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Rating agency Icra said that its outlook for thermal power sector has been upgraded to ‘stable’ from ‘negative’ as the thermal plant load factor (PLF) has improved in FY23 and it is likely to progress in FY24. In addition, the rating agency said that overdues from state distribution utilities’ (discoms) have declined.
The rating agency said that PLF improvement is driven by robust recovery in electricity demand growth in the country and a sustained growth is expected to improve the visibility of new power purchase agreements (PPAs) for the thermal IPPs (independent power producers).
“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,” said Vikram V, Vice President & Sector Head – Corporate Ratings, Icra. Vikram also said that the full-year demand growth for FY2023 is estimated at 9.5-10%, and it is likely to moderate to 5.5-6% in FY24.
Further, the power generating companies are benefiting from the realisation of overdues from discoms under the Late Payment Surcharge (LPS) scheme notified by the Ministry of Power in June 2022, Icra noted. The dues from discoms have declined from Rs 1.3 trillion as of May 2022 to about Rs 0.6 trillion as on March 1, 2023, according to data from the PRAAPTI portal.
Vikram added that this is a near-term positive for generation companies, but a sustainable improvement in payments is linked to improving the financial profile of the discoms and it remains a key monitorable from the outlook perspective for the thermal segment.
Coal Prices and Supplies
The higher demand and increase in tariffs in the short-term market have boosted profitability for thermal IPPs during April-December period of FY23 and it has offset the price rise of coal in the open market.
Icra stated that the coal stock level at power plants is witnessing a gradual improvement and was at 12 days (approx.) as on February 28, 2023, and it remains half of the normative stock level of 24 days (approx.).
As the electricity demand rises in the country during the summer season, the increase in coal supplies on a sustained basis remains important to ensure uninterrupted power supply. Hence, the Ministry of Power has issued an order in January 2023, directing coal-based power projects to import and blend coal to the extent of 6% of the fuel requirement till September 2023.
Cost Pressure On Discoms
“The discoms in 17 out of the 28 states have filed tariff petitions for FY24, indicating moderate progress,” Vikram said. He added that the median tariff hike proposed for FY24 stands at 5.0% compared with 1.9% median hike approved for FY23.
Moreover, the upward pressure on the cost of coal supply due to increased use of imported coal and higher tariffs in short-term tariffs as well as rising interest costs towards the loan availed under the LPS scheme, will result in cash gap per unit remaining high at more than 60 paise per unit for state-owned discoms at all-India level in FY23 and FY24, he stated. In this scenario, timely issuance of tariff orders with adequate tariff hikes by the state electricity regulators remains important.
Nonetheless, Icra’s outlook for power distribution segment remains ‘negative’. The progress in improving the operating efficiencies, realisation of dues from respective state governments and government institutions, and timely pass-through of cost variations to customers through regular tariff revisions are key to improving the financial position of discoms and its sustainability.
Stocks To Watch
Some of the top power generation and distribution companies are as follows: NTPC, Power Grid Corp., Adani Transmission, Adani Power, Tata Power Company, JSW Energy, Torrent Power, SJVN, NLC India, CESC, Kalpataru Power Transmissions, Reliance Infrastructure, Jaiprakash Power Ventures, Reliance Power, NAVA, Techno Electric & Engineering Company, PTC India, and RattanIndia Power.