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India Ratings & Research has maintained a stable-to-negative outlook on the power sector for the remaining FY20, despite an increase in electricity demand and a rise in thermal plant load factor (PLF).
The stable-to-negative outlook reflects mounting receivables by state distribution companies due to inadequate improvement in operational parameters, uncertainty in the environment as exhibited by some discoms to honour existing PPAs and continued dependence on imported coal due to lower domestic output.
Ind-Ra expects the power demand to remain at 6-7 per cent despite the likelihood of slowing demand. Ind-Ra notes that the growth in power demand from states such as Haryana, Gujarat, Tamil Nadu and Maharashtra, which are main manufacturing hubs, has been lower than the all-India power demand growth of 6.7 per cent in April-July 2019. The new consumer addition of around 26.4 million under the Saubhagya scheme supports the all-India growth data.
Sharing their research insights with BusinessLine , India Ratings’ Ankur Agarwal, Siva Subramanian and Divya Charen explained, “the credit profile of public and private sector entities likely to improve in FY20 due to capitalisation of capital work in progress of few public players and the likelihood of successful implementation of the resolution of the coastal-based capacity for all coastal-based Ultra Mega Power Projects.”
The liquidity profile of few state players remains contingent on timely receipt of state governments support. The renewable holding companies may face liquidity issues in case of unresolved problems of receivables from Andhra Pradesh and Telangana discoms.
Stable outlook for renewables
The agency maintained a stable sector outlook for wind and solar power sectors for the remainder of FY20.
The stable outlook emanates from likely in-line operational and financial performance of projects with Ind-Ra’s projection for the rest of FY20, coupled with the availability of adequate liquidity despite the delay in payments from select state distribution utilities.
The agency has also revised the rating outlook for the solar sector to stable (from positive) while maintaining a stable outlook for the wind sector. Revision in rating outlook (for solar) stems from resurfacing renegotiation fears and continued delay in payments from some of the off-takers.
Downgrades
Critical updates since the release of the last outlook in February 2019 include Andhra Pradesh’s efforts to negotiate renewable power tariffs/ terminate costly power purchase agreements (PPAs) and increasing receivables period from select state discoms on a negative side.
On the positive side, Power Ministry’s efforts to enforce the letter of credits (LCs) as a payment security mechanism under PPAs can have a salutary effect on timely payments from off-takers over the long term.
However, any trend of increasing credit reliance on state discoms in future PPAs, limiting comfort derived from counterparties, SECI, NTPC, can have a negative bearing on the rating of these projects.
Overall, the positive and negative developments in the sector counterbalance each other, thereby resulting in a stable outlook.
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