Rigid thermal power contracts putting India’s energy transition at risk, finds CSE study
The Centre for Science and Environment (CSE) released a study titled "Beyond Baseload: Reforming Thermal PPAs for India's Energy Transition," based on RTI responses from eight states covering 67.1 GW of thermal capacity
The study finds that 6.1 GW of this capacity is locked into long-term power purchase agreements (PPAs) running until 2040 and beyond, creating what it calls "generational lock-in"
Rising daytime solar generation is reducing coal plant utilisation — solar now supplies one unit of electricity for every seven units from coal, compared to one-in-nineteen in 2019-20
The report warns that net surplus coal capacity during peak solar hours could reach around 80 GW, even as fixed-cost payments to underused plants continue and push up the effective cost of electricity for consumers
CSE recommends modernising the model PPA framework, mandatory portfolio reviews by discoms, voluntary renegotiation principles, and incentives for efficient, low-carbon thermal generation
Power Purchase Agreements (PPAs) and the Electricity Act, 2003
A PPA is a long-term contract between a power generator and a distribution company (discom) fixing tariff, quantum, and duration of electricity supply, typically for 20-25 years for thermal plants. Under Section 61 of the Electricity Act, 2003, the tariff terms in a PPA require prior approval of the "Appropriate Commission" (State or Central Electricity Regulatory Commission), and an unapproved agreement is void. PPAs typically have two components: a fixed/capacity charge (recovers capital cost, payable irrespective of how much power is actually drawn) and a variable/energy charge (covers fuel cost, payable only for units supplied).
Key Details
- Legal basis: Electricity Act, 2003, Section 61 (tariff regulation) and Section 86 (functions of State Electricity Regulatory Commissions)
- Fixed-charge obligations under long-tenure coal PPAs continue even when a plant is dispatched less due to solar availability — this is the mechanism CSE flags as the source of "stranded cost" risk
- CERC/SERC regulations require periodic tariff review, but legacy long-term PPAs are often insulated from renegotiation
The CSE study's core argument is that PPAs signed for a "baseload coal" era now impose fixed costs on the system even as solar has structurally reduced daytime coal offtake — the study calls for periodic, mandatory review clauses instead of static 20-25 year contracts.
Must-Run Status for Renewables and Merit Order Dispatch
Under Ministry of Power/CERC regulations, wind, solar, wind-solar hybrid, and hydro plants are typically granted "must-run" status, meaning they cannot be curtailed for commercial (merit-order) reasons — only for technical grid-security constraints, with compensation payable to the generator if curtailed. This guarantees renewable energy is dispatched first whenever available, which is precisely what displaces coal generation during solar hours and depresses thermal plant utilisation (plant load factor).
Key Details
- Must-run status is a regulatory mechanism, not a statutory provision of the Electricity Act itself — it flows from CERC's Indian Electricity Grid Code (IEGC) regulations
- Merit order dispatch means the grid operator schedules generation from the cheapest source first; renewables (near-zero marginal cost) are typically dispatched ahead of coal
- This creates the "duck curve" phenomenon — steep evening ramp-up requirement for thermal/flexible sources as solar output falls after sunset
Must-run priority for solar is the direct mechanism behind the CSE finding that solar now supplies one unit for every seven from coal (versus one-in-nineteen in 2019-20) — it is this shift that renders old, rigid thermal PPAs mismatched with the current dispatch regime.
India's Non-Fossil Capacity Target and the Energy Transition
India's climate commitments include a pledge — announced as part of the "Panchamrit" declaration at COP26 (Glasgow, 2021) — to reach 500 GW of non-fossil (renewables + large hydro + nuclear) installed capacity by 2030. India's official NDC update (August 2022) formally commits to 50% non-fossil share in installed electricity capacity by 2030 and a 45% reduction in emissions intensity of GDP (from 2005 levels).
Key Details
- COP26 "Panchamrit" (five nectar elements) pledges included: 500 GW non-fossil capacity, 50% renewable energy share, 1 billion tonnes emission reduction, 45% emissions-intensity cut, and net-zero by 2070
- Only two of the five Panchamrit elements were formally notified in India's August 2022 NDC update: the 45% emissions-intensity cut and the 50% non-fossil capacity share
- As renewable capacity scales toward this target, the mismatch between rising solar/wind share and rigid legacy coal PPAs (the CSE study's subject) becomes a structural bottleneck to the transition
The CSE study frames rigid thermal PPAs as an institutional/contractual barrier working against India's own stated non-fossil capacity targets — even as renewable capacity is added, the financial architecture underpinning coal contracts has not been updated to reflect declining coal utilisation.
- CSE study covers eight states, RTI-sourced data on 67.1 GW of thermal capacity
- 6.1 GW of thermal capacity is contracted under PPAs extending to 2040 and beyond
- Solar-to-coal generation ratio: 1:7 currently, versus 1:19 in 2019-20
- Projected net surplus coal capacity during peak solar hours: approximately 80 GW
- Extending a coal PPA from 11 to 25 years more than doubles cumulative payout despite a lower annual tariff, per the study
- India's COP26 (2021) pledge: 500 GW non-fossil capacity by 2030; NDC (Aug 2022) target: 50% non-fossil installed capacity share, 45% emissions-intensity cut from 2005 levels