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Business News/ Market / Mark-to-market/  Power utilities in 2016: Sober end to electrifying start
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Power utilities in 2016: Sober end to electrifying start

From about 9% in the first half of the year, generation growth slowed to less than 3% in July-November, triggering concerns about the demand environment

The seasonal slowdown in power demand could have weighed on electricity generation. Photo: Indranil Bhoumik/MintPremium
The seasonal slowdown in power demand could have weighed on electricity generation. Photo: Indranil Bhoumik/Mint

Just as demand was thought to be gaining pace, electricity generation lost steam in 2016. From about 9% in the first half of the year, generation growth slowed to less than 3% in July-November, triggering concerns about the demand environment.

True, generation did grow by an impressive 8.5% in November. But much of that growth is due to a favourable base. Also the September quarter results underscore weak demand trends with several large companies registering tepid generation volumes. NTPC Ltd’s thermal power generation grew by less than 1%. Adani Power Ltd’s volumes were flat.

The seasonal slowdown in power demand could have weighed on electricity generation. But the September quarter results also show weak power off-take by distribution companies. JSW Energy Ltd’s Vijaynagar power plant continues to see delays in signing of a power purchasing agreement.

The weak demand is impacting utilization levels. From about 63% in the first half of the year, the thermal power sector’s utilization levels fell to 57% in July-November. NTPC’s utilization levels fell from 77% a year ago to less than 75% in the September quarter.

While weak demand is afflicting the sector as a whole, 2016 has seen notable progress in resolution of long pending issues. NTPC began coal mining at Pakri-Barwadih mines, 12 years after allocation. CESC Ltd signed new power purchasing agreement for its Chandrapur power plant, tying up 80% of the plant’s capacity.

The Central Electricity Regulatory Commission (CERC) released its compensation formula for Tata Power Co. Ltd and Adani Power’s loss making plants. The formula does not compensate for the entire cost under-recoveries of these plants. But the companies are expected to seek changes and 2016 has seen a major step in resolution of this issue.

Captive coal is expected to lower NTPC’s costs, though analysts see noticeable benefits only from 2018-19 onwards. Similarly cost under-recoveries at CESC’s Chandrapur power plant will come down substantially with commencement of new power off-take agreements. “Currently, the Chandrapur plant has 80% PPA tied up, which would substantially reduce the loss in FY2017 compared to FY2016," Sharekhan Ltd said in a note. PPA is power purchasing agreement.

Of course the benefits of these developments will not be seen in immediate quarterly results. But resolution of these issues will help companies conserve earnings and prepare them for a demand recovery. A recovery in electricity demand will help the companies improve utilization levels and extract better returns from assets. But that seems some distance away.

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Published: 28 Dec 2016, 12:41 PM IST
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