The industry players have been clamouring for such a move. In response, the Central Electricity Regulatory Commission (CERC) is likely to float a consultation paper soon. "This inclination (of industry) is because long-term power purchase agreements (PPAs) lead to certainty of revenue stream, which is a pre-requisite for financial closure," said CERC Secretary Anil Kumar. At present, all power trading in the country is done through short-term contracts. Long-term agreements are entered into for a period of 25 or more years. However, there is no regulation for medium-term contracts. |
Power trading companies are readying for a shift in their portfolio towards medium- to long-term trades. For instance, the country's largest power trader, PTC India Ltd, has signed long-term PPAs of close to 10,500 Mw till March 31, 2008.
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"We expect our long-term contracts to increase in the next 3-4 years, when short-term trading will be reduced to only about 20 per cent of our portfolio", said TN Thakur, chairman and managing director, PTC India.
PTC accounts for about a quarter of the total volume of electricity traded in the country.
Another major player in the power trading sector, NTPC Vidyut Vyapar Nigam Ltd (NVVN), also has serious plans to ramp up its long-term trades in a few years. NVVN is a wholly-owned subsidiary of NTPC Ltd and also accounts for about a quarter of the total volume of electricity traded currently.
"Ensuring asset backing through long-term tie-ups is a major requirement for our growth. We have serious plans for finalising power purchase or sell agreements that benefit over a period of years," said a senior official of NVVN.
Experts too ascribe this rapidly evolving shift towards long-term trading primarily to the easy projectability of trading volume and income.
"Short-term trading leads to huge fluctuations in earnings because of day-to-day market variations. A long-term agreement, on the other hand, is more stable and leads to smoothening out of earnings," said a senior consultant at PricewaterhouseCoopers.
There are, however, problems with long-term contracts too. "With a rapidly changing market situation, which is so volatile and unpredictable, there is always the risk of the generator walking out of the contract," said a senior official of a trading company.
Another difficulty in committing to long-term power purchase and sales tie-ups is the cap of 4 paisa per unit imposed by CERC.
"This exposes us to avoidable risks in the long run," according to a senior official from Adani Exports Ltd, which carries about 8 per cent of the country's trading volume.
About 2.5 per cent of the electricity generated in the country is traded through short-term contracts.