On May 22, 2017, the Ministry of Power (MoP) issued the Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India (SHAKTI). Under the SHAKTI policy, the state owned Coal India Limited and Singareni Collieries Company Limited (together the Coal Companies) were to grant coal linkages on an auction basis to independent power producers (IPPs) on a notified price. The bidding parameter was to be the discount that the IPPs were willing to offer on the existing price contained in the executed power purchase agreements (PPAs). The SHAKTI policy was expected to contribute towards the resolution of stressed assets. However, it did not contain a provision for the grant of coal linkage to those IPPs that did not have PPAs.

What were the amendments to the policy?

In March, 2019, the MoP relaxed the criteria for the grant of coal linkages to include IPPs without PPAs. The amendment to the SHAKTI policy allowed the coal linkage to IPPs without PPAs for a period ranging from a minimum of 3 months to the maximum of 1 year. It was further provided that the power generated through the linkage is to be sold in Day Ahead Market (DAM) (the DAM is the electricity trading market for delivery power the following day, with the prices and quantum of electricity to be transacted is determined through a closed auction-bidding process that is carried out in defined windows), or through Discovery of Efficient Energy Price (DEEP) portal in the short term (the DEEP portal is an initiative by the MoP developed as an online platform for the transparent procurement of short term power by state distribution companies through an e-bidding and e-reverse auction process).

The March amendments to the SHAKTI policy provided that the MoP would, in consultation with the Ministry of Coal, issue a methodology for coal linkage to IPPs without PPAs in the short term. Pursuant to this provision, the MoP on December 2, 2019 issued the said methodology.

What are the key features of the methodology?

  • Auction: The auction of the coal linkages would be carried out through a separate window for auction.
  • Identification of coal: The coal companies will earmark areas/mines within their subsidiaries (as per the SHAKTI policy) within 45 days of the order (i.e. 45 days from December 2, 2019). The details of the identified areas mines are to be published on the Coal Companies' website and are to include quality of the coal, quantum of coal available, the period for which such coal shall be available, and the schedule for the start of the supply of coal.
  • Period for auction: Auctions are to be carried out every fiscal quarter. The annual calendar is to be published on the Coal Companies' websites showing the months in which these auctions are to take place.
  • Eligibility: Power plants (excluding captive power plants) which have power capacity without a PPA (untied power capacity) of more than 50% would be eligible to participate for auction of coal linkage for short term period.
  • Minimum quantity, duration, allocation:
    • The quantity of the coal would be decided by the heat rate of the coal (measured in kCal/kWhr) and the heat rate is capped at 2600 kCal/kWhr for the untied capacity of the plant.
    • The duration of the coal linkage would be based on the consumption of coal by the power plant for its running in a period of 3 months, and the coal companies would decide the duration of the supply accordingly.
    • The coal linkage will be allocated based on the quantum of power already commissioned but untied (without a PPA).
  • Methodology for bidding: Power producers/IPPs may participate and bid for a premium that is above the price notified by the relevant coal company. As the coal linkage is allocated for the short term and for sale of power on the DAM in the power exchange, the base price for the bidding would be the price notified by the coal companies.
  • Restriction on use of power: The power generated through the use of coal through the aforementioned linkages is to be used in only the following ways:
    • For the DAM through power exchanges set up as per the relevant regulations issued by the Central Electricity Regulatory Commission, or
    • In the short term through transparent bidding process as per the relevant guidelines issued by the MoP through the DEEP portal. The distribution licensees are to follow the guidelines issued by the MoP for the procurement of power through tariff-based bidding process using the National ebidding portal.

Our view: The relaxation of the criteria to include those IPPs without medium and long term PPAs aims to provide a solution for the lack of coal supply and revival of stressed power plants by providing a structured method for the procurement of coal in the short term. This move aims to address the fluctuating demand of power exchanges in DAMs and cater to short term coal needs.

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