Government has directed PSU coal miners, who account for more than 90 per cent of the mined commodity, to regularly hold auctions for short term linkages to power plants and intimate Gencos about their annual timeline.
Power Ministry, in consultation with Coal Ministry, revised the methodology for allocation of coal under the SHAKTI policy (Scheme for Harnessing and Allocating Koyala Transparently in India) to enhance availability and affordability of coal.
Amendments
After amendment to Para B (viii) (a) of SHAKTI policy, power plants, including private generators (Gencos), who do not have power purchase agreements (PPAs) will be allowed coal linkage for 3 months, 6 months and 12 months with the condition that electricity generated is sold through power exchanges or in short term through a transparent bidding process on DEEP (Discovery of Efficient Electricity Price) portal.
Financial consultancy, Nangia Andersen India Partner Power Advisory Arindam Ghosh said “India has been strengthening its policy framework to ensure seamless supply of coal to power plants. Amendment of methodology for allocation of coal linkage for short term sale of power generated is one such policy imperative to substitute non-essential coal imports.”
Revised policy
Under the revised methodology, auction of coal linkages will be carried out by Coal India (CIL) and Singareni Collieries Company (SCCL) under 3 months, 6 months and 12 months to cater to the requirements and demand in short term in power exchanges.
“Auctions under these three windows are required to be carried out at regular intervals. An annual calendar shall be published on coal companies website showing the months in which auctions will be held. The expenses for conducting such auctions will be recovered by CIL,” Ministry’s notification said.
CIL and SCCL will earmark mines, which will be allocated for use as per guidelines and will publish it on e-auction websites, sufficiently in advance before each auction, indicating the quality of coal, quantum available, period for which it shall be made available and the schedule for start of supply, it added.
All power producers can participate in the auction and bid for a premium above the notified price of coal by the coal companies. The methodology for bidding of linkages shall be similar to the bidding methodology in the policy on auction of linkages of Non-regulated Sector.
As coal is for short term and for sale of power through any product in the power exchange, the base price of coal should be the notified price of the coal by the coal companies.
Ensuring supplies
Ghosh pointed out that in recent times there has been a high degree of uncertainty over Discom requisition on long term contracts for coal-based generation under the pretext of avoiding the burden of fixed costs and optimising their power portfolio with increased RE procurement to fulfil their Renewable Purchase Obligation (RPO).
“This is resulting in significant idling of coal-based power plants simply because Discoms are unwilling to sign new power plants. The new amendments will help in addressing key issues of coal-based power plants, where fuel supply agreements (FSAs) have not been affected, of availing low-cost coal supply under short term linkage and providing competitive power in the open market,” he added.
‘coal exchange’
However, there are still some areas within the policy which, if addressed, will help in improving “allocative efficiency” of the coal linkages, he explained.
First is the identification of coal for auction. It is suggested that the activity should be supplemented with a region wise coal supply and demand assessment. There may be participants in one particular region with different requirements for different duration. A suitable assessment will help in effective identification of linkages which may be earmarked by coal companies post assessment.
“To generate investor interest, attract substantive participation and enable realistic bidding, it is suggested to operationalise a coal exchange to facilitate price discovery and signaling through transparent market mechanisms,” he added.