India’s coal-fired plants are expected to operate at 62% plant load factor steadily for the whole of the fiscal, leading to a five-year high operating profits of the generation companies this fiscal.

According to a power ministry report, the PLF is expected to increase from an average 58-60% to a steady 62% matching the annualised power demand growth of 3.4% for the last five years.

While demand growth has outpaced thermal capacity addition, the existing capacities can match the demand growth if run at a higher PLF. High merchant power prices have prompted discoms to enter into term contracts with the gencos in the past 12 months.

The trend is further enhanced with the new central rule barring discoms to buy spot power from the exchanges if bills to the gencos are unpaid. This will likely push new capacity addition pegged at 7,000 megawatt (mw) this fiscal, a ministry official said.

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According to a Crisil Rating report, the annual coal-based capacity addition has been at 2% of the total installed capacity in the last five years whereas the demand growth for power has been at an annualised 3.4%.

A 7,000 mw of capacity addition would translate to a capacity growth of 3.5%, against a 6% power demand growth on the back of an estimated 7.3% GDP growth.

As the demand growth outpaces the growth in capacity addition, private sector generation aggregating 73,000 MW would be benefitted the most with merchant power still remaining upbeat, the Crisil report said, adding there would be an improvement in the credit risk profile of such merchant power plants, which might aid in thermal capacity addition by private sector players.

Private players in the last five years have been averse to adding coal-based capacities as the Centre had planned to meet 50% of the demand from renewables. But, renewable addition would meet less than one-third of the demand and coal-based gencos need to fill in the gap, the ministry official said.

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Power demand has been growing at 15-20% month-on-month in energy terms since August-September last year onwards, the power ministry reported.

According to the Central Electricity Authority (CEA), Coal India (CIL) has been supplying coal to the thermal power stations at 85% PLF and improved supplies from CIL helped the stock stabilising at power plants.

Closing stock for the month of August is at six-year high, barring 2020 when pandemic fuelled slowdown saw the stock at 37.7 mt. CIL’s supplies to power sector at 243.3 million tonnes (mt) achieved 108% of annual action plan (AAP) target of 225.4 mt, progressive till August FY23. Supplies overshot the target by nearly 18 mt. Therefore, coal doesn’t seem to be a problem this fiscal for generation in higher PLF.