The December quarter is expected to be encouraging for thermal power companies with gradual recovery in demand and higher electricity prices in the spot market. Analysts pointed out that the market scenario in Q3 should have provided some respite to coal-based power generating units, long mired by low capacity utilisation due to tepid rise in electricity demand and overcapacity. Coal-based power plants generated 767 billion units (BUs) of electricity during April-December, which is 3.9% higher than the year-ago. Since electricity cannot be stored, generation is the most robust indicator of demand. There has been a significant improvement in capacity utilisation of such plants as well. Plant load factor (PLF) in the April-December period was 63.8%, which is more than four percentage points higher than the corresponding nine months of FY17. “Residential demand, driven by consumer durables, remains a driver, though our industry interactions suggest even industrial demand has seen some uptick,” said a recent report by Jefferies India.
State run NTPC is expected to gain significantly from rise in generation. The company produced 67.8 BU in Q3 — its highest ever quarterly generation till date, which is 10.4% more than the production in the corresponding quarter in FY17. “NTPC is estimated to report 15% year-on-year earnings growth following improvement in generation volumes on account of commercialisation of capacity,” a note by Edelweiss Securities said. The spike in spot electricity prices turned out to be good news for thermal power companies which sell electricity in short-term markets. Average rate of electricity in the Indian Electricity Exchange (IEX) in Q3 was Rs 3.5/unit, which is 95% more than more than the price of electricity in Q3FY17. “JSW Energy’s profits are expected to remain robust, led by a 4% growth in generation volumes on account of higher merchant sales,” Edelweiss said.
According to research agency Icra, 15.6 giga watt (GW) of coal-based operational power plants are dependent on the short-term market as financially troubled electricity distribution companies (discoms) have refrained from signing mid- and long-term power purchase agreements (PPAs) since the last four years. Companies with power plants having exposure to the merchant market include Adani Power, JSW Energy, Jindal Power, Torrent Power, Essar and Sembcorp.
Spot prices of electricity at the IEX had skyrocketed in September-October due to a sudden surge in demand from state-owned discoms. This happened because about 4 GW of wind, nuclear and hydro plants were not able to generate electricity due to climatic reasons and maintenance activities in the period.