Solar capacity add to be slow next year, before renewables take over India’s future power generation

By: | Updated: January 28, 2019 11:45 AM

Most of India’s new power generation capacity in future will be from renewable energy sources, as investments in thermal power capacity remain sluggish and availability of coal continues to be a challenge, India Ratings said in a report.

The Indian power sector is reeling under stressed finances, low plant load factors, unavailability of coal for power generation and lack of long term power purchase agreements with the distributors.

Most of India’s new power generation capacity will be from renewable energy sources going ahead, even as solar capacity addition may remain sluggish in the immediate future. Renewable energy will form a major part of the new power capacity as investments in thermal power capacity remain sluggish and availability of coal continues to be a challenge, India Ratings said in a report.

This, despite an expected rise in coal-based utilities’ capacity utilisation (PLF or plant load factor) to 62%-63% in the next financial year 2019-20. However, solar capacity addition in the next financial year 2019-20 will remain flattish, as costs rise but tariffs remain guided by the ceiling proposed by Solar Energy Corporation of India, the report said.

While the solar power producers remain constrained in raising tariffs above the ceiling, India Ratings does not expect tariffs to fall below Rs 2.44 per unit either, given high costs. “Costs have been rising over the last year due to the implementation of the safeguard duty on solar modules, rupee depreciation, hardening cost of capital and higher land prices,” it said.

The Indian power sector is reeling under stressed finances, low plant load factors, unavailability of coal for power generation and lack of long term power purchase agreements with the distributors, among other issues. These are some of the reasons why India Ratings has maintained its ‘stable-to-negative’ outlook on the power sector for FY20, it said.

“The stable-to-negative outlook continues to reflect Ind-Ra’s expectation of a slower-than-expected resolution of the stressed capacity, domestic coal availability challenges, and limited appetite of discoms to sign long-term power purchase agreements,” the report said.

On the flip side, India Ratings expects power demand to grow at a 6%-7%, and coal-based PLFs to rise to 63.5% in FY20. However, this won’t help much in raising the outlook on power sector. The rise in coal-based capacity PLFs is dependent upon the availability of domestic coal.

“Coal India increased its output by 7.4% (in first nine months of FY19); however, given the historical coal production growth rate of 4% and a higher base, Ind-Ra believes continued production growth rate of 7%-8% could be difficult to achieve in FY20. This would result in increased reliance on imported coal,” it said.

  • First published on 24 January 2019 on www.financialexpress.com

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition