Power demand to fall in H2, gencos' receivables to go up: Fitch Ratings

Growth in the country’s power demand is likely to slow down in the second half of the financial year ending March 2023 (H2FY23), after a robust 11.3 per cent year-on-year (YoY) growth in the first half of the year (H1FY23), Fitch Ratings said in a report released on Tuesday.

Estimates by Fitch and power analysts Business Standard spoke to suggest that the second half of the year could see power demand grow in the region of 7-8 per cent versus the corresponding period last year. For the full year of FY23, Fitch analysts Geetika Gupta and Girish Madan say that power demand will grow in the region of 8 per cent versus 8.2 per cent seen in FY22.

While a slowdown in demand hardly bodes well for power companies, the good part is that the receivables of power generating companies (gencos) will improve this year as power distribution companies (discoms) begin clearing their dues, Gupta and Madan said.

“Discoms’ total outstanding dues to gencos have been above Rs 1 trillion since September 2020. The government expects discoms to clear all dues by 2026 under the Late Payment Surcharge (LPS) Rules,” they said.

That process has already begun if the Power Minister RK Singh’s written reply to the Rajya Sabha on Tuesday is an indication. Singh informed the House that the total outstanding dues of discoms to gencos, which stood at Rs 1.37 trillion as on June 3, 2022, had reduced by Rs 29,857 crore to Rs 1.08 trillion now.

Singh also said distribution companies were paying their current dues (those that arose after June 3) in time to gencos to avoid regulations under the LPS rules, and had paid almost Rs 1.68 trillion in the last five months.

The LPS Rules regulate access to power in case of non-payment of dues by discoms to gencos. A surcharge is also levied on the dues, which increases the outgo for distribution companies, Gupta and Madan say.

"In August 2022, for instance, 27 discoms in 13 states were barred from accessing power exchanges for non-payment of dues,” they said.

Coal will also remain the mainstay of India’s power generation, Fitch said, as thermal power plants’ average plant load factor will remain above 60 per cent in the second half of the year. In the first half of FY23, the average plant load factor of thermal power plants was 64.5 per cent.

Coal accounts for over half of India’s installed power capacity of 409 Gw, according to estimates by Fitch and power analysts. This skew, however, will change as India makes the transition to non-fossil-fuel sources, the agency said. 

While 166 Gw, or 41 per cent of the 409 Gw, installed power capacity is renewable-energy based, this is likely to change as the government targets 500 Gw of power from non-fossil-fuel sources by 2030. By then, the total installed power capacity is likely to touch 820 Gw, experts said. This means that the renewable-energy based capacity of the total installed capacity will touch 60 per cent, they said.