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Despite rise in generation capacity, there is weak demand for power, especially from distribution companies (discoms) due to deteriorating finances. Analysts say growing discom losses will exacerbate the over-capacity situation in the power market. JSW Energy’s Q1 net has seen a dip of 14 per cent due to weak demand and other players, including NTPC, may follow suit.
The Association of Power Producers (APP) director-general Ashok Khurana told Business Standard, “Power projects of 12,000 Mw are currently stranded for want of power purchase agreements (PPAs). This is the direct outcome of retrospective measures imposed by the government that the coal can only be used for long-term PPA without putting in place an enabling framework for PPAs.” This apart, Khurana said the distribution malice is limited to eight states, which contribute 80 per cent of the accumulated losses of Rs 3 lakh crore as on date. “We need to concentrate and formulate state-specific plans for each state, and monitoring of milestone be done by an independent body,” he opined.
Terming the present scenario in the power sector a “Humpty Dumpty saga,” JP Morgan, in its report, said the sector participants faced a hard landing due to non-remunerative, long-term PPAs, depressed plant load factors (PLFs) as state electricity boards (SEBs) backed down power procurement, rupee depreciation versus the US dollar, capital cost overruns and domestic coal/gas availability issues. Further, the electricity procurers’ financial health has been a far bigger issue than depressing PLF of independent power producers (IPPs).
Further, Motilal Oswal, in its report, said power demand stood flat year-on-year (y-o-y) for April-May 2015, comprising demand de-growth in April to the tune of 3.5 per cent y-o-y, offset by 2.3 per cent y-o-y improvement in demand in May 2015. Subdued demand growth is partly led by discoms’ poor financials. Over the same period, power supply increased 1.1 per cent y-o-y, leading to a base deficit of 2.3 per cent versus 4.1 per cent y-o-y.
The sector has been grappling with issues related to fuel supply availability (both coal and gas), weak demand led by discoms’ financial woes, aggressive bidding, and distress financials of developers. “While the government’s push to ramp up domestic coal production and make gas supply available through subsidy mechanisms is encouraging, lack of focus on revitalising discoms’ financials will lead to poor end-results,” the report adds.
According to UBS, widening losses have forced the discoms to curtail supply to loss-making segments despite unfulfilled demand and improving coal availability.
ICICI Securities said the utilities sector is witnessing heat on profitability mainly on account of muted growth in power demand (decline of 0.5 per cent y-o-y in Apr-May 2015). With robust generation capacity in place and a healthy pipeline of projects in the construction phase, SEBs’ weak financial health remains the main concern at this stage. SEBs’ tariff hikes in FY16 have so far been inadequate — volume-weighted average tariff hike for states that announced tariff hikes so far, increased to 2.9 per cent in FY16 from 1.8 per cent in FY15.
Morgan Stanley projected weak demand will dim earnings in the June quarter, saying the period saw weak power demand, with coal-based volumes up only 1.9 per cent y-o-y and PLFs down 700 basis points y-o-y. However, the biggest positive was Coal India’s production growth at 12 per cent y-o-y.
