India Power Purchasers look for even Lower Renewable Energy Prices as COVID impacts Demand

India uses a unique system to purchase solar and wind power from independent power producers. Though this system has generally produced good results with low prices being discovered under the reverse auction mechanism, this system may not be viable in the future given the changing dynamics. The system generally has state-owned aggregators like SECI or NTPC conducting auctions in which IPPS bid for capacities. The lowest-priced bids are awarded capacities. These aggregators, in turn, sign a back to back agreement to sell power to the state-owned distribution companies. These discoms, in turn, sell power to the ultimate consumers. However, the discoms are very badly run and most of them have hundreds of millions of dollars in losses every year. With the COVID crisis, the financial affairs of these discoms have turned worse with both billing and collection going for a toss.

Also, read Massive Losses seen for Indian Power Distribution Companies due to COVID-19 outbreak

The discoms are now refusing to purchase power from the aggregators who are stuck with gigawatts of PPAs that they have signed with the IPPs. These discoms are asking for lower prices than what was discovered last year when prices were around 10-20% higher. With low demand, all the bargaining power has come to the buyers with the sellers having lesser options. The IPPs generally prefer to deal with the central aggregators rather than selling power directly to the discoms because of payment delays and other risks.  But with the discoms now even refusing to deal with the aggregators, the IPPs face a real challenge in selling the power from the RE projects that they have developed. Industry sources have estimated that there is 16.8 GW of RE capacity that stands at the risk of not finding a buyer in the near term.