India may produce surplus power in FY18 even as outages continue: Fitch

Subdued demand growth, consistent capacity additions and better networks is leading to this surplus

India may produce surplus power in the current financial year but sporadic outages continue to plague the country and 24 per cent households are yet to be electrified, Fitch Ratings has said.

A combination of subdued demand growth, consistent capacity additions and relatively better networks is driving a widening surplus at energy exchanges, Fitch said in its newsletter, 'India Power Watch'.

India could actually produce a power surplus in the financial year ending March 2018, with an energy deficit of just 0.6 per cent in the first three months of 2017-18 - a period of usually high seasonal electricity demand, it said.

"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 said.

The credit rating agency said the inability of financially stressed power distribution companies to purchase power, along with the absence of adequate network coverage, exerts significant downward pressure on India's thermal power utilisation.

The cost-revenue gap remains at Rs 0.42 per kilowatt hour (kWh) along with aggregate technical and commercial (AT&C) losses of 20.6 per cent (for 24 states).

"Improving these operational inefficiencies will drive any sustainable improvement," it said.

On the other hand, the government exceeded its target of setting up transmission lines again in 1H17, helping addressing power woes.

Electricity prices at exchanges dropped by 11 per cent to Rs 2.4 per unit (kWh) in 2016-17.

"Tariffs are taking a hit mainly from the prevailing electricity demand-supply dynamics, lower coal costs and a decline in renewable tariffs," it said.

According to Fitch, distribution utilities are shying away from signing new long-term power purchase agreements (PPAs) for both thermal and wind capacity - while awaiting clarity on the auction route for wind power, supported by the availability of cheaper spot electricity.

The new tariff-based auction for wind power yielded prices of Rs 3.5 per kWh (or unit) in February 2017, down from the lowest regulatory tariff of Rs 4.2.

Solar tariffs also hit a new low of under Rs 3 a unit in May 2017 - making solar the cheapest source of electricity in the country.

However, any near-term variations will be driven by changes in Chinese solar module prices.

India added 25GW of capacity in FY17, of which 58 per cent was renewable - a record-breaking contribution.

Plant load factor, or maximum output, at coal-fired plants fell 2.1 percentage point to 60 per cent in the first half of 2017, with the gas based PLF dropping by 1.9 percentage point to 22 per cent.