The 465 MW Hole Kerala Dug For Itself

Every night this summer, somewhere in Kerala, the lights go out. Not for a few seconds. For twenty minutes, sometimes longer, sometimes twice in the same night. Millions of people are lying in the dark, in the heat, wondering why the state electricity board is choosing to cut their power at midnight instead of at 6 AM when it would hurt less.

The short answer is that nobody is choosing anything. The longer answer requires going back to 2014, to four power purchase contracts that locked in cheap electricity for the state for twenty-five years, and to a chain of regulatory and judicial decisions between 2023 and 2025 that voided all of them.

That is where this crisis actually begins. Not with the blackouts. With the contracts.

---

What Kerala bought in 2014

In 2014, facing projections of rising power demand, the Congress-led UDF government initiated a long-term procurement strategy under the Design, Build, Finance, Own, and Operate framework. The idea was straightforward: lock in private generators for long durations at competitive rates, insulating the state from the volatility of short-term markets.

The Kerala State Electricity Board executed four 25-year Power Purchase Agreements totaling 465 MW of continuous power.

For nine years, that 465 MW ran quietly in the background and did its job. Kerala had reliable, low-cost baseload power that shielded the state from price spikes in the national exchanges. Nobody paid much attention to it because there was nothing to pay attention to. Cheap power working as intended is invisible.

That invisibility ended in May 2023.

---

The procedural trap

The Kerala State Electricity Regulatory Commission, the independent statutory body overseeing the state's power sector, declined to grant formal regulatory approval for the PPAs.

The basis for the decision was procedural, not substantive. When KSEB originally floated the tenders in 2014, it had deviated from the standard bidding guidelines issued by the Union Ministry of Power under Section 63 of the Electricity Act, 2003. The regulation is unambiguous: any utility seeking to deviate from standard DBFOO guidelines must secure prior approval from either the Central Government or the state commission before issuing the Request for Qualification, the Request for Proposal, and signing the final agreement.

KSEB did not do that. It bypassed the prior approval step entirely and ran the entire bidding process on its own authority.

The KSERC was not wrong about the procedural violation. The bypass was real and the statutory requirement was clear. But the consequence of applying that rule rigidly in 2023, to contracts that had already been running profitably for nine years, was that the state stood to lose 465 MW of power at ₹4.26 per unit while the national market rate was climbing toward ₹10 and beyond.

---

The political fight

The cancellation detonated a fierce political argument.

The UDF opposition called it a manufactured crisis. Opposition Leader V.D. Satheesan alleged something darker than incompetence behind the decision and publicly committed to a probe if the UDF returned to power. The argument was straightforward: these were good contracts. The state benefited from them for nine years. Voiding them on a technicality that harmed nobody except the consumers who would now pay more was a self-inflicted wound.

The LDF administration and elements of the regulatory body initially held their ground on procedural integrity. The argument was that public utilities cannot selectively follow statutory guidelines, and that the procurement framework exists precisely to prevent utilities from cutting corners in ways that might not look harmful but set dangerous precedents.

That is not an incoherent position. Regulatory frameworks only work if they are enforced consistently. The problem is that "consistent enforcement" has different practical weight when applied to a procedural irregularity from nine years ago versus when it is applied in the middle of a heatwave with no replacement power plan in place.

---

The Section 108 gambit

By late 2023, as the summer approached and the scale of the incoming deficit became clear, the state cabinet made a move.

Section 108 of the Electricity Act, 2003 allows a state government to issue binding policy directives to the regulatory commission in matters of "public interest." The LDF government used it to direct the KSERC to reconsider its position and restore the four PPAs.

The government's stated motivations were direct: the state faced load shedding if the 465 MW disappeared from the grid, and KSEB was staring at roughly ₹500 crore in immediate termination penalties if the contracts were permanently severed. Both of those things were true.

The KSERC complied. On December 29, 2023, it issued an order restoring the PPAs and permitting KSEB to draw power under the original contracted terms.

The problem was that the generators were no longer obligated to agree.

---

Why the generators walked

By the time the KSERC's restoration order came through in late 2023, the arithmetic for the private power companies had completely changed.

When the contracts were originally signed in 2014, ₹4.26 per unit was a competitive rate and locking in a long-term buyer was commercially sensible. By 2023, the national day-ahead and real-time electricity markets were trading at substantially higher prices. The procedural annulment by KSERC had presented these companies with a lucrative exit: by arguing the contracts were legally void, they could redirect their generation capacity to open markets and sell for significantly more per unit.

Jhabua Power Limited and Jindal India Thermal Power Limited challenged the KSERC's December 2023 restoration order before the Appellate Tribunal for Electricity in New Delhi.

APTEL ruled decisively in their favor.

The Section 108 intervention, which looked like a smart political rescue, turned out to have no legal foundation for the specific problem it was trying to solve. The state had used a real power incorrectly. And once the generators had a valid legal ruling in their hands, they had no reason to return to a below-market contract.

With the exception of partial and disputed supply from Jindal Power, the generators refused to reinstate delivery. Kerala had permanently lost 465 MW of cheap baseload power.

---

What that actually costs

Without the DBFOO contracts, KSEB had to replace that 465 MW from wherever it could find it. The short-term and real-time electricity markets were the only option.

The KSEB Annual Administration Report confirmed operational losses exceeding ₹2,130 crore attributable directly to the cancellation and the subsequent reliance on exchange power. That is not an accounting abstraction. It is real capital that was supposed to go toward infrastructure upgrades, transformer replacements, and grid modernization that now went into buying emergency electricity instead.

This is the mechanism by which a regulatory dispute in 2023 became a distribution crisis in 2026. The state lost its cheap baseload buffer precisely at the moment when consumer demand was about to surge beyond anything the grid had previously handled. KSEB entered that summer financially hollowed out and with no reserve margins.

---

What this establishes

I want to be precise about what this part of the story does and does not explain.

The DBFOO cancellation explains why KSEB entered 2026 financially crippled and unable to maintain reserve margins. It explains why the utility was forced to buy over 70% of its power from external sources during the peak season. It explains why capital that should have modernized the distribution network went to emergency procurement instead.

It does not, on its own, explain why the lights go out in your neighborhood at 11:30 PM and come back on at midnight. That failure is happening at a completely different level of the grid, driven by a completely different problem.

That problem is your neighbor's air conditioner. And the fact that nobody told KSEB it was installed.

Part 2 gets into that.