ICRA predicts 6 per cent growth in power demand in FY22

Demand for electricity in India is expected to grow 6 per cent in 2021-22 as compared to the previous fiscal year, rating agency Icra said on Tuesday. It has also estimated power generation capacity addition at 17- 18 GW for the ongoing fiscal year.




“ICRA Ratings has estimated the all India electricity demand growth at 6.0 per cent for FY2022 on a year-on-year (YoY) basis, considering the favourable base effect, relatively lesser impact of the second wave on electricity demand and the pick-up in the vaccination programme,” an Icra statement said.

The electricity demand slowed down during the first two months of 2021-22 compared to March 2021 amid lockdowns imposed by state governments to control the second wave of COVID-19, it said.

Nonetheless, with the slowdown in fresh COVID-19 infections from the second half of May 2021, state governments eased lockdown restrictions and this in turn improved the electricity demand growth prospects as seen in June 2021, with a month-on-month growth of 3.9 per cent, it stated.

However, it added that any resurgence in infections leading to lockdown restrictions would remain a key downside risk for the demand.

Further, Icra said it expects the all-India power generation capacity addition to rebound to 17-18 GW in the year, increasing by 45 per cent YoY from 12.8 GW in 2020-21, mainly led by the renewable energy (RE) segment backed by a strong pipeline of 38 GW projects under development.

The RE segment would remain the main driver of capacity addition with a share of more than 60 per cent over the next five years.

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

The thermal PLF is expected to remain subdued at 57.0 per cent in 2021-22, despite the expected improvement from 54.5 per cent in 2020-21 led by higher electricity demand, Kadam added.

While there has been an improvement in the liquidity position of certain thermal independent power producers (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.

On the other hand, the credit profile of the central thermal power generation utilities is supported by the presence of long-term power purchase agreements (PPAs) under the cost-plus tariff structure, and strengths arising out of sovereign parentage.

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, it added.

This has been further exaggerated by the impact of COVID-19 on the electricity demand and collections in 2020-21, it opined.

While the demand is expected to recover in the current fiscal year, 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, it stated.

The median tariff revision based on the tariff orders issued so far for 2021-22 is less than one per cent and the subsidy dependence for discoms at all-India level is estimated at Rs. 1.3 lakh crore, for the year, it added.

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 Rs 75,000 crore,” Vikram V, Sector Head – Corporate Ratings, Icra said.

Further, the debt on the books of state-owned discoms at all India level is estimated to reach close to Rs 6 lakh crore in 2021-22.

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

The government has recently approved a new scheme for reviving the distribution sector with an overall outlay of Rs. 3.03 lakh crore, covering improvement of operational efficiencies through smart metering, upgradation of distribution infrastructure and solarization of agriculture feeders.

However, it said the timely implementation by state governments and discoms will remain critical.

On the other hand, the credit profile of several privately-owned discoms remains healthy supported by superior operating efficiencies, favourable demographic profile and more-timely pass-through of cost variations to consumers, it stated.

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Also, Icra’s outlook for the RE segment is stable, because of factors such as continued policy support from the government, large growth potential, the presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness.

Further, the outlook for the transmission segment is stable supported by the presence of availability-linked payments and timely realisation of payments for the inter-state projects as the billing and collections are handled by the central transmission utility.