NTPC Ltd has ended FY19 on a high note. The company commercialized capacity of 910 megawatts (MW) last week and, according to JM Financial Institutional Securities Ltd, is in the process of commercializing two more units with a combined capacity of 1,600MW.

Of course, project commissioning is still behind schedule. Requests by power distribution companies to align their schedule with demand delayed commercialization of capacities, NTPC told analysts.

Even then, the new plants will add to the regulated business, where the company is assured of fixed return on equity. JM Financial estimates the new plants to add 10% to NTPC’s regulated equity base.

There has also been a notable improvement in fuel availability in recent months. Part of the company’s incentive income is contingent on the availability of power. A tight domestic coal situation impacted availability of certain plants in FY18. This resulted in fixed cost under-recovery. The situation has improved in the March quarter.

From a mere three days equivalent of coal stock in November 2018, fuel levels at NTPC’s non-pithead plants improved to 26 days in March, points out JM Financial. The improved supplies can reduce the losses related to insufficient fuel availability (fixed cost under-recovery).

“After a rapid depletion of coal stocks in September-October 2018 driven by a) spike in power demand and b) muted coal supply, NTPC’s coal stocks have gradually recovered as power demand remained low at around 1.2% in January-February 2019 (vs. 5-6% average), while coal supply improved," analysts at JM Financial said. “Generation loss from coal shortage is down by 70% quarter-on-quarter, which implies lower fixed cost under-recoveries from 4QFY19."

The new capacities and improved fuel supplies will ensure a good start to FY20 for NTPC. The moot question, however, is how well the new and the existing plants would be utilized. Earnings in a regulated business model, which the company follows, can be optimized both by new capacity additions and by optimal utilization of operating assets. While NTPC has quite a strong capacity addition pipeline, fuel supplies have been a challenge and have impacted asset utilization last year.

The company plans to fuel the new plants through a mix of imports and domestic coal. Imported coal offers better calorific value, but domestic coal production is key, too, as it helps keep pace with changes in demand.

However, there have been challenges in domestic coal availability, with transport constraints and problems in availability of railway rakes. How well NTPC manages this will determine returns from new plants.