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Rising electricity demand in India leading to costlier coal imports: ICRA

Rising electricity demand in India leading to costlier coal imports: ICRA


The recent energy demand rise in India has improved offtake from the power generators but has also resulted in higher dependence on costlier coal imports as the supply of the dry fuel from domestic sources was insufficient, research and ratings agency ICRA said Tuesday.

The all-India electricity demand growth remained steady at 5.6 per cent during the first five-month period of FY2019 and the increased demand is being met from higher generation by both thermal and renewable energy plants, the report said.

This is also reflected in an improvement in thermal power PLF (plant load factor or capacity utilisation) to 60.6 per cent in 5M FY2019 (April to August) against 59.1 per cent in 5M FY2018, it said.

ICRA Ratings Sector Head and Vice President Girishkumar Kadam said, “With international coal price level increasing by about 20 per cent in nine months of 2018 on a Y-o-Y basis and the rupee also seeing a sizeable depreciation against the USD, this resulted in an upward pressure on cost of power purchase for the distribution utilities. Given this, augmentation of domestic coal supplies (through both higher mining activity and improved rail infrastructure) remains crucial for the sector from a cost control perspective.”

The spot power tariffs witnessed a sharp increase in September 2018 with the average rate on Indian Energy Exchange increasing to Rs 4.7 per unit in September 2018 from Rs 3.3 per unit in August 2018. This is due to higher energy demand, decline in generation from wind and hydro sources and shortages in domestic coal availability, it said.

While spot tariffs are likely to remain firm in the near term, given our expectations of strong demand from discoms with elections around the corner, the same is unlikely to be sustained in the medium term and would remain range-bound between Rs 3.5 to 3.8 per unit, given the significant overcapacity in place and an increasing share of renewable energy generation, it added.

In a positive development for power generation projects, the Ministry of Power (MoP) has recently issued directions to the Central Electricity Regulatory Commission (CERC) under section 107 of the Electricity Act 2003 for allowing pass-through of changes in domestic duties, levies, cess and taxes in a time-bound manner.

This is given the significant delays witnessed in the past for pass-through of the additional cost arising from change in law events.

The ICRA has analysed the financial performance of distribution utilities (discoms) for FY2017 in nine key states, wherein the profitability for a majority of the discoms remained modest owing to a mix of reasons including inability to pass on the variation in power purchase costs in a timely manner, poor operating efficiencies and delays in realising payments, especially from state governments.

However, it said that as per the MoP guidance, there has been a substantial reduction in the losses of the discoms for FY2018, post the implementation of UDAY and the resultant reduction in interest costs.

“While the benefits of deleveraging have largely been realized, going forward, improving operating efficiencies, through AT&C loss reduction, and securing timely and adequate tariff hikes will remain critical,” added Kadam.

Source: PTI
Anand Gupta Editor - EQ Int'l Media Network


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