Thermal power capacity addition to fall by 60% in 5 years: report
Lenders are reluctant to extend further capital to fire-up stuck projects as future of many of these is uncertain
Mumbai: Capacity addition in thermal power generation will slow down over the next five years to less than half the current pace, said ratings agency Crisil in a report.
The report, given exclusively to Mint, expects only about 35 gigawatt (GW) of new coal-fired power plants to be added to India’s power generation portfolio from FY19-23. In contrast, India added 88 GW of capacity in the preceding five years.
These numbers refer exclusively to thermal power and not renewable energy, where India has a target of adding 100 GW over the same 5-year period.
Crisil attributes the slowdown in capacity addition largely to two factors. In the private sector, large capacities that are under construction are stuck because of the financial muddles that promoters find themselves in. Second, new project announcements are limited as players with the appetite to add capacity are opting to buy out some of the bankrupt assets that are available at reasonable valuations.
Lenders have proved reluctant to extend further capital to fire-up stuck power projects as the future of several of these is uncertain and many risk liquidation. In September, Mint had reported that banks had decided to refer massive bad loans in the power sector to the National Company Law Tribunal, after failing to settle these outstanding liabilities with one-time settlements.
On 12 February, the Reserve Bank of India (RBI) issued a circular setting a 180-day deadline starting 1 March for banks to resolve large corporate defaults, failing which all these companies must be taken to bankruptcy courts. At ₹1.74 trillion, power accounts for a large chunk of these bad loans. The list of bad assets in power included Jaiprakash Power Ventures (outstanding loans of nearly ₹24,000 crore), Prayagraj Power (loans of ₹8,096 crore) and GMR Chhattisgarh Power Project (₹8,340 crore).
“Crisil Research expects approximately 85% of the total 35GW capacity additions between fiscals 2019 and 2023 to be coal-based, led by a large number of planned projects that are at advanced stages of completion and have some sort of fuel supply and off-take arrangements already in place,” the report said. “In spite of this, all these projects are expected to face ambiguity over fuel supply as well as power offtake on account of the supply surplus situation prevailing in the sector. There will not be any significant gas-based capacity additions over the next five years on account of severe constraints in domestic gas availability,” it said.
A recovery in power demand may give this sector the lifeline it’s looking for. Power demand clocked a compound annual growth rate of 3.8% over the last five years, riding on improvement in energy efficiency and reduction in transmission and distribution losses, but also saw power cuts and load shedding because of the weak financial health of distribution companies and lack of intensive electrification. Over the next five fiscals, however, the report estimates power demand to escalate to a CAGR of 6.5-6.8% because of high latent demand, rapid urbanization, and the government’s thrust on rural electrification.
Despite the government’s focus now being on renewable energy instead, India may fall short of its targets in this space as well.
In August, Mint had reported that the country may fail to achieve its ambitious target generating 100GW solar power by 2022. The best-case scenario would be for us to reach production capacity of 78-80GW.
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