FY23 Power Outlook: Demand to Grow and Support Thermal PLFs: IndiaRatings

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the power sector for FY23, as it believes the overall plant load factor (PLF) of thermal power plants would continue to improve and reach closer to 60% in FY23.

This is given the consistent growth in power demand and continued dependence on coal-based generation in the absence of any major increase in the capacity additions in any other sector except renewables. Furthermore, a lower-than-expected addition in FY23 in renewables would aid the PLF recovery.

Ind-Ra however expects the demand growth to come back to a normal level of 6%-7% in FY23, given a higher base. The impact of third covid wave remains lower on power demand, given the less stringent curbs imposed by local/state governments, although any stringent lockdowns in case of the emergence of any strong covid wave could derail the growth in power demand

Ind-Ra also believes that coal availability could pose a risk to the overall demand and thus PLF recovery, given the higher reliance on domestic coal as international prices remain high. The domestic coal availability to the power sector would remain dependent on an improvement in the domestic coal production and its allocation to the power sector both of which improved in 9MFY22.

Furthermore, the weak financial profile of distribution companies (discoms), reflected in increasing overdues even after liquidity injections by the government of India, is likely to keep power producers' debtors elevated and may pose a risk to the overall demand. The government assistance of INR3.05 trillion for improving discoms infrastructure including smart metering and upgradation of systems should result in reduction in aggregate, technical and commercial losses, although implementation remains key for discoms as observed in the past.

The renewable capacity addition increased to 10GW in 9MFY22 (9MFY21: 4GW); however, Ind-Ra believes it is likely to moderate again intermittently on account of high panel prices along with issues in timely availability of imported solar panels. Ind-Ra believes the module prices are likely to remain elevated over FY23 and given the supply chain constraints and order backlogs, the supply of modules is likely to remain constrained, impacting the capacity addition in India.