Cabinet Approves Revised SHAKTI Policy Governing Coal Allocation to the Power Sector

In a major policy reform aimed at improving coal distribution in the power sector, the Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi, has approved the Revised SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) Policy. This new framework simplifies the allocation process, introduces greater flexibility for power producers, and aims to strengthen domestic coal-based energy generation through a dual-window structure.

Simplified Coal Linkage Through Dual Windows

The revised policy introduces two distinct windows for granting coal linkages:

Window I: Notified Price Allocation

Under this window, the existing mechanism for allocating coal to Central Sector Thermal Power Projects (TPPs), including Joint Ventures and their subsidiaries, will continue. States will receive earmarked coal linkages based on recommendations from the Ministry of Power. These allocations may be used either by State Generating Companies or by Independent Power Producers (IPPs) selected through Tariff-Based Competitive Bidding (TBCB), or those with Power Purchase Agreements (PPAs) under Section 62 of the Electricity Act, 2003, for establishing new or expansion units.

Window II: Premium-Based Auction System

This window provides any domestic coal-based power producer, including those with untied capacity, as well as Imported Coal-Based (ICB) plants, the opportunity to obtain coal via auction. The coal may be secured for a period of up to 12 months or up to 25 years, by paying a premium above the notified price. Importantly, the policy removes the requirement for PPAs under this window, granting power producers the liberty to sell electricity in the open market as per their strategy.

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Operational Strategy and Sectoral Benefits

Implementation and Delegation:

Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) will receive directions for executing the new provisions. Ministries and State Governments will be informed to ensure seamless implementation and regulatory compliance. The policy empowers the Ministries of Coal and Power to make minor adjustments and introduces an “Empowered Committee” comprising the Secretary (Power), Secretary (Coal), and Chairperson of the Central Electricity Authority (CEA) to resolve operational issues.

Broader Impact and Long-Term Advantage: 

The revised policy significantly simplifies the coal allocation structure by reducing eight existing categories into two comprehensive windows, thus enhancing the ease of doing business. It enables power plants to match their coal procurement strategies with long-term or short-term demand. With the flexibility to operate without a PPA in Window-II, Independent Power Producers (IPPs) are better positioned to plan new thermal capacity, which will contribute to the sector’s growth.

The revised policy also promotes domestic coal usage in ICB plants, encouraging import substitution. The preference for pithead-based power projects helps reduce logistics costs and environmental load. Coal linkage rationalisation aims to reduce the landed cost of coal, ease pressure on railway infrastructure, and lower electricity tariffs. Additionally, existing Fuel Supply Agreement (FSA) holders may participate beyond their Annual Contracted Quantity (ACQ) under Window-II, and plants can trade surplus power in the electricity market, further enhancing grid efficiency.

Conclusion

The Revised SHAKTI Policy reflects the Government’s commitment to ensuring a transparent, flexible, and efficient coal allocation system for the power sector. By enabling new investment, reducing import reliance, and fostering market-driven operations, the policy is poised to contribute significantly to India’s energy security and economic growth.

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