ICRA raises thermal power sector outlook to ‘stable’ from ‘negative’ due to strong demand, recovery of dues

The company mentioned the development is pushed by the strong recovery in electrical energy demand development within the nation. Image for representational goal solely.
| Photo Credit: The Hindu

Rating company ICRA has revised the thermal power sector outlook to ‘stable’ from ‘negative’ due to strong demand development and realisation of dues from discoms beneath LPS (late fee surcharge) scheme.

The outlook for the thermal power phase has been revised to steady from destructive, supported by the wholesome enchancment within the thermal PLF (plant load issue or capability utilisation) degree in FY2023, which is probably going to maintain in FY2024, coupled with the discount in dues from state distribution utilities (discoms), ICRA mentioned in a press release .

The PLF enchancment is pushed by the strong recovery in electrical energy demand development within the nation. A sustained development in electrical energy demand is anticipated to enhance the visibility on the signing of new power buy agreements (PPAs) for the thermal IPPs (unbiased power producers), it acknowledged.

Vikram V, VP & Sector Head – company scores, ICRA, mentioned, “The all-India thermal PLF level is expected to improve from 58.9% in FY2022 to 64.0% in FY2023 and further to 65.5% in FY2024, led by healthy demand growth and limited thermal capacity addition. The full-year demand growth for FY2023 is estimated at 9.5-10%, which is likely to moderate in FY2024, though remaining healthy at 5.5-6%.”

Further, he acknowledged that the power-generating firms are benefiting from the realisation of overdue from discoms beneath the late fee surcharge scheme notified by the power ministry in June 2022.

Dues from discoms have declined from ₹1.3 trillion (₹1.3 lakh crore) as of May ‘22 to about ₹0.6 trillion (₹60,000 crore) as on March 1, 2023, in accordance to information from the PRAAPTI portal.

While it is a near-term constructive for era firms, a sustainable enchancment in funds is linked to enhancing the monetary profile of the discoms.

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This stays a key monitorable from the outlook perspective for the thermal phase, he added.

The improved demand and better tariffs within the short-term market have led to an enchancment in profitability for thermal IPPs in 9M FY2023.

This is offset to some extent by the rise in open market coal costs. Also, the modest coal inventory place stays a priority space for the sector.

While the coal inventory degree at power crops is witnessing a gradual enchancment and was at ~12 days as on February 28, 2023, it stays half of the normative inventory degree of ~24 days.

Given the expectations of wholesome demand development in the summertime season, the augmentation of coal provides on a sustained foundation stays necessary to guarantee an uninterrupted power provide.

He acknowledged, “The discoms in 17 out of the 28 States have filed tariff petitions for FY2024, indicating moderate progress. The median tariff hike proposed for FY2024 stands at 5.0% against the 1.9% median hike approved for FY2023.”

Considering the upward strain on the associated fee of provide amid the elevated use of imported coal and better tariffs in short-term tariffs and rising curiosity prices in the direction of the mortgage availed beneath the LPS scheme, the money hole per unit is probably going to stay excessive at over 60 paise per unit for state-owned discoms on the all-India degree in FY2023 and FY2024, he identified.

In this context, he mentioned that well timed issuance of tariff orders with ample tariff hikes by the state electrical energy regulators stays necessary.

ICRA’s outlook for the power distribution phase stays destructive. The progress in enhancing the working efficiencies, realisation of dues from respective state governments and authorities our bodies, and well timed pass-through of price variations to clients by way of common tariff revisions are key to enhancing the monetary place of the distribution utilities on a sustained foundation, it acknowledged.