Power generation is likely to grow at 5-6.5 per cent next fiscal, in line with India's GDP growth estimate, but fuel supply concerns continue to be a drag, India Ratings & Research said today.
Assigning a stable to negative outlook to the power sector for 2014-15, it said that power ouput could go up by 5-6.5 per cent which would be in line with India's GDP growth -- estimated to be 5.6 per cent.
The outlook reflects the pending policy level issues, manifestation of risks undertaken in earlier years, mismatches in coal demand and supply and continued tariff pressures, India Ratings said in a statement.
Part of the Fitch Group, the agency has maintained Stable Outlook on power entities for the next fiscal.
The Outlook reflects power firms' continued ability to manage the issues associated with fuel and state power utilities due to a favourable tariff mechanism, comfortable liquidity and support from the central and state governments.
It said generation would increase because of higher domestic coal availability post the government's initiatives and higher availability and acceptability of imported coal.
Power generation could also improve on easing of the liquidity situation at the state power utilities (SPUs) level post financial restructuring package (FRP) implementation, as it would lower back-down instructions and increase the ability to buy power.
On Ultra Mega Power Projects, the final price bids for 4,000 MW each project at Odisha and Tamil Nadu, expected next month, are also being seen as a positive sign.
"As far as UMPPs are concerned they will give a fillip to the sector," Salil Garg, Director India Ratings & Research told PTI.
"Moderate demand from the manufacturing segments could lead to the energy deficit remaining at 4.5 per cent in financial year 2014-15," the report added.
Given that general elections are scheduled for mid-2014, many states could defer tariff finalisation or even consider reducing tariffs mainly through increasing subsidies, it said.
Delhi and Maharashtra have announced lowering of consumer tariffs through increasing subsidy.
Central Electricity Regulatory Commission in its draft guidelines for 2014-2019 has changed the basis for calculating incentives and disincentives and this could impact the return on equity earned by thermal-based central generating stations.
The report added that the sector would be driven by the government's initiatives to resolve key issues impacting it.
Depreciating rupee and de-leveraging plans of independent power producers have further fuelled investor interest.
