Power sector to report weak Q2 numbers on low offtake

Utilisation levels of power plants under pressure as capacity addition increases 11% y-o-y but supply grows only 6%

That the power sector is faced with debilitating supply-side issues (availability of coal and gas) has been discussed ad nauseam. But with economic growth falling to sub-five per cent levels, the sector is seeing a sharp slowdown in demand from one of its most profitable segments - industry. In India, industry subsidises power for segments such as domestic and rural. With industrial growth contracting, the demand for power is down from industry, even as the sector continues to add new capacity.

In FY13, the country saw 11.7 per cent increase in power generation capacity but supply grew by only six per cent. Compared to last year, power generation grew 8.3 per cent in this year's second quarter (Q2) and 3.26 per cent in the first quarter. Compared to last year, generation had more than doubled in the second quarter, but offtake of power languished. Between April and August, demand from industrial and commercial consumers fell sharply. The share of industry in overall power consumption was 62 per cent last year but it down to 44 per cent this year. According to ICICI Securities, if power demand grows at five per cent (adjusted for benefit of reducing the aggregate technical and commercial losses) untied capacities (high marginal cost), gas-based capacities and even part of linkage coal capacities would face lower utilisation. An extended monsoon has also affected demand for power.

Other than slowing demand, the financial health of most state-owned distribution companies remains fragile, which has affected their ability to buy power. Thus, states are opting for load shedding. The plant load factor (PLF) of thermal plants between April and August had declined to 64 per cent from the 70 per cent seen during the same period last year.

Offtake of power is now becoming as critical as the availability of fuel. If power consumption continues to grow at five-six per cent yearly, the generators will continue to function with lower PLF. Analysts say demand for power has to grow at nine per cent, if coal-fired power plants have to achieve 75 per cent PLF. Weak power offtake would hurt high-cost power plants, which are functioning on expensive imported coal or gas. Weak demand for power is also reflected in muted merchant power prices, which declined 16 per cent in Q2. A lot of these issues would be reflected in the second quarter numbers of power companies. According to SBICAP Securities, Powergrid and CESC might fare better than others in Q2. The brokerage expects JSW Energy to report weak numbers, mainly because of backing down by discoms. NTPC, too, is expected to report flat growth in generation and a 11.1 per cent fall in sales and 26 per cent fall in net profit.