Capacity utilization, or plant load factor, in the thermal power sector continues to drop. For April to August, the reading was 60%, compared with 64-70% in the last three years. If the current trends continue, the thermal power industry’s utilization levels can hit another low in 2015-16, especially as the peak electricity consumption season is behind us.

The utilization levels of the sector have been on a steady decline since 2009-10, as the accompanying chart shows. The last time the industry saw such low utilization levels was 15 years ago. The key reason for the falling capacity utilization is subdued demand.

In the three years till March 2015, the installed generation capacity rose at an annual average pace of 13.7%. Consumption grew just 6% every year. This tepid demand growth is of course due to the pathetic financial condition of the state electricity boards, the biggest buyers of electricity. They are restricting purchases and supplies, suppressing consumption. While the Central Electricity Authority’s official numbers put the country’s energy deficit at a happy 4%, the actual deficit could be as high as 15%, ratings agency ICRA Ltd estimates.

Unless the state governments rationalize tariffs and address distribution bottlenecks, the power offtake may not see a noticeable improvement. While the issue has been lingering for some time now, large unutilized capacities do not bode well for power generators. As seen in the last couple of quarters, companies will be forced to run their plants at sub-optimal levels, which, in turn, can crimp their revenue and return ratios.

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