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New UserThermal power capacity utilization to decline further
20 Feb 2017
Outlook for the power sector remains stable to negative for FY18 according to
India Ratings and Research (IndRa). This is despite improvement in coal availability,
restructuring of discom debt and operationalisation of stuck projects.
In a statement IndRa said: “Large underutilised capacities, muted demand, bunched
capacity addition, soft merchant power prices, continued investments in renewable
capacities, lack of power purchase agreements (PPAs) and weak discoms were the reason
for the negative outlook.
IndRa has maintained stable outlook on most of its rated power sector entities for FY18,
since it expects its rated entities to continue to manage fuel and state power utility risks due
to a favourable tariff mechanism, a comfortable liquidity position and support from central
and state governments.
Credit profiles of large power companies appear to have stabilised, though the sector’s
return on capital employed remains unattractive, the IndRa report said. However, small
private companies are the worst hit. With a sub50% capacity utilisation, they have a high
probability of debt default. Under the current scenario, the survival of such players is not possible. There is a possibility of sector
consolidation, which could be triggered by the new bankruptcy code feels IndRa.
IndRa expects the capacity utilisation of coalbased power plants to decline further in FY18 and rise thereafter, though they would
continue to remain under 65% until FY22. India added nearly 115 GW of coalbased capacity over FY119MFY17.
However, demand growth did not keep pace with such capacity addition. This has put pressure on the capacity utilisation of coalbased
thermal power plants. In the past, coal and discom financial health were the two key constraints to the overall PLF. However, demand,
solar capacity addition and discom financial health will be the major factors putting pressure on PLF in future.
IndRa believes nearly 45GW of private sector coalbased capacity running at sub50% capacity utilisation is currently stressed, with a
debt of nearly Rs 1.9 trillion. The private sector has been hit harder due to lack of power purchase agreements for the entire capacity.
Earlier, the private sector kept a part of the capacity untied due to high shortterm prices. The PLF of the private sector’s coalbased power
plants fell to 56.3% in 9MFY17 from 83.9% in FY10.
Given shortterm power prices are likely to remain benign and discoms’ unwillingness to sign power purchase agreements, these
capacities are unlikely to see an increase in capacity utilisation.
According to Central Electricity Authority estimates, 50GW of capacity has a high probability of getting commissioned over FY18FY22.
Central and state power utilities account for 60% of the 50GW capacity, followed by the private sector (40%). PPAs have been signed for
the capacity belonging to central and state power utilities. This will put further pressure on the coalbased capacity of private power
generators.
Solar power tariffs across the world declined to USD24MWh compared the lowest solar power tariff of USD48MWh in India. Given the
wide difference, IndRa believes there is ample room for domestic solar power tariffs to fall. This belief is more likely as solar panel prices
fell 15% in 2HFY16. Solar power tariffs globally are a function of strong counterparty, higher PLF, single axis tilt use and lower borrowing
cost. Moreover, battery storage advancements worldwide could alter solar power economics and make solar a more price and consumerfriendly
energy
Source:Economic Times