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  4. Gencos earnings to take a hit as power demand dips amid lockdown: IND-Ra

Gencos earnings to take a hit as power demand dips amid lockdown: IND-Ra

The ongoing 21-day lockdown across the country has directly and predictably impacted the electricity demand across the country, worsening an already bad situation

Dhairya Maheshwari Dhairya Maheshwari
New Delhi Updated on: April 08, 2020 18:35 IST
Representational image
Image Source : PTI

Representational image

The ongoing 21-day lockdown across the country has directly and predictably impacted the electricity demand across the country, worsening an already bad situation when the electricity supply was registering “muted growth”, a leading ratings agency said on Wednesday, adding that India’s overall power demand would grow between 0.7 per cent to 2.5 per cent in the financial year 2021.

Before the lockdown came into effect, India’s overall power demand was projected to grow by 5.5 per cent in the upcoming financial year.

India Ratings and Research (Ind-Ra), a Mumbai-headquartered credit ratings agency, has said that the shutdown of industrial establishments in the lockdown period has impacted the power demand by 30-40 per cent. The industrial (40-42 per cent) and commercial (8-10 per cent) units constitute 45-55 per cent of the overall power demand, it noted.

The agency has further predicted that the thermal plant load factor (PLF) could fall below 55 per cent for the financial year 2021, close to technical minimum standards as the country would start to come to terms with the economic effects of the ongoing lockdown. The Power load factor (PLF) is the efficiency of electrical energy usage.

“Ind-Ra assesses that a continued decline in demand by 30 per cent for a month would lead to a decline in thermal PLFs to around 55 per cent (Scenario 1) whereas the extension of the lockdown for another month would result in thermal PLFs of 54 per cent (Scenario 2),” it said.

The fall in PLFs would increase the per unit cost of delivered power for discoms, resulting in a higher power purchase cost, the agency has said. “Ind-Ra is closely monitoring the developments as the fall in PLFs would increase the per unit cost of delivered power for discoms, resulting in a higher power purchase cost,” it said in a report.

Based on the projections, Ind-Ra said that it was revising its outlook for the sector to negative, from stable to negative.

According to the Central Electricity Authority, a statutory body advising the Ministry of Power, India’s overall thermal power capacity was 2.29 lakh MW, as of Dec 31, 2019. At 86,000 MW, the private sector accounted for lion’s share of the total installed capacity. The state governments had a combined installed capacity of 74,000 MW, while the thermal plants functioning under the central government had the potential to produce 68,000 MW.

Gencos’ payments could be delayed

The thermal power generation companies, which include the likes of state-run National Thermal Power Corporation (NTPC), are skeptical on the payments received from power distribution companies from April to June 2020, on account of dwindling discom collections.  The online payments of discoms have taken a hit following the lockdown announcement on March 24, Ind-Ra observed in its report.

The Ind-Ra report has observed that, while most gencos were receiving ‘healthy payments’ from August last year, their earnings had been dwindling of late “as most discoms do not have a large percentage of online collections.”

“This would result in a further leverage build-up at the genco level,” it said.

While lager gencos such as NTPC Limited with better liquidity along with better access to the capital markets would tide over the situation, liquidity of small independent power producers including renewables may see tightening post-June 2020, the agency has said.

While the power demand has been witnessing a reduction, the coal producers have continued to maintain a steady supply even during the lockdown period, which has translated into improved availability for gencos.

The decline in power demand along with ramp-up in coal production by Coal India to 84.4 million tonnes in March 2020 (March 2019: 79.2 million tonnes) has improved the coal availability at power plants nearly 50 per cent to 45 million tonnes as on 31 March 2020. (31 March 2019: 30.9 million tonnes), Ind-Ra has said.

Also read: 40 crore Indian workers may sink into poverty due to COVID-19

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