Lower demand may pull down power sector growth

The growth of the power sector during the July-September quarter might be muted due to poor demand from distribution companies (discoms). This has resulted in decline in plant load factor (PLF) of coal-based power plants to 54.7 per cent in the second quarter (Q2) while it stood at 59 per cent, year-to-date. 

The demand for discoms is likely to be pushed back further with Ujwal Discom Assurance Yojana likley facing implementation delays. 

Analysts at the Religare expect NTPC to report flattish growth in thermal output and lower PLF. With a 27 per cent fall in thermal power generation in Q2, JSW is likely to be hit by rising cost of imported coal and rupee depreciation. 

JM Financial says NTPC’s earnings growth is expected to be in line with its regulated equity growth, but core return on equity would be impacted by lower PLF. 

JSW will be impacted by low PLF at its most profitable merchant plants. However, hydro-plant earnings will cushion this impact partially. 

Ashok Khurana, director-general of Association of Power Producers, told Business Standard: “The progressive decrease in average PLF, from 69.93 per cent in 2013-14 to 65.67 per cent in 2014-15 and currently at 64 per cent, along with lack of fresh long-term power purchase agreement (PPA) opportunities, is a matter of great concern for generating companies. The problem is compounded further by the inordinate delay in announcing the coal allocation and usage framework as the earlier framework ended in March 2015. Looking at the surplus position of coal, the new coal allocation and usage policy framework should remove the restrictions imposed on coal usage, facilitate medium-term PPAs and allocate coal linkages for all PPA holders co-terminus with their PPAs. The easing of coal usage restrictions will alleviate the stress to some extent.” 

As far as the transmission sector is concerned, Religare expects PowerGrid Corporation to report revenue growth of 26 per cent and profit after tax growth of 27 per cent, year-on-year, led by strong commissioning in FY16.