The Union power ministry’s policy for auction of long-term coal linkages can prove a real game-changer in the Indian electricity sector if state-owned utilities make use of it to harness private sector’s efficiency in generation.
Widespread use of the policy would also help reduce losses of state-owned power distribution companies ( Discoms), thereby restoring their viability and boosting investors’ confidence in the sector which had a big taken in last years of the UPA government.
The policy, if implemented properly, will also lead to a significant reduction in coal imports, thus saving valuable forex reserves.
By inviting bids from private generators under the policy called SHAKTI or the Scheme to Harness and Allocate Koyla (Coal) Transparently in India, Gujarat has shown the way.
It has great potential to bring down overall power tariff in the country while offering a lifeline to distressed coal-fired plants of 28,000 mw idling away their capacities. Needles to say, bankers who have lent to the stressed projects would feel a big relief if these stalled plants can start generation.
Private players like Reliance Power, Adani Power, Lanco Infratech, GMR Energy, DB Power, CESC and KSK Energy will benefit. With this policy, the government also aims to reduce dependence on imported coal.
The policy was finally approved by Union cabinet in May this year, ending over a year-long wait. It was difficult to build consensus and hence the delay.
“Power plants would now stop procuring imported coal. Production has increased in the country to meet demand and will continue to grow,” Union power and coal minister Piyush Goyal had said while commenting on the cabinet’s decision then.
Under the policy, coal linkages can be awarded to designated state-owned discoms, which , in turn, would assign them to state or central power generation companies via allocation, and through auction to private units.
IPPs participating in the auction are required to bid for discounts on the existing tariff and this will then be adjusted from the gross coal bills.
The power requirement of a group of states can be aggregated.