Power play

In the long list of catchy acronyms to describe policies and programmes of this government, one more was added last week by the power ministry — SHAKTI or Scheme for Harnessing and Allocating Koyla (coal) Transparently in India. SHAKTI aims to reform the bureaucratic and often non-transparent process of coal allocation for power projects. Under the present system, an independent power producer (IPP) proposing to set up a coal-fired power plant will have to request the power ministry for coal linkage. The ministry will forward the request with its own recommendations to a standing committee that will decide on approving the request along with the quantum and duration. SHAKTI proposes to do away with the discretionary element and introduce market-based pricing for IPPs. Those IPPs that have already stitched up power purchase agreements (PPAs) will have to bid for coal supply on the basis of discount over the tariff. Those without PPAs will have to bid over the notified price of coal by the supplier, Coal India or Singareni Collieries.

The transparency that this move will introduce is indeed welcome especially at a time when the power sector in general and coal-based generation in particular are at a low ebb. Generation capacity growth is outrunning demand with capacity utilisation (plant load factor) falling to as low as just 60 per cent in 2016-17. This has been the trend over the last couple of years — the highest PLF registered in this period was in April 2016 at 67.83 per cent according to data put out by the Central Electricity Authority. On the fuel side, Coal India has been forced to go slow following lower offtake by power producers, public and private. The company’s output grew by just 2.9 per cent in 2016-17 with offtake growing by an even smaller 1.6 per cent.

The narrative has shifted in the power generation sector from basic energy and peak deficits to how to increase capacity utilisation and keep the businesses running. Public sector generators and IPPs with PPAs signed with State utilities are marginally better placed than merchant power producers who are faced with falling prices on exchanges. The former at least get their fixed costs reimbursed if the utilities fail to source power as agreed. Though the focus is all on renewables now, especially solar, the fact is that renewables cannot take on the base load operations which can only be fulfilled by coal. The Centre has rightly acknowledged this, noting that coal-based generation will be the bedrock well into the future. SHAKTI is a recognition of the importance of this segment but the Centre would do well to closely monitor the fortunes of existing coal-based generators even as it thinks up ideas to attract fresher investors. Keeping existing projects going should get higher priority than attracting newer ones, which are unlikely to come any time soon.

COMMENT NOW