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India is weighing a plan to recover "excess revenue" earned by power plants in spot markets to provide funds to run gas-fired stations during crises, two government sources said.

Under the early-stage proposals, a uniform price cap on spot power trades would be replaced with new limits for each source of power generation.

Once prices are discovered in markets based on demand and supply bids, any funds generated from electricity sold above those limits would be considered excess revenue and recovered for the crisis plan.

While the move could help power retailers that struggle to buy electricity on markets when prices are high, it could hurt the margins of power companies that sell in spot markets.

"There is no formal proposal but a suggestion was made during a meeting on June 23 which is likely to be further discussed," one of the sources, a senior official in the federal power ministry, said.

The person requested anonymity since the discussions are at an early stage.

The Federal Power Ministry did not respond to emailed questions.

The June 23 meeting was chaired by federal power minister R K Singh and aimed at ensuring 24-hour power supply across the country, the source and another government official said, adding discussions on varying price limits for each source of power had begun.

The government believes the plan would help ensure consistent power supplies by discouraging generation firms from charging tariffs above the set caps, and helping cash-starved power retailers, the sources said.

Retailers often resort to outages rather than pay higher prices to buy electricity during peak demand.

They incurred a loss of 0.22 rupees per unit of electricity bought in 2021-22, data from state-run Power Finance Corp showed.

Power generators, however, are likely to resist a further hit to their revenues.

Currently, all spot power trades are subject to a uniform price cap. That cap was lowered to 10 rupees in April, from 12 rupees last year and 20 rupees previously.

Earlier this year, India created a separate market for high-cost electricity from imported coal and gas-based stations, but it failed to take off due to lack of demand.

India relies heavily on thermal power including domestic and imported coal, as well as gas-fired stations that help keep the lights on during periods of high demand.

"If the high-cost imported fuel plants are allowed to sell in regular market segments during peak hours and there is higher price discovery, the domestic coal plants will profiteer," the power official said.