Government Invokes Emergency Provisions to Tide Over Coal Shortages in Power Plants

Domestic coal-based power plants must blend 10% imported coal


Faced with a severe coal shortage at coal-based thermal power plants leading to load shedding in many areas across India, the Ministry of Power has directed all imported coal-based power plants to generate power at full capacity. It has directed all states and domestic coal-based power generation companies to import at least 10% of the coal requirement for blending.

Invoking Section 11 of the Electricity Act in response to the emergency, the ministry has advised the states to allow the price of coal to be pass-through. Most states have done that, and about 10 GW out of 17.6 GW of imported coal-based generation capacity has started operating.

According to Section 11 of the Electricity Act, the “Government may specify that a generating company shall, in extraordinary circumstances, operate and maintain any generating station in accordance with the directions of that Government.” And “the appropriate Commission may offset the adverse financial impact of the directions on any generating company in such manner as it considers appropriate.”

Power demand has gone up by almost 20%, and despite the increase in domestic coal supply, the demand is not being met. This has led to load shedding in several parts of India. With the mismatch between the daily coal consumption for power generation and the daily coal receipts at the power plants, coal stocks have been depleting at an alarming rate.

The international price of coal has skyrocketed to around $140/ton. As a result, the import of coal for blending was ~37 million tons in 2015-16. However, coal import has dwindled, leading to more pressure on domestic coal. The current imported coal-based generation capacity is around 17.6 GW, the Ministry of Power said.

The purchase power agreements (PPA) for imported coal-based plants do not have adequate provision for the pass-through of the increase in international coal prices. Given the current imported coal price, operating an imported coal-based plant and supplying power at the PPA rates will lead to enormous losses for the generators. This has led to generators’ unwillingness to run the plants.

In the light of the present emergency circumstances, the ministry has issued directions under Section 11 of the Electricity Act. The order will remain valid up to October 31, 2022.

All imported coal-based power plants must operate and generate power to their full capacity. The ministry stated that these plants must supply power to PPA holders first, and any surplus power sold at the power exchanges.

If a plant has PPAs with multiple distribution companies (DISCOMs), and one DISCOM does not schedule any quantity of power, that power must be offered to other PPA holders. Any remaining quantity must be sold through the power exchanges.

Since PPAs do not provide for the pass-through of high costs of imported coal, the rates at which the power will be supplied to PPA holders must be worked out by a committee constituted by the ministry. The committee will have representatives from the Ministry of Power, Central Electricity Authority, and Central Electricity Regulatory Commission. To ensure a fair margin, it will ensure that the benchmark power rates meet all the prudent costs of using imported coal for generating power, including the current coal price, shipping costs, and operation and maintenance costs.

If the generators own coal mines abroad, the mining profit will be set off to the extent of the shareholding of the generating company in the coal mine.

The PPA holders will pay the generating companies according to the generator’s benchmark cost or mutually negotiated rate with the generating company. Payments must be made to the generating company weekly.

If any DISCOM is unable to enter into mutually negotiated rates with the generating company, or unwilling to procure power at the benchmark cost worked out by the committee, or unable to make weekly payments, such quantities of power will be sold in the power exchanges. The net profit from this sale must be equally shared between the generator and PPA holder monthly.

Benchmark costs worked out by the committee will be reviewed every 15 days, considering the change in the price of imported coal and shipping costs.

Union Power Minister R.K. Singh advised the States to place orders to import coal for blending so that the additional coal reaches power plants from the current month. He said domestic coal would be supplied to all power generation companies in proportion to the coal received.

He also advised the states to increase the output from the captive mines to meet their coal requirements which will help reduce the burden on coal linkages. He emphasized that states need to take action to ensure coal supply to their power plants by confirming off-take in the rail-cum-road (RCR) mode to meet the shortfall.

If the states do not lift the RCR coal, it would be offered to other states.

Tamil Nadu and Maharashtra have placed orders to import coal, while Punjab and Gujarat are finalizing tenders. Rajasthan and Madhya Pradesh are in the process of issuing the tenders. Haryana, Uttar Pradesh, West Bengal, Odisha, and Jharkhand have not yet issued tender or taken any significant actions to import coal and were advised to ensure coal supply to their power plants.

The Status of RCR was also deliberated upon, and it was seen that the progress of Andhra Pradesh, Karnataka, Madhya Pradesh, West Bengal, Haryana, and Uttar Pradesh on lifting the allotted coal was not satisfactory. These states were advised to expedite lifting this coal, failing which this RCR coal would be allocated to other power generation companies which need it.

Mercom had reported that India had faced a similar situation last year when it witnessed a surge in power demand, with industrial and economic activity picking up pace post-pandemic. Thermal power plants faced a crisis with coal stocks bottoming out.

Coal accounts for about 70% of India’s power generation.