The Centre has made it clear that it has no plan to reduce the tenure of long-term power purchase agreements (PPA) from 25 years to five years and it is entirely for distribution companies (discoms) to decide how they manage power purchase portfolio.
Dscoms normally sign PPAs for long, medium and short terms. While tenure of medium term PPAs varies from one to 5 years while short-term PPAs are signed for less than a year.
“Discoms are expected to manage their power purchase portfolio to optimisee power purchase cost and risks using various PPAs under long term (upto 25 years), medium term (more than 1 Year upto 5 years) and short term (upto 1 year) for which adequate provisions already exists under the Model Bidding Documents notified under section 63 of the Electricity Act, 2003,” Union power minister Piyush Goyal has informed parliament in reply to a question.
In the case of long term PPAs under cost plus approach, the tariff is governed by certain pre-specified factors in the Regulations of the Appropriate Commission, which is generally determined annually.
In case of long term PPAs based on tariff based competitive bidding, the year to year tariff is based on adjustments based on pre-specified indices on escalable components.
In case of short term contracts, the rate of power is unpredictable only because the rate fluctuates significantly according to the demand and supply during the period.