MC Explainer | Section 11 of Electricity Act is back. What is the clause and what can it do?

thermal power plant

The Centre on June 12 extended its direction under Section 11 of the Electricity Act, 2003, till September for power plants that run on imported coal plants to maximise output to deal with the expected record surge in power usage this summer.

On June 9, India consumed a record 223.23 gigawatts (GW) of electricity amid peak power demand. According to the power ministry officials, the demand is likely to see an upward trend. The demand which could not be met, also known as peak demand deficit, stood at 189 megawatts (MW) on June 9.

The previous high was recorded on June 8 when the peak demand touched 222.92 GW, while the deficit on that day was 548 MW.

In February, the power ministry had asked all imported coal-based (ICB) power plants to run at full capacity, anticipating peak demand of 229 gigawatts (GW) in April.

“To ensure availability of electricity to meet the anticipated demand, the generation from ICB power plants needs to be increased. Accordingly, in larger public interest, for ensuring optimum generation from ICB plants, directions are issued under Section 11 of the Electricity Act, 2003, that all ICB power plants shall operate and generate power to their full capacity,” the power ministry had said in an order. “Where the imported coal based plant is under NCLT (National Company Law Tribunal) the resolution professional shall take steps to make it functional.”

In view of the severity of the situation, all states and all power generation companies using domestic coal as feedstock on January 9, 2023, were directed to import at least 6 percent of their requirement of coal for blending.

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, 2003, states that under extraordinary circumstances, the government can ask power generating companies to operate and maintain output in accordance with directions given.

The section 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?

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.

Explaining “extraordinary circumstances” in the context of the past one year, spokespersons of the power ministry said it refers to the times when electricity demand far surpasses supply, which gets affected due to a shortage of coal at thermal power plants.

Why is there a need to invoke such a clause?

India’s imported coal-based (ICB) generation capacity is about 17,600 megawatts (MW). Most ICB power plants are shut or operate partially due to high international coal prices and also because power purchase agreements (PPAs) signed with customers do not have provisions to pass on the increased cost of generation.

When the country’s power demand soared last year and thermal power plants had inadequate domestic coal to run them fully, the power ministry invoked the emergency clause of the Electricity Act (Section 11) on May 5, 2022, and asked all thermal power plants running on imported coal to open and generate at their full capacity.

What will change for imported coal-based power generators?

On January 3, the Central Electricity Regulatory Commission (CERC) ruled that plants using imported coal should be compensated for supplying electricity under emergency circumstances. The order was issued in response to a petition by Tata Power Company and is now set to benefit about 15 privately owned ICB power plants when the emergency clause is in force.

Following the CERC’s order, the power ministry said in its February 20 order that a committee with representatives from the ministry, Central Electricity Authority, and NTPC will work out a benchmark rate that meets all the prudent costs of using imported coal for generating power.

“The fixed charge will be as per the PPAs, or as has already been agreed mutually between the generating company and the procurers. The PPA holder 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 negotiated with the generating company,” the ministry said in the order. “These plants will supply power in the first instance to the PPA holders. Any surplus power left thereafter or any power for which there is no PPA will be sold in the power exchanges.”

How will power plants using imported coal benefit?

As per stakeholders, the CERC’s order has come as a breather for ICB plants. Tata Power, a key stakeholder in India’s power generation and distribution network, said, “The CERC has allowed imported coal-based power plants to seek full compensation of coal cost and operating parameters for supplying electricity under emergency supply under section 11 of the Electricity Act. The order is also beneficial for the CGPL Mundra Plant as it can now recover the full cost incurred for supplying power in terms of the ministry of power’s  Section 11 directions.”

Which are the imported coal-based power plants in India?

These include:

Coastal Gujarat Power Ltd

Adani Power Mundra Ltd. (TPS-1 & I|)

Adani Power Mundra Ltd (TPS-|II)

Essar Power Gujarat Ltd.

JSW Ratnagiri Ltd.

Tata Trombay Ltd.

GSECL Sikka Ltd.

IL&FS Tamilnadu Power Company Ltd

Muthiara-Coastal Energen

Udupi Power

Simapuri Energy Ltd

Meenakshi Energy Ltd

JSW Torangallu-1 & 2

SEPC Power Private Ltd.

OPG Generation(P) Ltd