Thermal power sector starts seeing gains from slow capacity additions
Data shows an improving scenario for the thermal power sector. But the benefits are contingent on improvement in fuel availability and steady demand growth
Renewable energy may have taken some of the wind out of the sails of the thermal power sector. But if the latest data points are anything to go by, thermal power is beginning to see the glimmer of a recovery.
Thermal power generation in the seasonally strong month of May grew by an unexciting 5%. However, slowing thermal capacity additions and a steady rise in overall demand means that utilization levels at thermal power plants are rising (see chart).
Importantly, utilization or plant load factors for the thermal power sector have expanded on a cumulative basis—April to May 2018. Utilization levels rose as growth in capacity additions slowed to the low single-digits, as the chart alongside shows.
Considering the fact that thermal power caters to most of India’s electricity needs at present and a limited number of plants are being built or are in the pipeline, the country may end up in a tight supply situation in three-four years if battery storage does not become cost-effective (making renewable energy accessible round the clock), says Sanjay Jain, senior vice president (institutional research) at Motilal Oswal Securities Ltd.
True, renewable energy has become quite competitive due to falling project costs. But lack of affordable battery storage solutions means thermal power continues to cater to the core base demand. Of course, the thermal power sector has a lot of ground to cover—plants are still operating at two-thirds capacity on an average. But if demand continues to grow, utilization levels can expand steadily, adds Jain.
That should benefit companies such as NTPC Ltd, which have a large production base with power purchase agreements.
But one factor that can emerge as a headwind is fuel availability. Lack of sufficient availability of fuel has crimped generation at some of NTPC’s power plants in recent months.
Even as NTPC claims improvement in the fuel supply situation, the larger question of whether domestic sources (Coal India Ltd) and infrastructure (railways) are capable of meeting the rising coal demand from power plants remains, if utilization levels increase to 75% or so. For all the recent efforts, a significant number of power plants continue to run at critical and supercritical levels of coal stock—the number stood at 25 as of end May.
In conclusion, the data shows an improving scenario for the thermal power sector. But the benefits are contingent on improvement in fuel availability and steady demand growth.