The Indian government is contemplating the relaxation of lending regulations for the establishment of new coal-fired power plants to address the escalating electricity demand. Discussions within the power ministry suggest potential modifications, considering the elimination of the prerequisite for Power Purchase Agreements (PPAs) with distribution companies to facilitate smoother access to funding.

The impetus for this prospective alteration surfaced after Power Minister R K Singh emphasized the urgency to initiate work on an additional 30,000 MW of new thermal generation capacity. This need comes on top of the ongoing construction of 50,000 MW to avert potential electricity shortages in the future.

Estimations based on a May report from the power ministry suggest an investment of nearly Rs 2.5 lakh crore for setting up the additional 30,000 MW capacity, with a considerable debt exposure of over Rs 1.7 lakh crore for lenders, given the 70:30 debt:equity ratio for power projects.

The proposal to detach funding requirements from PPAs aligns with the ministry's objective of gradually transitioning away from the inflexible PPA regime to enhance market responsiveness and reduce costs for distribution utilities and consumers by fostering competition.

This drive to expand coal-based generation capacity stems from the recent surge in power demand, which witnessed a substantial annual growth of 20% in August, September, and October. The mounting peak demand, reaching 2.4 lakh MW this year compared to 1.9 lakh MW in 2017-18, raises concerns about meeting the burgeoning electricity needs.

Despite the significant generation of green power, the plant load factor of coal-based plants has risen to approximately 65%, indicating the necessity for additional coal-based power to maintain grid stability, especially with the growing share of intermittent renewable energy sources.

Minister Singh, cognizant of international pressures to reduce coal usage at COP-28, affirmed India's commitment to maintaining power availability for its growth trajectory. Even in the face of global expectations to diminish reliance on coal, Singh emphasized the nation's dedication to preserving uninterrupted power supply, particularly if it necessitates the augmentation of coal-based capacity.