Thermal plants to operate below 53% capacity in FY21 as power demand dips

The Plant Load Factor (PLF) of thermal power stations across the country is projected to dip below 53 per cent in this fiscal. Muted power demand from industrial units and commercial establishments will shrink capacity utilisation, said a study by CARE Ratings.

The Covid-19 induced lockdown, which came into effect from March 25, brought many business activities across the country to a near standstill. Mining was classified as an essential industry and allowed to remain operational through the lockdown period.

However, production was impacted due to a shortage of labour as many left for their native places in the wake of the pandemic. Besides, the halt in business activity sharply reduced the demand for power. Almost 70 per cent of power generation in India is coal-based.

Power sector consumes about 70 per cent of total coal produced in India. Electricity generation (excluding renewables) fell 25.4 per cent year-on-year (y-o-y) to 81.5 billion units in April with thermal PLFs facing larger impact than renewables given the higher variable costs and must-run status to renewables, nuclear and hydro power generation. Coal-based power generation fell by a sharper 31.7 per cent y-o-y in April 2020. Thermal PLF declined to 42.4 per cent in April 2020 on account of lower demand.

“Inventories of coal at thermal power plants have sharply risen in the last three months and power utilities are now refraining from purchasing more coal. As on June 1, inventory of coal with power plants stood at 49.5 million tonnes, sufficient for 29 days. This is more than the Central Electricity Authority (CEA) mandated 22 days stock. Moreover, coal stocks at CIL’s (Coal India Ltd) pit-head alone stood at about 75 million tonnes as on April 1, according to the company”, the report from CARE Ratings noted.

Owing to surplus availability in the domestic market, imports of non-coking coal are expected to tumble in this fiscal. Premiums at recent electronic auctions conducted by CIL have tapered to almost nil, which along with relaxed payment terms, is benefiting coal purchasers. Coal demand from thermal power stations is set to remain subdued given the high inventory levels and lower PLFs.

Aside from thermal coal, coking coal imports are also expected to come down amid expectation of fall in crude steel production in FY21. Global steel production is expected to contract by nearly six per cent during calendar year 2021 which is likely to keep the coking coal prices in check.