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Cabinet Approves Revised SHAKTI Policy
Cabinet approves Revised SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) Policy for Coal Allocation to Power Sector
Context: The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Shri Narendra Modi, has approved the grant of fresh coal linkages under the Revised SHAKTI Policy.
Objective
- To streamline and simplify coal linkage allocation to Thermal Power Plants (TPPs).
- Replace the existing eight paras of the SHAKTI Policy with two clear linkage windows under the ease of doing business principle.
Background
- The SHAKTI (Scheme for Harnessing and Allocating Koyla Transparently in India) Policy was launched in 2017.
- It marked a paradigm shift in the coal allocation mechanism from a nomination-based system to a more transparent, auction or tariff-based bidding process.
- This policy was introduced to ensure fairness, competition, and transparency in coal linkage allocation for power plants.
- Policy amended in 2019 and 2023 based on the Group of Ministers’ recommendations.
Originally, SHAKTI Policy had eight different Paras, each detailing the procedure for coal allocation to specific categories of power plants.
The Revised SHAKTI Policy
- Window-I: Coal at Notified Price:
- The existing mechanism continues for Central Sector TPPs, Joint Ventures (JVs), and subsidiaries.
- Coal linkage is earmarked to States or authorised State agencies based on Ministry of Power recommendations.
- States may use the coal linkage for:
- Own Gencos.
- IPPs are identified through Tariff Based Competitive Bidding (TBCB).
- Existing IPPs with PPA under Section 62 of the Electricity Act, 2003 for new/expansion units.
- Window-II: Coal at Premium over Notified Price:
- Open to all domestic coal-based power producers (with or without PPA) and imported coal-based power plants.
- Coal can be secured via auction for durations from 12 months to 25 years.
- No PPA is required; electricity can be sold freely in the market.
Major Impacts and Benefits
- Simplification of Linkage Process: By reducing the complexity of coal allocation from eight routes to two clear windows, the policy aligns with the government’s “Ease of Doing Business” initiative.
- Dynamic Planning for Coal Demand: Enables power plants to plan both short-term and long-term coal requirements more effectively.
- Support for Thermal Capacity Addition: Flexibility in linkage allocation for new thermal units—with or without PPAs—will encourage capacity expansion by Independent Power Producers (IPPs).
- No PPA Requirement under Window-II: Allows generators to sell power freely in the market, enhancing liquidity and competition in the electricity market.
- Reduction in Coal Imports: Imported Coal Based (ICB) plants can use domestic coal under technical feasibility, reducing import dependency and passing savings to consumers.
- Promotion of Pithead Projects: Encourages setting up thermal plants near coal mines, reducing transportation costs and environmental impact.
- Coal Source Rationalisation: Aims to lower the landed cost of coal and decongest rail networks, contributing to lower power tariffs.
- Empowered Committee for Policy Execution: A high-level committee comprising the Secretaries of Power and Coal, and the Chairperson of the Central Electricity Authority, will oversee implementation and resolve operational issues.
- Flexibility for Existing FSA Holders: Existing Fuel Supply Agreement holders can participate beyond their contracted annual quantity under Window-II, and reapply under the revised policy once their older linkages expire.
- Un-requisitioned Surplus Sale Allowed: Enables sale of surplus power in the open market, optimising generation and boosting supply in power exchanges.
Implementation Strategy
- Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) to implement directives.
- Ministries and State Governments to disseminate policy details to respective departments, authorities, and regulatory commissions.
- Notably, the revised policy involves no additional financial burden on coal companies.
