Centre invokes Section 11, orders 112 captive coal plants to full output

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Centre invokes Section 11, orders 112 captive coal plants to full output

Coal stocks at power plants fell nearly 49% in three months and spot power prices hit ₹7.71 per unit, so the Centre has ordered 112 captive coal plants to run flat out from October 1.

What happened

The Centre on Friday invoked emergency powers to direct about 112 captive coal-fired power plants to operate at maximum capacity from October 1 to December 31. The order, dated September 25, applies to coal-based captive plants of 50 MW and above and requires them to sell surplus generation through the power exchanges and report weekly to the Central Electricity Authority. Section 11 of the Electricity Act allows this in extraordinary circumstances. The power ministry separately extended the same mechanism for Tata Power's imported-coal plant at Mundra until December 31.

Context

Demand has refused to fall the way September usually makes it fall. Peak demand touched 269 GW on September 10, the highest ever recorded for the month, against the year's peak of 270 GW set in May. Coal stocks fell nearly 49% in the three months to September, against a 26% decline a year earlier, and nearly 40% of coal-fired plants now hold less than three days of stock. A weak monsoon cut hydropower, heavy rain disrupted mining in eastern coal belts, and constrained rail capacity slowed movement to plants.

Why it matters

Section 11 is a quantity instrument, not a price one. The government is commandeering capacity that exists but is not reaching the grid, because building it is impossible in three months. The price signal is already screaming: spot power averaged ₹7.71 per unit so far in September, the highest monthly level since 2022. That cost lands on state distribution companies that are already debt-laden, and they cannot pass it through quickly. Separately, the power ministry is weighing a mandate to blend up to 5% imported coal, which would be the first such directive since 2024 and a reversal of the drive to cut coal imports.

Impact for India

State distribution companies: Spot power at ₹7.71 per unit lands on balance sheets that are already stretched, since retail tariffs move slowly.
Captive plant owners: Vedanta, Tata Steel, Hindalco, JSW Steel, UltraTech Cement, Reliance Industries, Indian Oil, Bharat Aluminium, Hindustan Zinc and Nayara Energy must run at full output and sell the surplus.
Energy-intensive industry: Aluminium smelters, steel plants, cement factories and refineries that built captive capacity for their own use now carry a public supply obligation.
Tata Power: Its 4 GW Mundra plant, idle for nearly six months before March on fuel costs and the absence of a viable power purchase arrangement, keeps running to December 31.
Coal importers and the trade account: Indian coal imports are already at a 15-month high, and a blending mandate would widen the import bill further.
Renewables: Generation rose about 21% year-on-year but fell short of round-the-clock needs, Crisil said, so thermal capacity still sets the margin.

Key data

Peak power demand, September 10: 269 GWHighest ever for September; the year's peak is 270 GW, set in May

Captive coal plants ordered to maximum output: 112From October 1 to December 31All coal-based captive plants of 50 MW and above

Coal stocks at power plants, three months to September: Down nearly 49%Against a 26% fall a year earlier

Plants holding less than three days of coal: Nearly 40%

Average spot power price, September so far: ₹7.71 per unitHighest monthly level since 2022

Concepts

Captive power plantA generating station built and run by an industrial company or group of factories to supply its own electricity rather than to sell to the public grid.The order covers 112 such plants serving aluminium smelters, steel mills, cement factories and refineries.

Section 11 of the Electricity ActA provision letting the government direct a generating company to operate its station as instructed in extraordinary circumstances.It is the legal basis for compelling captive plants to run at maximum capacity and sell surplus on the exchanges.

Spot power priceThe price at which electricity trades for near-term delivery on a power exchange, set by the balance of bids and offers.It averaged ₹7.71 per unit in September, the highest monthly level since 2022.

Coal blending mandateA directive requiring thermal plants to mix a set share of imported coal with domestic coal.The power ministry is weighing a mandate of up to 5%, against the 15% plants are already allowed to blend voluntarily.

