The rating agency estimates the pandemic could lead to the thermal plant load factor (PLF) falling below 55 per cent for 2020-21, closer to the technical minimum standards, on account of a gradual ramp-up in industrial load and the muted electricity demand
New Delhi: Thermal power plant load factor or capacity utilisation could fall below the ideal 55 per cent level in the current fiscal due to the impact of COVID-19, India Ratings and Research (Ind-Ra) said in a report. Ind-Ra will assess the impact of COVID-19 on the power sector, including generating and distribution companies, in two series. The first in the series is the impact on generators (gencos).
The rating agency estimates the pandemic could lead to the thermal plant load factor (PLF) falling below 55 per cent for 2020-21, closer to the technical minimum standards, on account of a gradual ramp-up in industrial load and the already muted electricity demand witnessed in the pre-COVID scenario.
According to the report, electricity demand during April-February period of the last fiscal grew by a mere 2.1 per cent year-on-year, while the loss of industrial load during the latter half of March 2020 has resulted in further moderation in electricity demand growth.
However, it said the same is unlikely to impact the fixed cost recovery of power plants, as most of them are sitting on a healthy stock of coal, which allows for capacity declaration for fixed cost recovery.
Ind-Ra is closely monitoring the developments as the fall in PLFs would increase the per unit cost of delivered power for discoms, resulting in a higher power purchase cost.
Hence, if a development results in a significantly lower-than-expected fixed cost recovery, the same could also result in rating actions.
Ind-Ra would also continue to monitor the liquidity buffers and overall measures being initiated by the company to tide over this period. Given the muted demand scenario and the must-run status for the hydro, renewables and nuclear power, the thermal generators would stand to suffer more.
Ind-Ra revised its sector outlook to negative for 2020-21 from stable to negative, given the muted electricity demand growth and limited improvement in discoms’ financial profile.
There could be continued pressure on both these factors as against its earlier expectations.
Most gencos rated by Ind-Ra have seen healthy payments from August post the implementation of the letter of credit mechanism, as the discoms had stopped payments against the earlier bills but were paying the current bills on time.
However, with discom collections dwindling as most discoms do not have large percentage of online collections, the payments to gencos can get stretched. This would result in a further leverage build up at the genco level.
Given industrial (40-42 per cent) and commercial (8-10 per cent) units constitute 45-55 per cent of the overall power demand, the shutdown of industrial establishments has led to a decline in the power demand by 30-40 per cent.
Ind-Ra assesses that a continued decline in demand by 30 per cent for a month would lead to a decline in thermal PLFs to around 55 per cent (scenario 1) whereas the extension of the lockdown for another month would result in thermal PLFs of 54 per cent (scenario 2).
In its assessment Ind-Ra has assumed the must-run status for nuclear, hydro and renewable energy. The agency estimates the overall demand may grow at around 2.5 (scenario 1) and 0.7 per cent (scenario 2) from its earlier estimate of 5.5 per cent growth in 2020-21.
In its discussion with rated issuers, the agency has observed the gencos are sceptical on the payments to be received from discoms from April to June 2020 because of dwindling discoms’ collections.