India's coal allocation system may have an adverse effect on power plants that consistently maintain coal inventories in line with prescribed rules, as emergency fuel supplies are often redirected to plants that have failed to hold adequate stocks, industry analysts and officials said.

India's coal allocation framework aims to give thermal power generators greater certainty over fuel supplies and allow them to plan stocks effectively. The revised SHAKTI Policy, approved by the central government in May 2025, simplified coal-linkage allocation into two windows.

Under Window I, central generating companies and states receive coal linkages at notified prices. Window II permits eligible producers, including plants running on imported coal, to obtain coal through auctions at a premium above the notified level.

The framework operates alongside Fuel Supply Agreements and rules prescribed by the Central Electricity Authority (CEA). The broader goal is to ensure predictable fuel supply and enable generators to plan their needs in advance.

Industry officials, however, noted that the emerging challenge is not domestic coal availability but the capacity of individual generating stations to sustain adequate inventories over time.

Domestic coal production in India reached a record 1.05 billion tonnes in FY25, up 4.98% from 997.83 million tonnes in FY24, data showed. Total coal supply rose to 1.03 billion tonnes in FY25, 5.38% higher than 973.01 million tonnes a year earlier.

By March 2026, combined coal stocks across mines, power plants and transit were estimated at around 210 million tonnes. Stocks at power plants stood at 54.05 million tonnes, equivalent to nearly 24 days of consumption, industry officials said.

The significance of reliable thermal generation has increased with rising electricity demand. Coal- and lignite-based power plants, with installed capacity of about 230.8 GW, supplied 69.54% of electricity over April-June 2026, data showed.

During non-solar peak hours, thermal generation reached around 188.8 GW, accounting for nearly 75% of total generation. Peak power demand touched 270.2 GW in May.

An industry official observed that strong national coal availability does not guarantee uniform stocks across power plants. CEA monitoring has revealed differences in plant-level inventories, making fuel management a key element of India's energy-security framework.

The official added that emergency intervention may be justified when genuine supply-side disruptions occur, including mine-related issues, railway constraints, force majeure events or sudden demand surges that threaten plant operations or grid stability.

However, the official stressed that the response should distinguish genuine supply disruptions from persistent shortfalls at plants caused by inadequate inventory planning.

The government generally coordinates with the Ministries of Coal, Power and Railways to monitor supplies and facilitate coal shipments to power plants.

While such emergency support can protect consumers and maintain grid reliability, industry officials said repeatedly extending assistance to generators that have failed to meet stock norms puts disciplined plants at a disadvantage.

An executive noted that emergency support to non-compliant generators may protect consumers and grid reliability, but it would come at the expense of producers that have followed the rules. Such a system, the executive added, could dampen incentives for generators to undertake cautious fuel planning.

The matter also carries legal implications. In a September 2025 ruling in Haryana Power Purchase Center and Others versus 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 or the stated source of coal. The court also held that additional costs arising from the use of costlier coal should be shared equitably among end users.

The executive said the ruling reinforced the need for a predictable, common framework rather than preferential claims.

Industry stakeholders believe India may not require another overhaul of its coal allocation system, but should focus on stricter enforcement of existing norms, greater accountability and differentiated treatment for generators that repeatedly fail to maintain prescribed inventories.

Plants facing genuine disruptions should receive timely support, while persistent inventory shortfalls should trigger a defined corrective mechanism, an analyst said.

The analyst added that as renewable capacity expands, energy security will depend not only on coal production but also on whether generators plan ahead and hold sufficient inventories. Emergency intervention must protect grid reliability without turning prudent inventory management into a liability.