India Ratings and Research (Ind-Ra) anticipates slower-than-expected resolution of the stressed thermal capacity, domestic coal availability challenges, and limited appetite of discoms to sign long-term power purchase agreements.
The agency has maintained a stable-to-negative outlook on the power sector for FY20 despite its anticipation of a healthy 6%-7% growth in power demand and an improvement in all-India coal-based PLFs to 62%-63%. The pace of resolution of stressed thermal capacities continues to be slow, with actual resolution of around 2GW only so far, Ind-Ra said.
Clearly, buyers remain focused on assets that have significant tie-ups on fuel supply and long-term power purchase agreements. The resolution also remains slow due to significant hair-cuts being suggested, presence of multiple lenders, and issues related to the settlement of past capex dues for the under-construction capacity, Ind-Ra said in its ‘FY20: Power Outlook’ report.
The draft CERC guidelines have come as a relief to generators. However, the overhang of the stressed capacity would continue to prevent fresh thermal capacity addition from the private sector, Ind-Ra said in the report, adding that the renewable sector would continue to account for bulk of the incremental capacity addition in the coming years.
The transmission sector would continue to see investments in view of the various schemes launched by the government as part of its goal of ‘24x7 Power for All’.
However, for a large number of discoms, the actual AT&C loss remains higher than the target set under the UDAY scheme, leading to lower-than-expected reduction in overall loss. Timely and adequate tariff hikes would remain essential for a reduction in overall losses, the report said.
Ind-Ra expects the coal-based thermal capacity PLFs to improve further to around 63.5% in FY20, driven by healthy electricity demand. Although the gross generation from renewable sources is increasing, Ind-Ra believes incremental generation from coal-based thermal capacity would increase in FY20 to meet the rising demand. However, the rise in coal-based capacity PLFs is contingent upon coal availability.
Coal India increased its output by 7.4% in 9MFY19. However, given the historical coal production growth rate of 4% and a higher base, Ind-Ra believes continued production growth rate of 7%-8% could be difficult to achieve in FY20. This would result in increased reliance on imported coal.
Ind-Ra believes solar capacity addition would remain flattish in FY20, given the tariff ceiling proposed by Solar Energy Corporation of India Ltd for solar in a rising costs scenario. Costs have been rising over the last year due to the implementation of the safeguard duty on solar modules, rupee depreciation, hardening cost of capital and higher land prices.
