India’s state-run electricity distribution companies will have to pay a fixed charge to renewable energy firms if they don’t draw scheduled power and also don’t maintain letters of credit. The fixed charge in solar, wind and small hydropower projects will be the tariff at which power is purchased by power discoms as it reflects the cost of operation, installation and maintenance of a power plant, according to a clarification issued by the Ministry of New and Renewable Energy. That comes as the government tries to ensure payments by power discoms amid a rise in outstanding dues. Solar producers in Telangana, Andhra Pradesh and Karnataka are battling unpaid dues and revenue and generation losses on the back of unscheduled and prolonged grid curtailments—when utilities refuse to purchase powet.
The Power Ministry earlier this month made it mandatory for discoms to maintain letters of credit, a kind of payment security, for drawing power. They won’t be supplied electricity if they don’t maintain such guarantees. Dues to power generators rose to Rs 43,599 crore as of May 31, according to the government’s Praapti portal.
The clarification on fixed costs was necessary as renewable energy firms were at a disadvantage because of their single-part tariffs, an official from the Ministry of New and Renewable Energy told BloombergQuint requesting anonymity. Thermal power plants get a fixed charge in case power isn’t scheduled from them, the official said.
Explaining how the fixed charge will be calculated, the renewable energy ministry’s notification said, “Energy generated during the non-dispatch period shall be calculated on the basis of capacity utilisation factor as declared by the generators in power purchase agreements and for projects having more than one year of operation. The power non-dispatch shall be calculated using pro-rated actual energy generated in the last twelve months.”
It’s a welcome move as earlier only thermal power producers used to get fixed charges if power was backed down, said Sunil Jain, chief executive officer at renewable energy producer Hero Future Energies Pvt. Ltd.
Girish Kadam, vice president of corporate sector ratings at ICRA Ltd., said given that renewable energy projects are single-part and fixed, the provision of entire tariff as fixed cost to be paid under payment security mechanism (in the absence of letter of credit) is positive for renewable energy producers, he told BloombergQuint over the phone. “This clarity was required for renewable energy companies as it was not clear in the main circular.”
Source: bloombergquint
