Mumbai: Capacity utilization of generation assets in the power sector continues to drop and scope for improvement in capacity utilization is expected to be limited, highlighting a supply glut in the power sector, according to a Kotak Securities report.
“Power demand has grown at a CAGR (compounded annual growth rate) of 3% over the past five years, which means that supply will continue to outstrip demand and keep capacity utilization in check,” Kotak Securities analyst Murtuza Arsiwalla said in an 18 April report.
All India power volume, excluding renewable energy, rose 5.5% in the month of March to 101.8 billion units and 4.7% for FY17, according to an Elara Capital report this week. Coal-fired volume rose 6.5% to 83 billion units in March, while plant load factor (PLF) dropped 34 basis points to 63%, the Elara report said. “In March, coal-fired volume is up 6.5% but gas is down 9% and hydro is up by 12%. Government volume is up 8% and private IPP (individual power producer) volume rises by 1,” the report said.
India currently has about 320 gigawatt (GW) of installed power capacity compared with peak demand of about 160 GW, and about another 87 GW of assets are under construction.
Over 60% of this total installed capacity is coal-based, 16% is in renewable energy, 14% in hydropower, 8% in gas, and the remaining in nuclear and diesel. The private sector owns 44% of the total installed power capacity in the country, while the government controls the remaining.
Total loans worth Rs1.2 trillion toward the power sector are currently at risk with an upside risk from cases where power purchase agreement (PPA) tariffs are high, there is an overleveraged parent balance sheet and where PPA rate is unprofitable, according to an 8 March report by JM Financial. About 28,000 megawatt (MW) or 28 GW of power capacity lacks PPAs and about 14GW of these are at a high risk, the report had said.
With improved cash flows, the power sector may witness revival in demand by state distribution companies (discoms), but incremental benefits could accrue over the next two-three years, Emkay Global Financial Services Ltd said in a 3 April note.