India's FY24 power demand to rise 7% amid strong industrial activity: Fitch

Fitch stated that the receivable position of generation companies (gencos) will continue improving in the near term

Amid robust industrial activity in the country, India's power demand is expected to rise around 7 per cent in 2023-24 (FY24), Fitch Ratings said on Friday in its "India Power Monitor – 1HFY24". In the first half of the year, the power demand grew by 7.1 per cent. However, FY24 demand will be lower than the 9.5 per cent recorded in FY23.

Fitch said that high power demand should keep thermal power plant load factors high. In the first 7 months of FY24, it was 68.7 per cent. "However, we expect coal import volume to remain modest, with higher local supply meeting a large part of the increased demand," it said.  

The data in the report highlighted that the coal inventory at power plants has been declining since August 2023, when monthly power demand reached a record high. Thermal coal inventory fell to around 8.4 days in September 2023, against around 18 days normative.

The Centre is aiming to boost local coal production and allow power plants to blend a higher proportion of imported coal in the fuel mix to ensure adequate coal stock.

Moreover, the report stated that the receivable position of generation companies (gencos) will continue improving in the near term. This is mainly because the distribution companies (discoms) are promptly clearing dues, encouraged by the Centre's late payment surcharge rule.

Under the new rule, a late payment surcharge will be payable on outstanding payments after the due date at the base rate applicable for the first month of default. In the successive months, the surcharge will increase by 0.5 per cent every month.

Moreover, the revenue collections of discoms are expected to rise owing to the Centre's Revamped Distribution Sector Scheme (RDSS). The scheme provides financial support to install 250 million smart metres by FY26.

"The RDSS will also facilitate the upgrade of distribution infrastructure to accommodate rising power demand and reduce technical losses," the rating agency said.

On the renewable energy front, Fitch said that it expects cost-effective storage capacity and new technology to help India meet its ambitious long-term energy transition goals. "The country has implemented various schemes to boost renewable energy capacity addition. We expect recent changes to wind capacity auctions to limit aggressive bidding and lead to better project execution," it said.

India added over 6.6 gigawatts (GW) of renewable power generation capacity in the first half of FY24. It was led by 5.0 GW of solar capacity. Wind power addition remained steady at 1.6 GW.

India is targeting that the non-fossil sources account for half of installed generation capacity by 2030, from 41 per cent as of September 2023. The government is planning to auction 50 GW of renewable energy capacity annually, with at least 10 GW coming from wind energy, during FY24-FY28.