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ICRA’s outlook on thermal power segment
With govt policy of har ghar bijli the power sector is on improvement. Let’s know the details:
ICRA’s outlook for the thermal power segment has been revised to Stable from Negative, supported by the healthy improvement in the thermal Plant load factor(PLF) level in FY2023, which is likely to sustain in FY2024 and the reduction in dues from state distribution utilities (discoms).
The PLF improvement is driven by the strong recovery in electricity demand growth in the country. The all-India thermal PLF level is expected to improve from 58.9% in FY2022 to 64.0% in FY2023 and further to 65.5% in FY2024, led by healthy demand growth and limited thermal capacity addition.
The full-year demand growth for FY2023 is estimated at 9.5-10%, which is likely to moderate in FY2024, though remaining healthy at 5.5-6.0%. India still meets 65% of its power requirement with thermal.
India’s dependence on thermal power is expected to reduce to 50 percent by 2021-22 and 43 percent by 2026-27 on the back of renewable energy (RE) capacity additions. India has the 5th highest installed thermal power capacity Globally.
The Indian power sector is forecasted to attract investments worth $128.24-135.37 Bn between FY19-23. The future of the sector looks bright since by 2026-27 the country’s power generation installed capacity will close to 620 GW, of which 38% will be from coal and 44% from renewable energy sources.
As of May 2022, India has a total Thermal installed capacity of 236.1 GW of which 58.6% of the thermal power is obtained from coal and the rest from Lignite, Diesel, and Gas. Share of non-fossil fuel-based generation capacity in the total installed capacity of the Country is likely to increase from 42% as of October 2022 to more than 64% by 2029-30. The private sector in the power industry in India generates 49.4% of the country’s thermal power, whereas States and the Centre generate 24.6% and 26.0%, respectively.
Advantages:
Discoms in several states is clearing the outstanding dues to the power generating companies through installments of 12-48 months with funding support from the PFC and the REC, following the notification of the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022 (LPS) by the Ministry of Power. This will improve their financial profile.
Healthy growth in electricity demand (10.7% YTD) leads to higher demand for thermal power. Peak demand reached an all-time high of 216 GW in April 2022 against 203 GW in FY2022 & 190 GW in FY2021.
The peak demand is expected to increase to 225-230 GW in FY2024, with expectations of a sharp rise in demand during the summer season. Thermal generation reported a 9.4% growth in 10M FY2023 to meet the growing demand. Improved visibility on new PPAs; 4.5 GW medium-term PPA tender notified by PFC based on requisition from discoms.
The bidding parameter under this tender would be the tariff quoted, comprising fixed and variable charges. The variable charge component would include the cost of fuel and transportation. The fixed charges shall be revised annually to reflect 20% of the variation in WPI. The variable charges will be linked to the coal price notified by CIL/SCCL and the transportation charges notified by Indian Railways.
Higher prices in the short-term market; average tariff of Rs. 5.9 per unit in 10M FY23 vs 4.4 in FY22 & LT avg of 3.5/unit Realisation of overdues from the discoms under the LPS scheme .
Disadvantages:
Elevated international coal prices; negative for imported coal-based units without fuel cost pass-through Supply side constraints in meeting domestic coal demand which is why much of coal is imported.
The coal stock level at power plants is witnessing a gradual improvement, though remaining below the normative stock level of ~24 days. Stocking up coal before the onset of summer demand remains important to avoid any loss of availability or higher dependence on imported coal which is costly.
International coal prices have stayed elevated since the Russia-Ukraine conflict in February 2022 and the uncertainty in coal prices is likely to persist till geopolitical tensions ease. Spot power tariffs show a sharp increase in FY2023 over historical trends. 10M FY2023 price is at Rs. 5.9 per unit against the long-term historical average of Rs. 3.0 – 3.5 per unit and Rs. 4.4 seen in FY2022, owing to the sharp revival in electricity demand along with the supply-side constraints arising from the high international coal prices impacting utilization of imported coal-based units and the subdued domestic coal stock level.
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