MNRE Clarifies on Payment Security Mechanism Directive for Gencos

The energy generated during the non-dispatch period shall be calculated on the basis of Capacity Utilization Factor as declared by the generators in Power Purchase Agreements.

The Ministry of New & Renewable Energy (MNRE) has issued a clarification on the power ministry’s latest directive, which is applicable from today, for power distribution companies (dZiscoms) to mandatorily open and maintain adequate Letter of Credit (LC) as payment security mechanism for power generation companies.

As per the June 28, 2019 order of Ministry of Power, in the event power is not dispatched for any reason as described in the notification, the distribution licensee will continue to pay ‘fixed charge’ to the generating company.

On this, MNRE clarified that the fixed charge in case of solar, wind and small hydro power will be the tariff on which the power is being purchased by the distribution licensee as it reflects the cost of installation, operation and maintenance of the power plant.

It further said that the energy generated during the non-dispatch period shall be calculated on the basis of Capacity Utilization Factor (CUF) as declared by the generators in Power Purchase Agreements (PPAs), and for projects having more than one year operation, the power not-dispatched shall be calculated on the basis of pro-rated actual energy generated in the last twelve months.

Therefore, the government order, which is applicable from August 1, 2019, is expected to help power generating companies in getting timely payments from Discoms. Earlier, generating firms were struggling to cope up with their huge outstanding on the back of unpaid power bills from Discoms.

It also helps power generating companies in making timely payments for their pre-paid expenses such as fuel and transportation, which in turn would lead to surge in power generation. It will also help in reducing load shedding due to shortage of power generation.

Earlier, Power Minister RK Singh has also termed this order as a game changer for the power sector.