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Thursday, May 19, 2022

Explained: Govt’s proposals to pool solar tariffs, bundle renewable energy with thermal power

Why is the pooling of solar tariffs and bundling of renewable energy with thermal power needed?

Written by Karunjit Singh , Edited by Explained Desk | New Delhi |
Updated: February 9, 2022 12:04:39 am
A move to pool tariffs could help speed up procurement of solar power. (File Photo)

The Union power ministry is set to come out with rules to pool solar tariffs to accelerate the procurement of solar power by power distribution companies. The Centre is also looking to boost bundling of renewable energy in existing thermal Power Purchase Agreements (PPAs). Why is the pooling of solar tariffs and bundling of renewable energy with thermal power needed?

What is pooling?

The government is planning to pool all solar power procurement in a given period and ask that all buyers pay an average of all the tariffs that are contracted in a pooling period. Therefore, if one PPA is signed at an agreed tariff of Rs 2.5 (per unit) based on a discovered price by Solar Energy Corporation of India (SECI), and the discovered price in the next bid by SECI is Rs 2.4, then the tariffs will be averaged out with both the buyer under the new PPA and the earlier PPA paying the resultant average tariff.

If in the next bid, the discovered tariff is lower, the bids would be pooled again leading to a new average tariff which would be applicable to earlier PPAs and the new PPA.

Why is pooling required?

A consistent fall in solar power tariffs due to the falling price of solar panels has led to discoms waiting for a further fall in tariffs rather than contracting PPAs at current prices, according to experts.

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“SECI is often finding it difficult to find buyers at discovered prices because discoms expect the tariffs will continue to fall even further and many of them have already met renewable purchase obligations. A move to pool tariffs could help speed up procurement of solar power,” said Debasish Mishra, partner at Deloitte India.

Renewable Purchase Obligation (RPO) mandates that all discoms meet a minimum specified quantity of their requirements from renewable energy sources.

What is renewable energy bundling?

The Centre is encouraging bundling of renewable energy with thermal power under existing PPAs. The power ministry, in November, permitted thermal generation companies to supply power to customers from their renewable energy projects under the existing PPAs for coal-based electricity, with gains from the bundling of renewable energy to be shared between generators and discoms on a 50:50 basis.

Bundling of renewable energy with thermal power would particularly benefit old thermal power projects which have become unviable due to high variable cost. Discoms are still required to pay fixed costs for such plants under existing PPAs, even if they do not procure any power from such projects.

“A move to bundle cheaper renewable energy in these PPAs will allow discoms to lower their average cost of power procurement,” said Mishra.

The Centre is targeting bundling of 10,000 Megawatt of renewable energy with fossil fuel based power over the next 4-5 years.

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