Coronavirus: Power Discoms Can’t Invoke Force Majeure To Stop Buying Renewable Energy
India rejected power distributors’ demand to not buy electricity from renewable energy producers citing ‘force majeure’, or unforeseen conditions preventing from honouring contracts, after the nation went into the world’s biggest lockdown to contain the spread of the coronavirus pandemic.
“Renewable energy generating stations have been granted ‘must run’ status and this status of ‘must run’ remains unchanged during the period of lockdown,” the Ministry of New and Renewable Energy said in an April 1 memorandum. That means such projects will continue to generate power and distribution companies will buy according to the terms of the power purchase agreements.
The Solar Energy Corporation of India, the operating unit of the ministry, had on March 28 written to discoms of Andhra Pradesh and Uttar Pradesh clarifying that they can’t stop using power supplied by the renewable energy generators citing “force majeure”.
BloombergQuint has reviewed the ministry’s memorandum and the SECI letter.
Demand for power crashed as all economic activity barring essential services has come to a halt during the three-week standstill to prevent the spread of the coronavirus. To help discoms already battling losses, the government eased prepayment or letter of credit requirement from the full cost of power to 50 percent for electricity purchased between March 24 and June 30.
The discoms of Uttar Pradesh and Andhra Pradesh cited this relief to invoke force majeure. While the SECI rejected it, the ministry’s memorandum said discoms should pay renewable energy generators on a regular basis as was done prior to the lockdown.
Some distribution companies indicated that they want to invoke the force majeure provision, said Sumant Sinha, chairman and managing director at ReNew Power Ltd. That may not be applicable to renewable energy companies due to the terms and conditions clearly set out in the power purchase agreements, he said. “It is also prudent to note that as per the law of the land the renewable energy projects have a ‘must run’ status [supply power under all conditions].”
Moreover, the Ministry of Power separately clarified that the relief granted on prepayment was conditional. While scheduling power, state discoms will have to deposit LoC for 50 percent of the cost of power they want to be scheduled, it said in an April 6 letter to state power secretaries—BloombergQuint reviewed a copy. But the letter added that the remaining 50 percent will have to be paid within the period given in the power purchase agreement, which is normally 45 days.
The ministry said:
- This relaxation will be applicable to only power purchased between March 24 and June 30 and not to prior scheduled purchases.
- The obligation to pay for the power within 45 days of generation remains the same.
- A failure to pay will result in the power generator imposing the delayed payment surcharge.
- The late payment surcharge applicable may go up to as much as 18 percent or as agreed under the contract.
- The government advised power regulator to reduce the late payment surcharge for power purchased between March 24 and June 30, and revert to the original surcharge from July 1.
- Discoms will have to pay for capacity and transmission charges.
Andhra Pradesh discom had flagged the liquidity issue as wasn’t able to collect dues due to the lockdown and is now looking for online payments by consumers.
The Ministry of Power, in the letter, said it’s making efforts to infuse liquidity in the power sector, the details of which will be shared with the discoms shortly. In the meantime, discoms are allowed to raise funds, if required, it said.