India Ratings and Research estimates that the coronavirus pandemic could lead to the thermal plant load factor (PLF) falling below 55 per cent for FY21, closer to the technical minimum standards.

This would be due to a gradual ramp-up in industrial load and the already muted electricity demand witnessed in the pre-Covid scenario.

Electricity demand during 11 months in FY20 grew by a mere 2.1 per cent year-on-year (YoY), while the loss of industrial load during the latter half of March 2020 has resulted in further moderation in electricity demand growth.

However, the same is unlikely to impact the fixed cost recovery of power plants, as most of them are sitting on a healthy stock of coal, which allows for capacity declaration for fixed cost recovery.

The fall in PLFs would increase the per unit cost of delivered power for discoms, resulting in a higher power purchase cost. Hence, if a development results in a significantly lower-than-expected fixed cost recovery, the same could also result in rating actions.

Sector outlook revised

Ind-Ra would also continue to monitor the liquidity buffers and overall measures being initiated by companies to tide over this period. Given the muted demand scenario and the must-run status for hydro, renewables and nuclear power, the thermal generators would stand to suffer more.

The rating firm has revised its sector outlook to negative for FY21 from stable to negative, given the muted electricity demand growth and limited improvement in discoms’ financial profile.

There could be continued pressure on both these factors as against its earlier expectations. Most gencos rated by Ind-Ra have seen healthy payments from August, post the implementation of the letter of credit mechanism, as the discoms had stopped payments against the earlier bills but were paying the current bills on time.

However, with discom collections dwindling as most discoms do not have large percentage of online collections, the payments to gencos can get stretched. This would result in a further leverage build-up at the genco level.

Given that industrial (40-42 per cent) and commercial (8-10 per cent) units constitute 45-55 per cent of the overall power demand, the shutdown of industrial establishments has led to a decline in power demand by 30-40 per cent.

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. The extension of the lockdown for another month would result in thermal PLFs of 54 per cent.

The agency estimates that overall demand may grow at around 2.5 per cent from its earlier estimate of 5.5 per cent growth in FY21.

Ind-Ra would continue to assess the impact of the pandemic on the operations of the entities post the moratorium.

Some States have invoked force majeure clauses, given the low demand scenario, and have decided not to make the fixed cost payments to gencos.

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