SHAKTI Policy- Coal Allocation In India

The Indian Government is preparing itself for the growing demand for electricity by bringing changes to existing legislature and streamlining sources for better allocation to the power sector.  Recently, the Cabinet Committee on Economic Affairs (CCEA) has approved revisions to SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) Policy for Coal Allocation to the Power Sector in order to increase coal-fired power plant capacities. 

What are the revisions in SHAKTI?                                              

The SHAKTI policy was first introduced in 2017, leading to a paradigm shift in how coal allocation was done in India. It had shifted from the traditional nomination-based regime to a more transparent way of allocation through auction / tariff-based bidding.

Coal allocation to the power sector will now be eased under two windows:

• Coal Linkage to Central Gencos/States at Notified price: Window–I
• Coal Linkage to all Gencos at a Premium above Notified price: Window–II

Impact of the revisions

It is expected that these revisions will help in ease of doing business, encouraging competition, better use of capacity, seamless pit head thermal capacity addition and affordable power to the country. It will also allow power plants to plan better for meeting coal requirements in the short and long term.

• Legacy issues, a lengthy approval process and involvement of multiple agencies had made coal allocation complex in India. However, the recent revision will simplify the linkage processes and provide ease of doing business, prompting more players to enter the market.

• Power plants have also been allowed to sell electricity as per their choice as Window-II has done away with the requirement of PPA (Power Purchase Agreement). This will allow great flexibility to power generators and boost market competition to make prices more consumer-friendly. Power plants can also make use of stranded assets and focus on efficient utilisation of resources to stay competitive in the market.

• Allowing flexible linkage for new capacity addition with or without PPA will encourage Independent Power Producers (IPPs) and private developers to plan new thermal capacities that can help in achieving future thermal capacity addition.

• The revised provisions also promote the setting up of greenfield thermal power projects at pithead sites (near the coal source). This, along with linkage rationalisation, will reduce transportation costs and ease congestion of Indian railways, leading to more affordable electricity.

• The recent changes also allow power generators to sell surplus electricity generated through linkage in power markets. Thai will deepen power markets, improve plant utilisation, reduce wastage, as well as enhance grid reliability.

Overall, the revised policy gives the Indian energy sector the much-needed push through more transparency and greater efficiency in coal allocation for the power sector. It not only offers an opportunity for more private companies to enter the space but also increases the number of thermal power plants in the future. Although India aims to build a renewable energy capacity of 500 gigawatts (GW) by 2030, coal continues to play a crucial role in meeting the energy needs of power plants. This is primarily due to the affordability and stability that coal offers, whereas renewable power is intermittent. Hence, the need for better policies to support the growth of power plants cannot be understated, as India’s energy future depends heavily on these government initiatives as well as openness to private stakeholders.