Gencos to be allowed to sell power in open market if not paid by discoms

Power ministry has made the suggestion in order to reduce the retail tariff for consumers and reduce burden of regular payment on the discoms

The ministry of power has proposed to allow power generating companies (gencos) that do not receive payment for a quantum of power supply from the power distribution companies (discoms), to sell to a third party.

In draft amendments to the Electricity (Late Payment Surcharge) Rules, 2021, the ministry has made the propositions in order to reduce the retail tariff for the consumers and also reduce the burden of regular payment on the discoms.

“The generating companies are being given an option to sell power to third party and recover their cost. To this extent the fixed cost burden of the distribution licensee shall be reduced,” it said.

The amendment pertains to the pending payment including Late Payment Surcharge outstanding of the discoms towards the gencos.

“After the expiry of seven months from the due date of payment as prescribed in the Power Purchase Agreement or the Power Supply Agreement, the generating company may sell power to any consumer or any other licensee or power exchanges, for the period of such default, while retaining its claim on payment of fixed charges or capacity charges from the distribution licensee, after giving a notice of at least fifteen days to the distribution licensee,” said the draft amendment.  

The claim of the gencos on the payment of discoms would be reconciled on an annual basis and would be limited to only under recovery of the fixed charges or capacity charges.

Tariffs of thermal power plants have two components – fixed cost which is the capital cost and variable cost which is the fuel cost. Under a long-term PP) with gencos, discoms are obliged to pay the fixed cost even if they do not procure power during a certain period.

The ministry has further proposed that gencos should follow the principle of ‘first in and first out’ for payment of bills by the discoms. This the ministry said would boost the confidence of investors in power generation and also reduce the burden of payment on the discoms.

“All the bills payable by a discom to a genco shall be time tagged with respect to the prescribed date of payment specified in the PPA, and the payment shall be made by the discom first against the oldest procurement of power and then to the second oldest procurement and so on so as to ensure that payment against a procurement is not made unless and until all procurement older than it have been paid for,” said the draft amendment.

The power ministry has circulated the draft amendments among stakeholders and will issue a final notice after receiving their comments.