Power demand up for second consecutive month

Venkatesh Ganesh | | Updated on: Mar 17, 2020

However, basic issues continue to dog the sector

For the second consecutive month, power demand is up, indicating signs of recovery. In February, conventional electricity generation increased 10.4 per cent on a yearly basis, according to a report by brokerage firm Motilal Oswal.

In comparison, power demand was down from September to December 2019. All-India peak demand for the 2020 fiscal was 183 GW, which is higher than the last three years’.

The demand pick-up was broad-based and across States. Coal-based generation increased 10 per cent YoY, hydro generation went up 18 per cent while nuclear generation was up 8 per cent. Renewable power generation went up by 14.5 per cent, which resulted in an overall power generation increase of 10.8 per cent, according to Motilal Oswal. In renewables, solar power generation went up by 21.5 per cent.

For conventional power generation, coal stocks at power plants increased, led by ramp-up in coal production. Coal India’s production went up 14 per cent on a yearly basis in February. Stocks at power plants now stand at 37mt (at 21 days of consumption) compared to 26 mt during the same period last year.

Further, volumes in the Indian Energy Exchange (IEX) have shown a significant increase. Day Ahead Market (DAM) volumes on IEX increased 53 per cent year-on-year. Prices increased marginally by 1 per cent when compared to the previous month (January) to ₹2.9/kWh. However, on a year-to-date basis, DAM volumes on the IEX are 3 per cent lower.

Further, availability at NTPC’s critical plants (Sipat and Korba) has recovered after heavy monsoon rains this year. Plant Availability Factor was 100 per cent for Talcher Stage-II and 50 per cent for Talcher Stage-I in February.

Pain points remain

Even as the numbers look positive, on the ground, basic issues continue to dog the sector, which raises the question of whether this is a one-off development. The dues of power distribution companies (discoms) continue to grow and show no signs of abating. Stressed assets in the power sector continue to remain so.

Since the launch of Financial Restructuring Plan and Ujwal DISCOM Assurance Yojana (UDAY) initiatives, limited improvement in the financial profile of (discoms) can be seen, according to India Ratings and Research.

Then there is the issue of a weak economy, which could result in lower demand for power. Unlike a few other developed global economies, which have transitioned away from coal to gas and renewables, India would, however, remain dependent on coal. The low expected PLFs, lack of strong balance sheets in the sector, limited appetite of discoms to tie up long-term power purchase agreements and low project returns would continue to prevent any major fresh project coming up in the thermal sector.

India Ratings estimates a continued muted outlook for thermal plant load factor of 55.2 per cent for the nine months of financial year 2020. Further, due to the above factors, PLF is likely to remain below 60 per cent for FY21.

Published on March 17, 2020
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