The electricity demand in India is projected to see a growth at 6 % for FY2022 on a year-on-year (Y-o-Y) basis, considering the favourable base effect, relatively lesser impact of the second wave on electricity demand and the pick-up in the vaccination programme.

The ratings agency, ICRA expects the power generation capacity addition in the country to rebound in FY2022 to 17-18 GW, increasing by 45% on a Y-o-Y basis from 12.8 GW in FY2021, mainly led by the renewable energy (RE) segment backed by a strong pipeline of 38 GW projects under development. The RE segment would remain as the main driver of capacity addition with a share of more than 60% over the next five years.

Girishkumar Kadam, Co-Group Head, Corporate Ratings, ICRA, said, “While the demand growth prospects remain favourable, the outlook for the thermal generation segment is negative considering the subdued thermal PLFs, lack of visibility in signing of new long-term or medium-term PPAs for thermal IPPs, modest tariffs in the short-term power market and continued delays in receiving payments from the State distribution utilities."

Subdued thermal PLF

The thermal PLF is expected to remain subdued at 57% in FY2022, despite the expected improvement from 54.5% in FY2021 led by higher electricity demand. While there has been an improvement in the liquidity position of certain thermal IPPs with realisation of large payments under the liquidity support scheme in March 2021, the sustainability of the same remains to be seen considering the continued weakness in discom finances.

The credit outlook for the distribution segment too remains negative, given the high operating inefficiencies, lack of adequate tariff revisions, delays in receiving subsidy payments from State Governments and delays in realising electricity dues from Government departments. This has been further exaggerated by the impact of Covid-19 on the electricity demand and collections in FY2021.

Discom finances under pressure

While the demand is expected to recover in FY2022, the discom finances are likely to remain under pressure owing to lack or inadequacy of the tariff revisions, high distribution losses and rising subsidy dependence. The median tariff revision based on the tariff orders issued so far for FY2022 is less than one percent and the subsidy dependence for discoms at all India level is estimated at ₹1.3 lakh crore for FY2022.

Also read: Renewable energy capacity addition likely to be 11 GW in FY2022: ICRA

Vikram V, Sector Head, Corporate Ratings, ICRA, said “The gap between average cost of supply and average tariff for State-owned discoms at the all-India level is estimated to remain high at 70-75 paise per unit in FY2022, though declining from FY2021. As a result, the discom losses at the all-India level would remain high at more than ₹750 billion. Further, the debt on the books of state-owned discoms at all India level is estimated to reach close to ₹6 trillion in FY2022."

Such high level of liabilities (debt plus dues to generation companies) is unsustainable for the discoms. In this context, the rapid implementation of reforms in the distribution segment is essential for the power sector.

The Government has recently approved a new scheme for reviving the distribution sector with an overall outlay of ₹3.03 lakh crore, covering improvement of operational efficiencies through smart metering, upgradation of distribution infrastructure and solarisation of agriculture feeders. However, the timely implementation by State Governments and discoms will remain critical.

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