CCEA clears revised SHAKTI policy for coal allocation

Earlier this week, the Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Narendra Modi, approved key revisions to the SHAKTI Policy (Scheme for Harnessing and Allocating Koyala Transparently in India) in a significant move to boost efficiency in India's coal sector. The updated policy marks another step in the government's ongoing coal sector reforms, focusing on more transparent and streamlined coal allocation to the power sector.

The original SHAKTI Policy was introduced in 2017. It marked an important shift in how coal linkages were allocated in India. Before SHAKTI, coal allocation happened through a nomination-based system. The 2017 policy changed the system to a more transparent approach using auctions and tariff-based bidding. The result was a significant improvement in how coal resources were distributed.

While the original policy improved transparency, it had multiple complex paragraphs describing different ways to allocate coal linkages. The revised policy simplifies the matter by consolidating these into just two clear windows for coal linkage allocation. This change aligns with the government's focus on ease of doing business, encouraging competition, improving efficiency, enabling better use of capacity, supporting seamless thermal capacity addition at coal mining locations, and ensuring affordable power across the country.

Key features of the revised policy

The revised policy brings innovative features that enhance the scope and impact of the original SHAKTI policy. It provides greater flexibility, wider eligibility criteria, and better accessibility to coal for power producers. By ensuring coal linkage to all power producers, the policy aims to increase power generation, reduce electricity tariffs, and create a positive impact on the overall economy.

The reliable and affordable power supply that should result from this policy will help various sectors of the economy, potentially creating more jobs and supporting the Atmanirbhar Bharat (Self-Reliant India) Initiative. The simplified access to domestic coal is also expected to help revive stressed power assets that have been struggling financially.

Another important aspect of the revised policy is that power producers can now use their coal linkages to generate power from unrequisitioned surplus (URS) capacity and sell it in energy markets. This change will not only increase the availability of power in exchanges but also ensure that generating stations are used optimally.

Two windows of coal allocation

The revised SHAKTI policy simplifies coal allocation through two main windows:

Window-I: Coal Linkage at Notified Price

Under this window, coal will be provided at a standard notified price (without premium) for:

Central government thermal power projects, including their joint ventures and subsidiaries, will continue to receive coal linkages as per existing mechanisms.

States will receive coal linkages based on recommendations from the Ministry of Power. States can use these linkages for their own generating companies, for independent power producers selected through transparent bidding, or for existing independent power producers that have power purchase agreements under Section 62 of the Electricity Act, 2003.

Window-II: Coal Linkage at Premium Price

This window opens coal access to a wider range of power producers at a premium price above the notified rate:

Any domestic coal-based power producer can secure coal through auctions, whether they have a Power Purchase Agreement (PPA) or not.

Imported coal-based power plants can also participate if they wish to switch to domestic coal. Coal can be secured for periods ranging from up to 12 months to as long as 25 years. Power plants have the flexibility to sell the electricity as they choose, giving them more commercial freedom.

Expected benefits of the policy

The new linkages offered to the power sector will increase coal mining activities in coal-bearing regions. This will generate higher revenue for state governments, which can be This initiative is used for regional development and aims to benefit the local population.

The policy encourages the establishment of thermal power plants at coal mining locations (pit heads), which is more efficient than transporting coal long distances. It will help reduce dependence on imported coal, as even plants that currently use it can secure domestic coal and decrease their reliance on international markets. This reduced dependence on global coal markets strengthens India's energy independence and security.

The revised SHAKTI policy represents an important step in India's ongoing efforts to reform its coal and power sectors. By simplifying coal allocation mechanisms, providing greater flexibility to power producers, and ensuring wider access to coal resources, the policy aims to boost power generation, reduce electricity costs, and support economic growth. The changes align with the government's broader goals of energy security, self-reliance, and ease of doing business.

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