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Stable year end outlook for conventional power sector - ICRA

Power News - Published on Fri, 28 Dec 2018

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Economic Times reported that ICRA has estimated a healthy 6 per cent demand growth for the power sector during FY2019 and has maintained a stable outlook for the segment. This coupled with the slowdown in addition of new capacity and slow progress in resolution of stressed thermal assets would enable a steady improvement in the utilisation of the existing capacity. If demand growth of 6 per cent sustains over the next three years, utilisation of the thermal capacity would improve to about 63 per cent in FY2020 and further inch upwards to about 67 per cent by FY2022.

During the seven months of FY2019, national power demand growth has remained at a steady 6.5 per cent which is higher than the 5.5 per cent reported in the first seven months of FY2018 and the full year growth of 6.2 per cent reported in FY2018.

Rising demand is being met from higher generation by thermal and renewable energy plants. This is reflected in improvement in capacity utilisation of thermal power plants to 61.1 per cent in the first seven months of FY2019 against 59.0 per cent in the first seven months of FY2018, as well as 29.5 per cent higher generation from renewable energy sources - (y-o-y basis).

Sabyasachi Majumdar, group head & senior vice president at ICRA said that “Increased demand for electricity coupled with shortfall in coal supply from domestic sources, has led to higher dependence on costlier imports in FY2018 and FY2019. Higher dependence on imports is augmented by rising international coal prices and depreciation of rupee against dollar. The Indonesian coal price index has increased by about 16 per cent in the first leven months of calendar 2018 on a Y-o-Y basis. It has resulted in an upward pressure on cost of power purchase for the distribution utilities. Given this, augmentation of domestic coal supplies through both higher mining activity and improved rail infrastructure, remains crucial for the sector from a cost control perspective.”

Relatively higher energy demand growth amid state and central government elections over the next 6-month, coupled with the domestic coal shortages led to a sharp rise in spot power tariff in recent months. ICRA however notes that high spot energy prices are unlikely to sustain in the medium term, given the significantly unutilized thermal power capacity available and rising generation from renewable sources.

On the distribution front, implementation of UDAY scheme has enabled a reduction in losses for discoms at all India level, by about 43 per cent for FY2018, mainly from reduction in interest costs.

Estimates of the ministry of power suggest that aggregate losses of all discoms have fallen below INR 20,000 crores for FY 2018. However, the improvement in the operational profile of the discoms remains slow, given that the reduction in AT&C losses is much lower than expected across majority of the states.

Further, tariff revision approved by state regulators have remained lower than revisions agreed under UDAY MoUs. Going forward, progress of improvement in operating efficiencies as well as securing timely and adequate tariff hikes along with the subsidy support from the respective state governments remain important for improving the discom finances.

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Posted By : Rabi Wangkhem on Fri, 28 Dec 2018
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