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An RTI-based CSE study says rigid long-term thermal power purchase agreements are putting India’s energy transition at risk.
The report says coal contracts remain designed for an era of high baseload generation, even as solar power is reducing daytime coal use.
Fixed-cost payments to under-used coal plants could increase the effective cost of electricity for consumers, the study warns.
CSE has called for a modernised thermal PPA framework, mandatory portfolio reviews, voluntary renegotiation principles and incentives for efficient, low-carbon thermal generation.
India needs to urgently reform long-term thermal power purchase agreements if it wants to transition smoothly to renewable energy, according to a new study by Delhi-based think tank Centre for Science and Environment.
The report, Beyond Baseload: Reforming Thermal PPAs for India’s Energy Transition, is based on an RTI survey that received responses from eight states. It says existing power purchase agreements (PPA), remain designed for an era of power shortages and high coal utilisation, even though India’s electricity system is changing rapidly.
PPAs are the contract under which a power producer or generator agrees to supply electricity to a buyer or distributor, such as state power corporations.
“India’s electricity sector is undergoing a fundamental structural transition,” said Sunita Narain, director general of CSE. She said installed solar capacity and generation had increased sharply, with solar now contributing one unit for every seven units generated from coal, compared with one unit for every 19 units of coal in 2019-20.
CSE said coal’s role was shifting from continuous baseload generation to a flexible balancing resource that supports renewable energy integration. But the commercial contracts governing coal plants — the PPAs — have not changed at the same pace.
The study says rising solar adoption is leading to daytime under-utilisation of coal capacity. However, fixed-cost obligations under thermal PPAs remain, increasing the effective cost of electricity for consumers.
For example, a coal plant that earlier operated at 80 per cent capacity throughout the day may now need to reduce output during periods of high solar generation, but its fixed costs still have to be recovered.
The report says almost all contracted capacity in the eight states that responded to the RTI survey is tied to long-duration PPAs. It found that 6.1 GW of capacity, within the 67.1 GW covered by the survey, is contracted until 2040 and beyond, creating a generational lock-in.
Nivit K Yadav, programme director at CSE, said India was well placed to reform contracts because most coal capacity and distribution companies are government-owned. “Mutually negotiated amendments offer a faster, more collaborative pathway than waiting for contracts to expire or for protracted legal disputes,” he said.
Parth Kumar, programme manager at CSE’s sustainable industrialisation unit, said long-duration PPAs could impose significant financial costs on consumers even as the share of non-fossil-based capacity rises above 50 per cent.
The study also warned that extending a benchmark coal PPA from 11 to 25 years may lower the annual capacity tariff, but more than doubles the cumulative payout by consumers because payments continue for much longer.
CSE estimates that net surplus coal capacity during high solar generation hours could reach up to 80 GW, leaving large amounts of capacity under-used while fixed payments continue.
The report recommends updating the model PPA to include operational efficiency, emission intensity and different requirements for solar and non-solar hours. It also calls for mandatory portfolio reviews by distribution companies, standard principles for voluntary renegotiation, and incentives for efficient, low-carbon thermal generation.
