Home / Industry / Electricity sector to recovery in FY22 after a dismal Covid year: ICRA

Staging a recovery from FY21, all-India electricity demand is expected to grow at 6%– 7% in FY22, according to a report by credit rating agency ICRA. After the decline of about 2.5% in the current fiscal, the year ahead is expected to benefit from a favourable base effect and likely recovery in demand from the commercial and industrial (C&I) segments.

As a result, the all-India capacity utilisation of thermal power plants is likely to improve to 57%- 58% in FY22 from the estimated level of 53% - 54.0% in FY21, the agency said.

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"Given the subdued thermal PLF, (plant load factor), lack of visibility in signing of new power purchase agreements (PPAs) for for power producers and modest tariffs in the short-term power market, the credit outlook on the thermal power segment continues to remain negative," said Sabyasachi Majumdar, Group Head and Senior Vice President of Corporate ratings, ICRA.

"As a result, the resolution of the stressed thermal assets in the private segment remains slow, with over 80% of the 40 GW stressed coal-based projects unresolved. On the other hand, the credit profile of the central power generation utilities is supported by the presence of long-term PPAs under the cost-plus tariff structure, and strengths arising out of sovereign parentage," he added.

The credit outlook also remains negative for the distribution segment, given the continued weakness in the financial position of most state distribution utilities (discoms).

Discom finances have been further constrained by the sharp decline in revenues from the C&I customers following lockdown restrictions. Discom losses are likely to remain at greater than 750 billion, ICRA predicted, given the inadequate tariff revisions, high distribution losses and additional interest cost on the loans availed under the liquidity support scheme

The bright spot in the power generation sector continues to be the renewable energy segment, which will be the main driver of capacity addition.

Girishkumar Kadam, Sector Head and Vice President, ICRA Ratings, said, "While the sector is facing execution headwinds for under-construction projects, regulatory challenges, mainly in Andhra Pradesh related to tariff renegotiation and risk of grid curtailments, the credit profile of majority of the ICRA-rated wind and solar power IPPs has remained stable, supported by the presence of long-term PPAs, implementation of must-run status across majority of the states, satisfactory operating performance, adequate liquidity buffer and a strong sponsor profile."

"Further, the realisation of payments from discoms under the liquidity scheme has also improved the liquidity profile of some of the wind and solar IPPs," he added.

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