Idled since mid-2025 over coal cost pressures, the 4 GW Mundra project secures a 2026 supplemental PPA with Gujarat Urja Vikas Nigam Limited to allow fuel cost pass-through.
Tata Power has executed a Supplementary Power Purchase Agreement (SPPA) with Gujarat Urja Vikas Nigam Limited for its 4,000 MW Coastal Gujarat Power Limited (CGPL) plant in Mundra. The agreement marks a decisive end to the prolonged operational uncertainty that has affected the imported coal-based facility, which faced a temporary suspension in mid-2025 due to financial stress.
The Mundra Ultra Mega Power Project (UMPP) has historically been a focal point of tariff-related challenges. The project was originally awarded in 2007 at a levelized tariff of ₹2.26/kWh, based on then-prevailing coal price assumptions. However, subsequent regulatory changes in Indonesia led to a sharp increase in international coal prices, rendering the fixed tariff structure unviable. Over the past year, the plant remained largely idle after the expiry of emergency directives under Section 11 of the Electricity Act, which had temporarily allowed cost pass-through to sustain operations.
The newly signed SPPA introduces a formal mechanism for full fuel cost pass-through, enabling Tata Power to recover actual fuel expenses based on international coal indices. This structural shift ensures that the plant remains financially viable despite volatility in global fuel markets. The agreement effectively resolves the long-standing fuel cost deadlock that had significantly impacted the plant’s utilization and financial performance.
While Gujarat is the first state to formalize the agreement, similar arrangements are in advanced stages with the other beneficiary states, including Maharashtra, Rajasthan, Punjab, and Haryana. Once executed, these agreements will ensure coordinated procurement and supply of power from the Mundra plant across multiple regions.
Operationally, all five generating units of 800 MW each are expected to return to full-scale operations by the end of March 2026. Additionally, the agreement is likely to be implemented retrospectively from April 2025, which could allow Tata Power to recover estimated losses ranging between ₹800 crore and ₹1,000 crore incurred during the shutdown phase.
The revival of the Mundra plant comes at a critical time for India’s power sector. The Ministry of Power has projected peak electricity demand to reach approximately 270 GW during the summer of 2026. The reintroduction of 4 GW of reliable base-load capacity is expected to significantly ease supply pressures and reduce dependence on high-cost short-term power procurement in the spot market during periods of peak demand.
From a financial perspective, the resolution is expected to strengthen Tata Power’s consolidated earnings. By transferring fuel price risk to procuring utilities, the company can stabilize its thermal portfolio and redirect strategic investments toward expanding its clean energy capacity. This aligns with Tata Power’s long-term goal of achieving a predominantly renewable energy portfolio by 2030.
Despite the rapid growth of renewable energy in India, thermal power—particularly coal-based generation—continues to play a dominant role, accounting for over 70% of the country’s electricity output. In this context, the resolution of the Mundra issue represents a critical step toward ensuring grid reliability while the energy transition progresses.
This deal ensures stable power supply, reduces peak electricity costs, strengthens grid reliability, revives idle capacity, and supports India’s growing energy demand efficiently.
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