The Ministry of Power is proposing  to set up a compensation mechanism for existing renewable energy projects which will enable them to protect the cash flows to an extent from grid curtailments and will also ensure a favorable operational environment for the renewables sector, stated a report by India Ratings. The power purchase agreements (PPAs) that renewable energy project developers sign with electric utility companies do not address the grid issues and lack a mechanism to compensate for subsequent energy loss.

This increase in renewable energy addition has caused some solar power curtailment issues in some states where DISCOMs have flouted the ‘must run’ status of solar power thereby negatively affecting developers.

Developers are currently bridging any cash flow shortfall through debt service by a combination of or individually tapping debt service reserve or drawing working capital limits or sponsor support. In the proposed framework, it is also unclear which situations will be identified as low system demand incidences, since network operators have the option to shut down a thermal plant which is falling below its technical minimum operating level, stated the report.

The provision for curtailment is proposed to be applicable only to renewable power projects providing day-ahead forecast and schedule, compensation if provided in case of grid curtailment, is suggested to be part of the PPA provision for future projects. For existing projects, the compensation mechanism may be notified by the respective Electricity Regulatory Commission. The compensation will also incentivize grid operators and distribution utilities to reduce curtailments and benefit renewable energy developers in scheduling and forecasting and enabling integration of increasing renewable energy capacity.