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Explainer: Government invoked Section 11 of the Electricity Act. What is the act and what can it do for… – Moneycontrol

As power demand continues to soar even as power generators scramble for fuel, the government has asked all imported coal-based power units to run at full capacity by invoking Section 11 of the Electricity Act.

“The demand for power has gone up by almost 20 percent in energy terms. The supply of domestic coal has increased but the increase in supply is not sufficient to meet the increased demand for power. This is leading to load shedding in different areas. Because of the mismatch between the daily consumption of coal for power generation and the daily receipt of coal at the power plant, the stocks of coal at the power plant has been declining at a worrisome rate,” the ministry of power said in a letter to all the imported coal-based plants.

India’s power demand hit an all-time high of 207.1 gigawatts (GW) on April 29, driven by the spike in demand from households amid an ongoing heatwave and a pick-up in industrial demand.

In view of the severity of the situation, all states and all power generation companies using domestic coal as feedstock have been directed to import at least 10 percent of their requirement of coal for blending, the power ministry said.

The changes come into effect immediately and will be valid up to October 31.

Here’s all you need to know about this move by the Union government.

What is Section 11 of the Electricity Act?

Section 11 of the Electricity Act states that the under extraordinary circumstances, the government can ask power generating companies to operate and maintain output in accordance with directions given.

For the purposes of this section, the expression “extraordinary circumstances” means circumstances related to threat to security of the state, public order or natural calamity or such other circumstances arising in the public interest.

The section also states that an appropriate commission may consider offsetting the adverse financial impact of the directions on any generating company in such manner as it considers appropriate.

What are the extraordinary circumstances?

The ministry of power said on May 5 that the international price of coal has gone up in “an unprecedented fashion”.

The ministry said that the international coal is priced at around $140 per tonne, which has adversely affected the import of coal for blending purposes. The quantity of coal imported for blending has declined from around 37 million tonnes 2015-16. This has increased demand for domestic coal.

India’s imported coal-based generation capacity is around 17,600 megawatts (MW). But the power purchase agreements for such plants do not allow for passing on the entire increase in international coal price, forcing them to either shut plants or running them at low capacity to minimise or avoid losses.

What changes for imported coal-based power generators?

The power ministry has asked states and power generation companies to import at least 10 percent of their requirement of coal for blending and has asked them to fast-track imports so that they can get deliveries in May. But by invoking Section 11 of the Electricity Act, certain measures will be in place to facilitate the imports.

To encourage imported coal-based units to restart operations, states have been advised that the price of coal should be a pass-through. Around 10,000 MW out of 17,600 MW imported coal-based generation capacity has started operating leaving around 7,600 MW idle.

All imported coal-based power plants shall operate and generate power to their full capacity, the new directive says. In case of stressed assets admitted to the National Company Law Tribunal (NCLT), the resolution professional shall take steps to make it functional, it adds. 

These plants will supply power first to distribution companies (discoms) they have PPAs with. In case of a surplus, or capacity absent PPAs, it can be sold on the power exchanges.

If the power generation unit has a PPA with multiple discoms, if one of them does not schedule any quantity of power according to the pact, that can be offered to the other discoms with PPA. The surplus can be sold on power exchanges.

A committee constituted by the Ministry of Power, which will include representatives of the ministry, Central Electricity Authority and Central Electricity Regulatory Commission, will work out the rate at which power will be supplied to the PPA holder to allow pass-through of the higher cost of imported coal. This committee will ensure that benchmark rates of such imported coal-based power will be based on prudent costs, including the present coal price, shipping costs, operation and maintenance cost, and a fair margin.

In case the generators or group companies own coal mines abroad, the mining profit will be set off to the extent of their shareholding in the coal asset.

The PPA holders shall have an option to make payment to the generating company according to the benchmark rate worked out by the committee or at a rate mutually arrived at with the generating company.

Discoms will pay the power generators on a weekly basis.

In case the discoms are not able to come to mutually negotiated rates with the generating company, and decline to procure power at the benchmark rate worked out by the committee, or are unable to make weekly payment, the power can be sold on the power exchanges.

If the power is sold on the power exchanges, the net profit generated will be shared equally between the generator and PPA holder on a monthly basis.

The benchmark rates worked out by the committee will be reviewed every 15 days.

Can power plants using imported coal benefit from this?

Imported coal-based power units aggregating to 7,800 MW may benefit from the government’s new measures. These are projects that have been shut down or are running at low capacity due to concerns over losses by their owners including Tata Power , Adani Power, and JSW Energy. These are some of the power units likely to benefit:

Coastal Gujarat Power

Adani Power Mundra (Ph I/II)

Adani Power Mundra (Ph III)

Essar Power Gujarat

JSW Ratnagiri

Tata Trombay


IL&FS Tamilnadu

Coastal Energen

Udupi Power

Simhapuri Energy

Meenakshi Energy

JSW Tornagallu – 1&2

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