What is coal linkage policy (SHAKTI)?

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Coal is the widely used input for power generation in the country with nearly 56% of the electricity is produced using coal. But coal’s availability is not adequate and international price is high compared to the domestic price. Inadequate quantity of domestic coal, rising imports and high price for imported coal necessitates government intervention while allocating the available coal among power producing firms.

Since coal mining firms are public sector companies, allocation of coal among power generating firms becomes an important policy. Similarly, pricing of such allocated coal is also a vital factor.

In these conditions, the government has designed coal linkage policy that allocates coal among different coal using thermal power plants, with the active guidance of coal assigned state governments. The New Policy is known as SHAKTI or the Scheme to Harness and Allocate Koyla (Coal) Transparently in India.

What is coal linkage policy?

Coal linkage policy is a central government designed guidelines for the allocation of coal among thermal power firms.

The central government designated the Central Electricity Authority to design and issue methodology for coal linkage. States who have assigned coal should follow these guidelines while allocating the assigned coal among their own generating stations, other state generating stations, Central Government Stations and Independent Power Plants (IPPs- mostly private).

Under the coal linkage policy, a state’s coal requirement would be clubbed and assigned to the respective state or state-nominated agencies. Coal linkages would be awarded to designated state-owned power distribution companies (DISCOMs). The state through DISCOMs, then, award coal linkage according to applicant’s need, efficiency and cost of power to the power plants in its territory including the private sector. Allocation to private sector will be made through auction.

For the use of coal in state/ central generating plants, the deciding criteria shall be plant efficiency, coal transportation cost, transmission charges and the overall cost of power.

Private-owned independent power plants (IPPs) have to bid for the coal linkage. The basis of bidding would be the location of source of coal, quantity of coal, amount of power and delivery point of power they generate.

SHAKTI – the new coal linkage policy

The Cabinet Committee on Economic Affairs (CCEA) on 17th May 2017 cleared the New Coal Linkage Policy known as SHAKTI or the Scheme to Harness and Allocate Koyla (Coal) Transparently in India. The Policy would provide coal linkages to power plants which lacks fuel supply agreements (FSAs) through coal auctions.

The new coal linkage policy for power plants will help producers ensure fuel supplies in an organised manner. CCEA has approved the signing of Fuel Supply Agreement (FSA) with the Letter of Assurance (LoA) holders.

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