Explainer: Amid high power demand, what is Section 11 of the Electricity Act?

Only 10,000 MW out of the total 17,600 MW imported coal based capacity is currently functional.

New Delhi, May 07: With a drop in demand and an improved power situation overall, the government has invoked Section 11 of the Electricity Act, asking all imported coal-based projects to generate electricity, an Economic Times report said.

In an office order issued in this regard on Thursday by the ministry, it is noted that most of the states have allowed pass-through of the higher cost of imported coal to consumers, which aided to make operational 10,000 MW capacity out of the total 17,600 MW imported coal-based thermal plants in the country.

However, the ministry said that "some imported coal-based capacity is still not operating".

The ministry issued directions under Section 11 of the Electricity Act. It has directed that all imported coal-based power plants shall operate and generate power to their full capacity.

What is Section 11 of the Electricity Act?

Section 11 of the Electricity Act gives the government the authority, in extraordinary circumstances, to order any generating company to operate and maintain its stations in accordance with the order. These plants will supply power to power purchase agreement holders. Any surplus power shall be sold in the power exchange.

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 can it do for imported coal-based power generation?

In the case of imported coal-based plants under the insolvency proceeding, the resolution professionals will take steps to make them functional.

These plants will supply power in the first instance to the PPA (power purchase agreement) holders (discoms). Any surplus power left thereafter or any power for which there is no PPA will be sold in the power exchanges, the ministry said.

Where the plant has PPA with multiple discoms then in such cases, one discom does not schedule any quantity of power according to its PPA, that power will be offered to other PPA holder(s) and any remaining quantity thereafter will be sold through the power exchanges, it added.

Considering the fact that the present PPAs do not provide for the pass-through of the present high cost of imported coal, the rates at which the power shall be supplied to the PPA holders (discoms) shall be worked out by a committee constituted by the Ministry of Power (MoP) with representatives from the ministry, CEA (central electricity authority) and CERC (Centra Electricity Regulatory Commission).

This committee will ensure that benchmark rates of power so worked out meets all the prudent costs of using imported coal for generating power, including the present coal price, shipping costs and O&M (operation and maintenance) costs and a fair margin, the official order stated.

Where the generators/group companies or coal mines abroad, the mining profit will be set off to the extent of the shareholding of the generating / group company in the coal mine.

The PPA holders (discoms) shall have an option to make payment to the generating company according to the benchmark rate worked out by the group or at a rate mutually negotiated with the generating company.

The order also provided that surplus power at these plants shall be sold in the power exchanges.

The net profit, if any, by the sale of power which is not sold to the PPA holder (discom) and is sold in the power exchanges, shall be shared between the generator and PPA holder in the ratio of 50:50 on monthly basis.

This order shall remain valid up to October 31, 2022, the ministry said.

The ministry noted that the power demand has gone up by almost 20 per cent in energy terms and the supply of domestic coal has increased but the rise in the supply is not sufficient to meet the increased demand for power.

"This (demand-supply mismatch) 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 have been declining at a worrisome rate," it noted.

The international price of coal has gone up in an unprecedented fashion. It is currently around 140 US Dollars per tonne.

As a result of this, the impart of coal far blending, which was of the order of 37 million tonnes in 2015-16, has gone down, leading to more pressure on domestic coal, the ministry said.

The imported coal-based generation capacity is around 17,600 MW. The PPAS for imported coal-based plants do not have adequate provision for pass-through of the entire increase in the international coal price, it added.

At present, the price of imported coal, running of imported coal-based plants and supply of power at the PPA rates will lead to huge losses to the generators and therefore, they were not willing to run those plants, it observed.