Indian thermal power plants set to grow in FY2024: Icra
1 min read 31 May 2023, 03:27 PM ISTIcra’s outlook for the power distribution sector remains bearish, given the nominal tariff increases approved for discoms in FY2024
PremiumNew Delhi: India’s thermal power sector is set to enjoy a growth spurt in plant load factor (PLF) and demand in the 2024 fiscal year, projecting a 5.0-5.5% rise, according to rating agency Icra. The country’s electricity demand and a clampdown on thermal capacity additions have been identified as growth drivers.
Icra anticipates that the all-India thermal PLF level will swell to 65.1% in FY2024, a rise from 64.2% in FY2023, thanks to the healthy uptick in thermal PLF and a drop in the dues of state power distribution companies (discoms), following the roll-out of the Late Payment Surcharge (LPS) scheme. Despite this, Icra’s outlook for the power distribution sector remains bearish, given the nominal tariff increases approved for discoms in FY2024.
According to the report, the demand growth forecast for FY2024 sits modestly at 5.0-5.5%, trailing the GDP growth projection for the same period (6.0%). Unseasonal rains have curbed demand in recent months, but a bounce back is expected to commence from late May 2023. Also, the potential for an El Nino event in FY2024 could give electricity demand a fillip.
On the renewables front, Icra predicts capacity additions to leap from 15 GW in FY2023 to 20 GW in FY2024, spurred on by a ramp-up in tender activity and cost-reflective tariffs. Despite the looming specter of execution risks and input cost pressures, the renewable energy sector’s outlook is viewed as steady, buoyed by robust policy support, promising demand prospects, and an edge in tariff competitiveness.
Average spot power tariffs in the day-ahead market of the Indian Energy Exchange remained buoyant at Rs. 5.9 per unit in FY2023, with predictions of a modest drop in FY2024 due to better coal supplies and a leveling off in demand growth. Nonetheless, prices are expected to hover around Rs. 4.5 per unit, significantly above the long-term average of Rs. 3.0-3.5 per unit.
Icra’s report also throws the spotlight on the satisfactory state of coal stocks at domestic power plants, registering approximately 13 days of supplies as of mid-May 2023, a substantial improvement on the same period in the prior year.
The market intelligence agency underlines the importance of rolling out reform measures like smart metering and the timely recovery of government dues to bolster the financial health of state discoms. Despite a cut in the median tariff hike approved for FY2024 to 0.3%, from 2.1% in FY2023, Icra expects the cash gap per unit for state-owned discoms to remain steep at over 60 paise per unit at the national level in FY2024, primarily due to a rise in the cost of supply and growing interest costs.
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