Electricity demand is likely to remain tepid at around 6 per cent over next five years owing to reducing electricity intensity in GDP, rising efficiency and falling technical losses, says a report.
Electricity demand is likely to remain tepid at around 6 per cent over next five years owing to reducing electricity intensity in GDP, rising efficiency and falling technical losses, says a report. Revival of power sector seems to be bleak despite various schemes being undertaken by the government, warns a report by domestic rating agency Crisil.
A large proportion of coal-based power capacity in the private sector are stressed due to multiple factors, and will remain in duress for a long time despite a raft of alleviation measures from the government, the report said.
“As of August, around 21 gw of commissioned private sector capacity based on coal were under stress for lack of long-term power purchase agreements (PPAs) or because of poor/no offtake. With demand growth expected to remain tepid, outlook for these plants is bleak for at least next few years,” Crisil warned.
In addition, a large number of plants-adding up to around 35 gw capacity are smarting due to issues such as lack of fuel supply agreement or coal linkage, unviable tariffs due to increase in cost of imported coal, project cost overrun due to delay in commissioning, and high receivables due to weak financial condition of procurers like state power distribution companies or discoms.
While the Shakti and Uday schemes are expected to alleviate stress related to fuel supply and delayed payments, finding offtake will be a huge challenge, it said.
“Getting discoms to sign new long-term PPAs that ensure stable offtake is going to be challenging,” Prasad Koparkar, senior director at Crisil said.
“We do not expect discoms in major states like Maharashtra, Gujarat, Tamil Nadu and MP to sign fresh long- term PPAs before 2020 based on demand projections in tariff filings,” the report said.
As per the report, to add to the woes of coal-based power producers, renewable energy capacities are being commissioned at a scorching pace, adding to the surplus.
This will also result in higher operating costs for coal based plants due to frequent cycling to balance demand thereby putting further strain on their finances. All this means the plants’ debt service obligation will suffer, and thereby impact lenders.
“Buyers are not showing interest in acquiring stressed assets due to the absence of firm power offtake agreements. Thus, very deep haircut or write-down may be required, for such assets to become viable,” Rahul Prithiani, a director at Crisil said, adding consequently, consolidation will also be slow.