Mega Power Policy 1995

The Mega Power Policy of 1995 was a significant initiative introduced by the Government of India to promote large-scale power generation projects in the private sector. Announced in November 1995, the policy was designed to encourage the establishment of power plants with a capacity of 1,000 megawatts (MW) or more, with the aim of meeting the country’s growing electricity demand through economies of scale and efficient inter-state power distribution.

Background and Rationale

During the mid-1990s, India faced a critical shortage of electricity due to limited generation capacity, poor infrastructure, and financial constraints in the public sector. The liberalisation policies introduced in the early 1990s paved the way for private sector participation in infrastructure development. The Mega Power Policy emerged as part of this broader economic reform agenda, intending to attract private and foreign investment into large thermal power projects.
The central idea behind the policy was that large-capacity plants could produce electricity more efficiently by taking advantage of lower per-unit costs and shared infrastructure, such as transmission lines and ports. Furthermore, such projects were expected to supply power across multiple states, improving the balance of power availability throughout the country.

Objectives of the Policy

The Mega Power Policy aimed to:

• Accelerate capacity addition in the power sector through private participation.
• Achieve cost reductions via large-scale generation and modern technology.
• Encourage inter-state cooperation in power sharing and grid development.
• Ensure stable and long-term power supply arrangements through Power Purchase Agreements (PPAs).
• Strengthen the overall competitiveness and reliability of the national power grid.

Key Provisions and Features

Eligibility for Mega Power StatusProjects qualified for Mega Power Status based on the following criteria:

• Thermal power plants with an installed capacity of 1,000 MW or more.
• Projects designed to supply power to two or more states, ensuring inter-state distribution.
• Compliance with technical, environmental, and financial norms prescribed by the Central Electricity Authority.

Fiscal and Regulatory IncentivesThe policy provided several incentives to make such projects financially attractive:

• Customs duty exemptions for importing capital equipment, machinery, and spares required for construction and operation.
• Concessional treatment of taxes, such as reduced or waived sales tax and excise duties.
• Simplified approval processes, including single-window clearances and coordination support from central agencies.
• Special monitoring mechanisms to ensure timely implementation and facilitate inter-departmental coordination.

Obligations for DevelopersDevelopers seeking Mega Power Status were required to:

• Secure long-term PPAs with multiple state electricity boards or utilities.
• Demonstrate financial capability and experience in large-scale infrastructure projects.
• Adhere to technical performance and environmental compliance standards.

Evolution and Revisions

The original Mega Power Policy underwent several revisions to address challenges and adapt to changing market conditions:

• 1998 Revision: Introduced procedural simplifications and defined clearer eligibility norms.
• 2002 Revision: Updated fiscal incentives and improved coordination mechanisms between states and central authorities.
• 2006 Revision: Broadened eligibility to include hydropower projects of 500 MW or more located in the Himalayan region, North Eastern states, or Jammu and Kashmir.
• 2009 and 2011 Updates: Introduced the concept of Provisional Mega Power Certificates, enabling projects to avail of benefits during construction and before final certification.

These modifications reflected the government’s evolving approach to promoting investment and ensuring faster project execution.

Impact and Achievements

The policy led to the development of several large-scale projects across the country, contributing significantly to capacity expansion. It provided a framework for public-private collaboration in power generation and encouraged the use of advanced technologies.
Key achievements include:

• Encouragement of private and foreign investment in India’s power sector.
• Establishment of a foundation for Ultra Mega Power Projects (UMPPs), which followed as a logical extension of the policy’s objectives.
• Facilitation of inter-state power trade and better utilisation of national grid infrastructure.
• Stimulation of competitive pricing and cost efficiency through large-scale generation.

Challenges and Limitations

Despite its ambitious vision, the policy faced several implementation challenges:

• Delays in approvals and PPAs caused prolonged project gestation periods.
• Financing hurdles, especially for private investors, due to high capital costs and regulatory uncertainties.
• Infrastructure bottlenecks, such as limited transmission capacity and land acquisition issues.
• Reluctance of some states to enter long-term agreements with independent power producers.
• Uneven regional distribution of projects, with some states benefiting more than others.

These limitations underscored the need for further policy refinement and stronger institutional frameworks to support private sector-led energy growth.

Significance in Power Sector Reforms

The Mega Power Policy of 1995 marked a turning point in India’s energy policy. It represented a shift from state-dominated power generation to a more market-oriented, investment-friendly environment. Its legacy can be traced through later developments such as:

• The launch of the Ultra Mega Power Projects (UMPP) scheme, which aimed to establish even larger plants of 4,000 MW capacity under competitive bidding.
• The Electricity Act of 2003, which built upon the policy’s principles by promoting open access, competition, and independent regulation.
• The enhancement of the national grid and development of inter-state power transmission corridors.

The policy thus played a pivotal role in shaping India’s long-term power sector reforms, supporting both industrial expansion and economic growth.