Theory lens

Peak-load pricing — when capacity is fixed in the short run and demand peaks, price should rise to ration scarce supply and to signal where new capacity is worth building. India's power market shows both halves under strain. Spot prices averaged ₹7.71 per unit in September, the highest monthly level since 2022, which is the rationing signal doing its job. But a committee chaired by the CEA chairman sets the tariff for this emergency generation, so the signal is absorbed before it reaches the consumer who could respond to it.

Historical parallel

India has run this playbook before. Coal-blending directives were in force from December 2021 to March 2024, when imported coal was mandated to cover a domestic shortfall. The government then spent two years pushing hard the other way, lifting domestic production and pruning overseas supplies. A revived mandate of up to 5% would be the first reversal since 2024, and it would arrive with Indian coal imports already at a 15-month high.

Global context

The import option is getting dearer everywhere at once. Traders put Indonesian coal prices up about a fifth since May, Russian prices 14% higher and South African rates up 19%, on higher global coal demand and rising freight costs. A blending mandate would therefore land at close to the worst moment on price, which is one reason the discussion is still at an early stage and aimed at saving domestic coal for next summer.

Stakeholders

Gains: Power consumers on the gridAbout 112 captive plants must push surplus generation onto the exchanges from October 1.

Gains: Tata PowerThe Mundra plant keeps running under the emergency mechanism until December 31 on a committee-determined tariff.

Gains: Coal exportersIndonesian, Russian and South African suppliers face Indian demand at a 15-month import high.

Pressure point: State power distribution companiesThey absorb spot power at ₹7.71 per unit, the highest monthly average since 2022.

Pressure point: Captive plant ownersAluminium, steel, cement and refinery groups must run at maximum capacity and file weekly reports to the CEA.

Pressure point: Thermal plants short of fuelNearly 40% of coal-fired plants hold less than three days of coal stock.

Practice Question — from the story

With reference to the Centre's emergency directions to captive coal-fired power plants, consider the following statements:

The direction was issued under Section 11 of the Electricity Act, which lets the government direct generating stations to operate as instructed in extraordinary circumstances.
Indian coal-fired power plants are at present permitted to blend a maximum of 5% imported coal with domestic coal.

Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2

Reveal answer & explanation

Answer: 1 only

Statement 1: Correct because the order covering about 112 captive coal plants was issued under Section 11 of the Electricity Act, which allows the government to mandate power generation in extraordinary circumstances.
Statement 2: Incorrect because plants can already blend up to 15% imported coal. The 5% figure is the level of the mandatory blend the power ministry is considering, not the existing ceiling.

Therefore, the correct answer is 1 only.

Concept check — test your understanding

Electricity generators are dispatched in merit order, with the cheapest plants called first. Why does a shortage of domestic coal push spot prices on the power exchanges sharply higher?

Distribution companies are required to source a fixed share of their power from the exchanges, so a shortage mechanically raises that mandated purchase.
Demand must be met from progressively costlier plants further up the merit order, such as imported-coal and gas-based units, and the last unit dispatched sets the price for everyone.
The regulator lifts the price cap on the exchanges when coal stocks fall, in order to ration supply among distribution companies.
Domestic coal is sold on a cost-plus basis, so a shortage feeds straight through into the notified price of coal itself.

Reveal answer & explanation

Answer: B

Merit order dispatch means the marginal plant sets the clearing price. When cheap domestic-coal capacity cannot run for want of fuel, the system has to climb the supply curve to costlier units, and every megawatt-hour clears at that higher marginal cost. That is why an average of ₹7.71 per unit can coexist with plenty of cheap capacity sitting idle on the ground.
Option A invents a procurement obligation. Distribution companies buy on the exchange to cover residual demand; there is no fixed share that rises with a shortage.
Option C confuses a ceiling with a price. Exchange price caps limit how high clearing prices can go; they are not raised to ration supply, and they do not create the spike.
Option D describes the fuel market, not the power market. Notified domestic coal prices are administered and do not move with each shortage; the spike happens in electricity because the dispatch mix changes.