Power Ministry plans to extend late payment protection to energy storage developers

New Delhi, Nov 11 (IANS) The Ministry of Power on Wednesday proposed extending late payment protections to independent companies that run standalone Energy Storage Systems (ESS). 

It has invited stakeholder comments on a draft amendment to the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (LPS Rules), according to a letter issued on Tuesday.

The amendment aims to give standalone storage companies the same protection against delayed payment by electricity distribution companies (DISCOMs) that has already been provided to power generators, transmission companies and electricity traders.

According to the explanatory note accompanying the draft, Rule 18 of the Electricity Rules, 2005, allows storage to be owned by a generator, a transmission company, a DISCOM, a consumer or an independent storage company.

Storage owned by a generator takes the legal status of the generator and is already covered by the LPS Rules.

However, if a DISCOM delays payments to an independent energy storage service provider, the company gets none of these protections and must rely only on its contract.

According to the note, storage developers and their lenders will get certainty of payment, which will attract more investment, lower the cost of finance and, over time, bring down the cost of storage.

DISCOMs that pay on time are not affected, as the amendment creates no new charge and the surcharge applies only when bills are paid late.

Consumers benefit indirectly through more storage capacity, better use of solar and wind power, and a more reliable supply.

The proposed amendment changes Sub-rule (3) of Rule 1 so that the rules "shall be applicable to outstanding dues of generating companies, transmission licensees, electricity trading licensees and energy storage service providers".

It also inserts a new clause defining an "energy storage service provider" as "an entity providing energy storage as a service or supplying electricity using energy storage system, that is not owned by a generating company, transmission licensee, distribution licensee or consumer".

The LPS Rules mandate a fixed due date for payment, as set in the power purchase agreement, or within 45 days of the bill if the agreement is silent.

Interest on late payment starts at the State Bank of India one-year lending rate plus five per cent and rises by 0.5 per cent for each month of delay, capped at three per cent above the starting rate.

DISCOMs must also keep a Letter of Credit as payment security.

For continued default, a DISCOM can be barred from buying power in the short-term market and on power exchanges if a bill remains unpaid two-and-a-half months after presentation.

Its long-term supply is cut progressively if dues remain unpaid, and normal access is restored within one day of payment.

The note states that storage systems hold electricity when it is plentiful, such as solar power at midday, and supply it when needed, such as during the evening peak. It adds that storage becomes essential for reliable round-the-clock supply as the share of solar and wind power grows.

Battery Energy Storage System (BESS) capacity is projected to rise from around 15 GWh in October 2026 to 321 GWh by 2035-36.

Pumped Hydro Storage (PSP) capacity is expected to grow from 44 GWh in September 2026 to 630 GWh over the same period.

The note says investments of this scale would need an assured and timely payment mechanism for storage developers.

--IANS

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