India’s power producers are raising concerns over a recent regulation by the Central Electricity Regulatory Commission (CERC), which eliminates payments for electricity supplied during the trial run of a power plant. The Association of Power Producers (APP) has strongly opposed this move, citing heavy financial losses and adverse impacts on the viability of power projects.
Regulation Targets Infirm Power Compensation
The new CERC regulation mandates zero payment for infirm power—the electricity generated during a plant’s trial period before commercial operations begin. This trial phase typically spans 6-12 months, during which plants incur significant expenses.
The APP, in a letter dated January 23, warned that this change could lead to financial losses of up to ₹1,000 crore for thermal power producers. Previously, producers were allowed to recover fuel costs for the infirm power supplied to the grid, either through actual fuel expenses or an applicable rate. The amendment now deprives them of any recovery, leaving them vulnerable.
Key Concerns Raised by Power Producers
The APP highlighted several challenges posed by the new regulation:
- Impact on Merchant Power Plants: Plants without long-term power purchase agreements (PPAs), particularly those acquired through NCLT proceedings, face severe financial strain.
- Fuel Cost Burden: Testing and commissioning activities require expensive alternate coal or imported fuel, as government rules deny linkage coal until commercial operations commence.
- Consumer Impact: For certain plants, unrecovered fuel costs may increase capital costs, resulting in higher charges for consumers over the PPA’s duration.
- Unfair Revenue Distribution: The regulation allows beneficiaries to draw infirm power without compensating generators, leading to a situation where states profit at the expense of power producers.
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Long-Term Implications
The APP argued that this regulation could hamper India’s efforts to add new power capacity and maintain energy security. Without compensation, power producers will struggle to fund trial operations, potentially delaying project completion. Additionally, the inability to recover costs during the trial phase could discourage investments in new plants.
The association urged the CERC to reconsider the regulation, highlighting the unfair financial burden on power producers. It emphasized the need for a balanced approach that ensures the viability of power projects while safeguarding consumer interests.
As India’s energy demands grow, addressing these regulatory challenges will be critical to sustaining the country’s power infrastructure and economic progress.
