India’s thermal power sector faces a growing fuel-management dilemma with generators that maintain adequate coal inventories risk being disadvantaged when limited domestic supplies are redirected to plants that fall below prescribed stock norms.

While such emergency interventions may be necessary to keep vulnerable plants operational and safeguard grid reliability, industry stakeholders warn that repeated redistribution could undermine incentives for generators to plan and maintain adequate fuel stocks.

Coal-stock requirements for thermal power plants have been in place for years. The current Central Electricity Authority (CEA) framework took effect on December 6, 2021, introducing revised, plant-specific stocking norms aimed at strengthening fuel security and inventory planning.

The broader coal-supply framework—including coal linkages, Fuel Supply Agreements (FSAs) and other supply arrangements—is intended to provide generators with greater certainty over fuel availability and allow them to plan inventories more effectively.

The revised SHAKTI policy, approved by the Central Government in May 2025, further streamlined coal-linkage allocation into two windows. Window I provides coal linkages to central government-owned generating companies and state utilities at notified prices, while Window II allows other eligible producers, including imported-coal-based plants, to procure coal through auctions at a premium over the notified price.

The Ministries of Coal, Power and Railways also coordinate regularly to monitor coal supplies and facilitate movement to power plants, particularly during periods of supply disruption, such as what emerged during the COVID-19 pandemic when all forms of transport came to a standstill, necessitating CEA’s revised coal supply framework.

Industry seeks differentiated approach

Emergency assistance to plants facing critically low stocks can be justified when consumer interests and grid stability are at risk. However, industry stakeholders argue that such support should distinguish between genuine supply-chain disruptions and persistent shortages caused by inventory mismanagement.

“Coal inventory should be recognised as a system reliability service, with generators maintaining adequate or higher-than-normative stocks appropriately incentivised, while repeated shortfalls without genuine external causes should carry consequences,” said Rajib Mishra, former Managing Director of PTC India, earlier known as Power Trading Corporation of India.

Mr. Mishra said coal availability at the mine does not automatically translate into fuel availability at a power plant. Fuel security depends on the entire logistics chain, including production, loading, railway availability, transit, unloading and stockyard management.

Emergency redistribution, he said, should therefore be reserved for genuine supply-chain disruptions such as mine-side constraints, railway bottlenecks, force-majeure events or unexpected spikes in electricity demand.

Aggregate supply not the only concern

India’s coal production exceeded 1 billion tonnes in each of the last two financial years, reaching 1,047.52 million tonnes (MT) in FY2024-25 and 1,040.08 MT in FY2025-26.

In the current financial year, cumulative production through July stood at 302.04 MT, while overall coal dispatches rose about 6% year-on-year to 354.7 MT.

Government data showed coal stocks at thermal power plants at 34.55 MT, with another 113 MT either at pitheads or in transit. The combined stock was therefore around 148 MT.

The figures indicate that the challenge is not necessarily a shortage of coal at the national level, but how efficiently supplies are allocated, transported and converted into adequate plant-level inventories.

Thermal power remains critical to grid security

The issue has gained importance as electricity demand continues to rise and thermal generation remains central to meeting peak requirements.

Coal- and lignite-based plants, with around 230.8 GW of installed capacity, accounted for 69.54% of electricity supplied during April-June 2026. During non-solar peak hours, thermal generation reached about 188.8 GW, or nearly 75% of total generation.

Peak power demand touched 270.2 GW in May.

“CEA monitoring has shown differences in plant-level inventories, making fuel management an important part of India’s energy-security framework,” an industry official said, eeking anonimty.

Legal framework also favours equitable treatment

The issue also has a legal dimension. In its September 2025 judgment in Haryana Power Purchase Centre & Others v. GMR Kamalanga Energy Ltd., the Supreme Court rejected claims by individual distribution companies seeking preferential access based on the dates of their Power Purchase Agreements (PPAs) or the stated source of coal.

The court held that additional costs arising from the use of costlier coal should be shared equitably among procurers.

The developments suggest that India may not require another major overhaul of its coal-allocation architecture. Instead, the immediate priority could be stronger implementation of existing norms, greater accountability and differentiated treatment of generators based on their inventory-management performance.

Plants facing genuine and demonstrable supply disruptions should receive timely assistance. At the same time, persistent stock shortfalls without credible external causes should trigger a clearly defined corrective mechanism, an executive from a large power producer said, adding the policy challenge is increasingly to ensure that emergency coal redistribution protects grid reliability without turning prudent fuel management into a commercial disadvantage.