the official said.

The committee comprises representatives from power and renewable energy ministries, state power distribution companies and the Central Electricity Authority.

Long-term power contracts are those signed for more than seven years. Presently, long-term PPAs are signed for 25 years while hydropower plants contracts are for even longer duration. There have been no new long-term agreements in the power industry for almost a decade now.

"Long-term power purchase agreements have not been contracted for a long time," said a senior executive at a private power firm who did not wish to be identified. "Both discoms and generators do not want to get into long-term PPAs of 25 years in any case."