PPAs: Renegotiation vs Delayed Payments vs NPA - Second Part - Solution

In continuation with my previous blog on the catch-22 situation of renewable energy companies in Andhra Pradesh, India, a probable radical solution as detailed below, may be explored by the Government of Andhra Pradesh.
Renewable plants boast about their ability to serve the green agenda but are still dependent on subsidies and one of the subsidy being offered to them is the "must run" category.

What if this "Must run" category is revoked.

None of the plants would fall in the Merit Order Despatchability Curve and scheduling them will only be subject to the discretions of the DISCOM.

While this would definitely send a wrong signal to the investors, but DISCOMs are unable to make good of any pending payments, and hence they might as well explore a legal way to get around. 

And what happens when the MUST RUN category is revoked. There is no fixed/variable price component difference in Solar/Wind. 95% is a fixed cost component. Hence, technically the Govt. may not be obligated to pay the whole tariff to the costly renewable PPAs that they have inherited. At the same time, the provision of the 2003 Electricity Act aren't clear on the payments to renewable energy companies if their MUST RUN category is revoked. 

What is "MUST RUN"? TO put simply, GOvt. is obligated to consume the power from renewable power companies as and when they generate power at the agreed upon price in the PPA. Even if the market prices are less at any given moment, due to the "MUST RUN" category of renewable plants, DISCOMS will have to consume power from the renewable companies and can schedule power from other sources subsequently. In the case certain contracts with thermal plants, if the cost of power procurement from them is more than the running price in that moment, Govt. may not want be obligated to buy power from them. 

Hence, by removing the "MUST RUN" subsidy, GOvt. will probably bring renewable companies on par with their counterparts and if they are costly Govt. can legally ensure that they are no longer obligated to buy power from them.

There is definitely a precendence in India that the MUST RUN category can be revoked. Madhy Pradesh State Electricity Regulatory Commission did it in 2017. (Link)

That said, a so-called forward looking Govt, cannot do away from the MUST RUN category for short term gains. But, how will the renewable plants be compensated in that situation? It is an interesting facet that will definitely have long term ramifications.

This is a radical solution to a problem that is right now headed towards loss for all parties.

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