Growth in power supply exceeds demand, not need: Fitch Ratings

Fitch attributes the low pick-up in demand to the inability of financially stressed companies

The coal-based power generation capacity has increased by 2.1 points. But Fitch Ratings has observed in its latest report that though the supply exceeds demand as of now, it would not meet the overall power needs.

“Fitch Ratings believes that India could actually produce a power surplus in the financial year to end March 2018 (FY18), with an energy deficit of just 0.6 per cent in the first three months of FY18 – a period of usually high seasonal electricity demand. However, in reality, sporadic outages continue to plague the country. At the same time, about 24 per cent of households are yet to be electrified in India,” it says.

Fitch attributes the low pick-up in demand to the inability of financially stressed power-distribution companies to purchase power, along with an absence of adequate network coverage. This exerts a significant downward pressure on India’s thermal power utilisation.

The ripple effect is felt by the thermal power units whose plant load factors (PLF) or operational ratios are hit by a sluggish demand. Overall thermal PLF in India fell by 1.9 pp year-on-year to 55 per cent, with privately owned generation companies' (gencos') PLF declining 3.7 pp to 50 per cent, central gencos’ to 66 per cent, and state gencos' PLF largely remaining stable at 51 per cent in th efirst half of 2017. At the same time, electricity prices at exchanges in India dropped by another 11 per cent year-on-year to Rs 2.4 a unit in FY17.

“Tariffs are taking a hit mainly from the prevailing electricity demand-supply dynamics, lower coal costs and a decline in renewable tariffs. Distribution utilities are shying away from signing new long-term power purchase agreements for both thermal and wind capacity – while awaiting clarity on the auction route for wind power, supported by the availability of cheaper spot electricity,” Fitch said.