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Plant load factors (PLFs) of power companies are unlikely improve in FY17 from the 61.7 per cent average over the first nine months of FY16, the ongoing year, says India Ratings & Research (Ind-Ra).
This is despite an improving fuel supply it says, as demand growth for electricity is expected to stay muted.
The all-India PLF for thermal plants have fallen 21.5 per cent since the peak of 78.6 per cent in FY08. Ind-Ra expects electricity demand to grow by four to five per cent and generation by five to six per cent in FY17. The country added 80 Gw of coal-based generation capacity over FY11-15, giving room for higher generation, with the improvement in coal supply and lower global coal prices.
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Industrial demand, 40 per cent of the total, has seen muted growth. The current focus on more use of more efficient devices is also said to be leading to lower demand growth.
In its recent ‘Corporate Outlook FY17’ report, Ind-Ra has maintained a stable to negative outlook on the power sector and a stable outlook on most of its rated entities in the segment. It says it expects its rated entities will continue to manage fuel and state power utility risks, owing to a favourable rate setting mechanism, comfortable liquidity and support from the central and state governments.
Ind-Ra expects industrial demand growth to stay at four to five per cent in FY17. The residential segment is likely to see seven to eight per cent. Agricultural demand is likely to grow by two to three per cent — it would depend on the monsoon and change to more of energy-efficient pumps. The government’s initiative for rural electrification would serve a social objective but real demand pick-up is unlikely in the short term as these would be low consumption centres, says the report.
Yet, given the installed capacities, increased coal output and the lower imported coal price, there is potential for higher generation growth. As demand is unlikely to increase significantly, the generation growth is unlikely to exceed five to six per cent in FY17 (it was 4.6 per cent in the first eight months of FY16 and 8.4 per cent in FY15). So, supply deficits are likely to remain low, at 40-45bn Kwh. Generation capacity is 5.1 Gw.
It is possible that merchant power prices will remain low and units with high cost of production might find it difficult to despatch power. As there is idle coal-based capacity of 18-20 Gw and these units are operating at sub-optimal PLFs (61.7 per cent average), it would be easy to cover the deficits.
Lower PLFs have resulted in lower incentives for regulated generators, as these are linked for the FY15-19 period, compared to the earlier availability-based ones. Additionally, a low PLF would lead to lower than benchmark operating parameters for station heat rate and secondary fuel consumption. Financially weak distribution companies have preferred load shedding rather than supplying power, as they are incurring losses on every unit of power supplied. The average revenue gap was Rs 1.14 a unit in FY14, from Rs 1.27 a unit in FY13.
