To deal with the ongoing transformations in the power sector, thanks to the induction of renewable energy and other technological interventions, the role of market-based electricity transactions are going to get more crucial in the near future, PK Pujari, chairman, Central Electricity Regulatory Commission (CERC), said on Wednesday. The share of long-term power purchase agreements (PPAs) in power contracts will gradually reduce going forward and a number of discoms would get a partial relief as a number of 25-year tenure of PPAs reach their end, Pujari added while speaking at a discussion panel organised by the India Energy Forum.

Long-term PPAs currently constitute 90% share of the power procurement portfolio of the discoms. The remaining 10% are traded through traders, direct bilateral between the discoms and through power exchanges. Under long-term PPAs, power tariffs are split into two parts: Fixed and variable (fuel cost). Discoms have to continue paying fixed costs to thermal power plants for the recovery of capital expenses even when they do not supply electricity during periods of low demand.

To help better integration of renewable energy into the grid while helping generating companies and discoms manage their power portfolios better, CERC is planning to introduce a market-based mechanism, where power can be traded on a real-time basis, Pujari said.