Order on pooling electricity from old thermal and gas-based stations soon: Power ministry officials

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The government’s proposal to pool electricity from thermal and gas-based power plants that are older than 25 years is in the final stages and is likely to be rolled out in April, senior officials from the power ministry and the Central Electricity Authority (CEA) told Moneycontrol on March 6.

To meet India’s increasing electricity demand, the government is trying to first unlock its old and underutilised energy resources instead of building new ones. This is because setting up a new power generating station, say a thermal or a gas-based power plant, takes much longer and is more capital intensive. It is in this direction that the power ministry on November 15 last year floated a proposal to create a common pool of electricity tariffs from all thermal and gas-based power plants that are older than 25 years. India's electricity consumption in the past one year grew by about 9-10 percent and the government has time and again highlighted in the past two months that the demand and supply gap will remain in the power sector as of now.

“After receiving and analysing all the comments from stakeholders, Minister of Power RK Singh chaired a meeting to review the final draft of the policy on February 20. Post the meeting, the policy is now in the final stage of formulation and will be released by next month or so,” said a senior power ministry official requesting anonymity.

At least 14 such power plants with a total capacity of 15,386 megawatts (MW) are likely to be tapped once the policy comes into force. As per the plan, the ministry will form a pool of efficient coal- and gas-based units that are older than 25 years and more. The thermal and gas-based plants that in the future cross 25 years will also automatically get inducted into this pool. States that want to procure power from these stations will have to enter a power purchase agreement (PPA) of minimum five years. Gas stations are important to grid operations as they are capable of fast ramping operations and best suited for flexing, which is why gas plants have also been included in the plant.

“Many states/distribution companies, based on commercial considerations, started making an exit from PPAs of costlier plants (non-pit head coal stations and gas-based thermal generating stations) while retaining the PPAs of cheaper plants. This is also leading to generation capacity crunch, especially during the peak demand season. Even though the country has the generation capacity, it is unable to utilise them due to exit from PPAs. There is a need to bring back the generation capacity in a manner that tariff is reasonable and the capacity is also available in the grid,” read the draft policy.

In March 2022, the power ministry allowed states to exit PPAs with central power sector utilities after a period of 25 years. It was done after several states approached the power ministry for relinquishing old PPAs as renewable PPAs were turning out to be cheaper, the spot market (whose share in the total energy market is about 7.4 percent) was offering low tariffs and generating capacities in a few states increased in general.

According to the note, if a state or a discom needs to relinquish a PPA with a 25-year-old power unit, it will be allowed to do so, but will be allotted a comparative quantity at an average cost from the pool. The allocation will be in line with the cumulative generation capacity of the pool. If any power capacity in the pool remains unallocated, it will be allowed to be sold on power exchanges.

A second senior official, however, said the real impact of the launch of this policy will be seen either in the Monsoon or during the summers in 2024. “This is because even after the final notification of the policy, a number of processes will have to be undertaken by the stakeholders. For example, the generating company (genco), such as NTPC Ltd, will have to create a common pool of its 25-year-plus stations and intimate to existing beneficiaries for de-allocation of power at least six months in advance,” the second official said requesting anonymity.

The government is looking at this policy as an interim arrangement in the absence of a cost efficient and wider use of battery energy storage systems (BESS) in the current scenario. India is aiming for 500 gigawatt (GW) of non-fossil fuel energy by 2030. Since renewables such as wind and solar are intermittent and BESS is not yet viable to balance the grid, this mechanism, according to the government, will serve the purpose for the time being.

“Until the time adequate storage capacity develops in the grid, the generation load balancing must be carried out in the usual manner through the conventional load-following generating stations, such as coal and gas thermal plants, thus, ensuring continued operation of the plants that have already completed 25 years of operation will be in the interests of the electrical grid, taking care of balancing needs until development of adequate storage capacity,” the draft policy stated.