Slow GDP powers off generators

Seven GW at risk of being unviable: CRISIL

Even as financial health of state-owned power distributors improves, power generators are stuck with slackening demand for electricity. According to a CRISIL report, power demand growth will be muted, at 6.2% over the next five years, due to slow growth in GDP.

“Industrial and commercial demand growth will be slow and follow GDP growth, household demand growth to be stronger at close to 10%. Residential demand to witness strong growth due to latent demand compared to eight% in the last five years,” the rating agency believes.

The power generation sector, which has been on a capacity addition overdrive of around 68,000 megawatts, between 2012-17. While capacity addition will grow at seven%, demand will grow much slower at 6.2%.

Equity returns from power plants, and profitability of power projects are set to be affected. As much as 18,000 megawatts of power plants are likely to severe pressure on profitability at their current power purchase agreements (PPAs). These projects have bid for tariffs below Rs 3.1 per unit.

“Of these 7,000 megawatts is at significantly high risk of being unviable due to aggressive bidding with tariffs below Rs 2.9 per unit,” the rating agency said.

This would mean that power capacity which has been set-up will run at a lower capacities or plant load factors (PLFs). Overall PLFs of coal-based power plants to remain subdued at 70-74% in 2012-17, as against 77-78% seen between 2008-10.

“PLF of new plants to ramp up only to 66% by 2016-17; slower demand growth and lower tariffs on account of aggressive bidding will restrict usage of high cost imported coal which in turn will restrict PLFs,” CRISIL said.

Coal India, the state-owned coal supplier will grow its production at around 5.5%, CRISIL estimates. This is much lower than linkage based power capacity grow that will grow at eight%.
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