Revised SHAKTI Policy Gets Cabinet Nod: Boost for Coal Linkages, Power Sector Flexibility

The Ministry of Coal will issue directions to Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) for implementation.

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Shri Narendra Modi, has approved a transformative update to the SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) policy aimed at optimizing coal allocation to thermal power plants (TPPs) across India. This move comes as a strategic step toward enhancing coal availability, improving operational efficiency, and reducing dependency on imported coal—all while simplifying the process for power developers and improving market flexibility.

Dual Window System Introduced for Coal Linkage

The revised SHAKTI policy introduces two streamlined windows under which coal linkages will be granted:

• Window-I: Coal at Notified Price Under this window, coal will be allocated to central and state-owned generation companies (Gencos), including Joint Ventures (JVs) and their subsidiaries, at the standard notified price. This allocation will be made based on recommendations from the Ministry of Power. The States may use these linkages directly through their own Gencos or allocate them to Independent Power Producers (IPPs) selected via Tariff Based Competitive Bidding (TBCB), or to existing IPPs with a valid Power Purchase Agreement (PPA) under Section 62 of the Electricity Act, 2003, for expansion units with similar arrangements.

• Window-II: Coal at Premium over Notified Price This window is designed to offer greater market flexibility. It allows any domestic coal-based or imported coal-based power producer to bid for coal on an auction basis by paying a premium over the notified price. The tenure for such linkages may range from 12 months to 25 years. Notably, coal allocated under this window can be used to generate electricity for sale in open markets without the requirement of a PPA—introducing a new level of freedom for power producers.

Implementation Mechanism and Oversight

The Ministry of Coal will issue directions to Coal India Limited (CIL) and Singareni Collieries Company Limited (SCCL) for implementation. Further, all concerned states and ministries will be duly informed to ensure smooth operational roll-out. The policy also establishes an “Empowered Committee” comprising the Secretary (Power), Secretary (Coal), and Chairperson of the Central Electricity Authority (CEA) to resolve any operational or implementation-related challenges.

Key Impacts and Advantages

Simplification and Ease of Doing Business

The overhaul replaces a complicated eight-para linkage policy with just two clear, concise windows. This change marks a significant move in the direction of ‘ease of doing business,’ encouraging both new investments and improved logistics.

Encouraging Capacity Addition by Private Developers

The elimination of the mandatory PPA requirement under Window-II empowers private developers and IPPs to plan and build new thermal capacities even without pre-secured buyers. This could prove crucial in meeting the growing base-load demand projected in India’s energy roadmap.

Reduced Dependence on Imported Coal

Imported Coal Based (ICB) power plants can now opt for domestic coal under Window-II, subject to technical compatibility. This is expected to significantly cut down on coal imports and thereby save foreign exchange. Regulatory commissions will assess and pass on the resulting benefits to consumers.

Support for Pithead and Brownfield Projects

The revised policy prioritizes coal linkage to pithead projects—those located closer to coal mines—reducing transportation costs and environmental impact. Brownfield expansions will also receive a boost, helping make better use of existing infrastructure.

Rationalization of Coal Logistics

By allowing coal source rationalization, the policy seeks to lower the ‘landed cost’ of coal, reducing pressure on railway logistics and translating to lower electricity tariffs for end users.

Greater Market Participation

Power producers holding existing Fuel Supply Agreements (FSAs) can now bid for coal under Window-II, even beyond their Annual Contracted Quantity (ACQ). Additionally, surplus power not requisitioned by the discoms can now be sold on power exchanges, ensuring better utilization and contributing to deepening of India’s power markets.

Cost and Beneficiaries

One of the most notable aspects of the revised policy is that it does not impose any additional financial burden on coal companies such as CIL or SCCL. The primary beneficiaries of this policy shift include:

• Central and State Thermal Power Plants

• Independent Power Producers

• Coal Producers like CIL and SCCL

• Indian Railways (due to eased coal logistics)

• State Governments

• End electricity consumers, who could see reduced tariffs over time

The revised SHAKTI policy is a forward-looking framework aligned with India’s objectives of energy security, reduced import dependency, and competitive electricity markets. It enhances both flexibility and transparency in coal allocation and is poised to play a key role in supporting India's continued economic growth through a more robust and adaptive power generation ecosystem.