Delhi wants clean energy but idle fossil fuel power capacity is a headache

India’s capital city is seeking to shed its onerous contracts with fossil fuel power plants to reduce costs and free up funds for clean energy.

Tata Power Delhi Distribution Ltd., which retails electricity to customers in New Delhi, is in talks with Delhi’s provincial government and the federal power ministry to get some of its contracted thermal power re-allocated to other states, Chief Executive Officer Ganesh Srinivasan said in a phone interview. It also plans to oppose any life time-extension plans for aging plants it has contracted to buy electricity from, he said.

The effort underscores how India’s electricity sector continues to struggle with debt and overcapacity after a massive build-out of plants to power a surge in economic activity that never fully materialized. The pandemic has accentuated the problem, leaving nearly half of India’s thermal power capacity idled, with the cost overhang impeding investment toward renewables and grid improvements.

“Our biggest priority is to reduce power purchase costs,” Srinivasan said. “We’re procuring renewables at a cheaper cost, but because we have so much of excess thermal long-term contracts, it limits our flexibility to buy more renewables.”

Tata Power Delhi, a unit of Tata Power Co. Ltd., has long-term contracts for nearly 2.4 gigawatts of electricity, 20% more than it needs even at peak periods in scorching summer months. The take-or-pay nature of the deals means the utility spends most of the year paying fixed rates for electricity it never uses. It paid 17.7 billion rupees ($241 million) in fixed charges in the previous fiscal year to thermal power plants burning coal and natural gas, about half of which was idled generation capacity.

Tata has some 25-year contracts that are about to expire, and the company will oppose any efforts by the power plants to extend the deals, Srinivasan said. The company is also seeking to offload some of its supply deals to governments or utilities in other parts of the country that are seeking to acquire baseload capacity.

The company plans to expand its renewable power portfolio, as cheaper modules and policy support drive down auction prices. It’s awaiting regulatory approvals for a project that would add 300 megawatts of renewable power, and hopes to request bids from developers by March, Srinivasan said. Renewable power forms about 17% of the company’s supply portfolio and may expand to 20% in six months, he said.

Improving reliability of power supplies is another focus area for the company. Tata Power plans to spend about 10 billion rupees to take Delhi’s notoriously tangled thicket of overhead cable networks underground, Srinivasan said.

An overhead network remains exposed to disruption from external elements, such as storms or -- more frequently -- kite strings and birds.