Discoms still not issuing letters of credit against power purchases – NSEFI

The National Solar Energy Federation of India has warned the Ministry of Power that PV developers may be deterred from participating in state tenders because distribution companies are still not issuing letters of credit as a payment security mechanism.

August 7, 2019 Uma Gupta

In a recent report, India Ratings analysts said that the proposed payment security mechanism for power projects, notified on June 28, 2019, is fraught with implementation challenges and the benefits of payment security mechanism are unlikely to accrue to the project companies.

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The National Solar Energy Federation of India (NSEFI) has formally told Power Minister Raj Kumar Singh that state discoms are still not issuing letters of credit for power purchases, even though the ministry has told them to do so.

“(The) majority of state discoms have not provided letters of credit as per the Ministry of Power’s order for projects connected to state load dispatch centres (SLDCs) till date,” the lobby group said. “SLDCs don’t have any such mechanism in place to schedule power based on payment security to developers. Hence state discoms are not even concerned of curtailment or non-scheduling of power in the absence of payment security mechanism with generators.”

SLDCs are still scheduling power to discoms without payment security mechanisms in place, which is in direct violation of the power ministry’s order. The NSEFI has warned the ministry that this could deter developers from participating in state solar tenders. It has asked the ministry to direct SLDCs to follow stringent scheduling steps against letter of credit defaulters, in line with the order. It also wants state discoms to provide letters of credit as a payment security mechanism, as soon as possible.

In June, the Ministry of Power directed all distribution companies to open and maintain adequate letters of credit as a payment security mechanism under power purchase agreements and submit a copy to their respective load dispatch centres.

As per the order, load dispatch centres can dispatch power only after they are informed by the generating company and the discoms that a letter of credit for the desired electricity has been opened and copies have been made available to the concerned generating company. The dispatch shall stop once the quantum of electricity under the letter of credit has been supplied.

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