Ind-Ra: Increase in Short-Term Power Prices Driven by Increase in Demand and Coal Supply Mismatches
India Ratings and Research (Ind-Ra) has published the April edition of its credit news digest on India’s power sector. The report highlights the trends in the power sector, with a focus on capacity addition, generation, transmission, merchant power, deficit, regulatory changes and the recent rating actions.
In March 2018, short-term prices on the exchange increased sharply to INR4.02/unit (February 2018: INR3.23/unit) due to increase in demand associated with seasonal variation, inadequate availability of coal with the thermal generators along with a y-o-y decline in nuclear and hydro power.
In March 2018, all India energy requirements increased 6.6% y-o-y to 105.2 billion units (BUs), while available energy increased 6.1% y-o-y to 104.4BUs, leaving a power deficit of 0.8% in March 2018 (March 2017: 0.4%).
The increase in demand was met through improved generation from coal-based thermal power (up 5.3% y-o-y) in March 2018. All India electricity generation (excluding renewable sources) grew 3.1% y-o-y to 105.8Bus in March 2018. During FY18, electricity generation grew 4.0% y-o-y. The increase in coal-based thermal power was accompanied by a y-o-y improvement in the thermal plant load factor (PLF) to 65.3% in March 2018 from 63.1% in March 2017.
The rising power demand is also being met through increasing the generation from renewables. Total renewable generation improved substantially by 30.8% y-o-y to 7.5BUs in February 2018 on account of improved generation from wind and solar sectors, due to higher capacities and marginal improvement in PLFs.
Renewable sector posted strong capacity additions during FY18, with solar capacity increasing 9.4 giga watt (GW) y-o-y to 21.7GW The growth in solar power capacity was due to the competitive bidding prevailing in the sector. Wind capacity addition also increased 1.8GW y-o-y to 34.0GW during FY18, of which 1.2GW came in 4QFY18. However, it has still been lower owing to the unwillingness of the state distribution companies to sign long-term power purchase agreements at a higher feed in tariffs.
In March 2018, coal production by Coal India Limited rose 9.4% y-o-y to 72.3 million tonnes (mt). With the increasing coal production, coal stock at 113 power plants witnessed an upward movement at end-March 2018. Coal stock improved to 16.3mt (97.4% domestic, 2.6% imported), up 3.8% m-o-m as on 31 March 2018. Although the overall coal inventory level increased at end-March 2018, the number of plants with critical and supercritical levels further increased to 28 from 20 in February 2018, due to non-uniform distribution of coal across plants throughout the country.