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Don’t foresee absolute power supply constraint current year: CARE Ratings

1 month ago 41

Sabyasachi Majumdar, Senior Director, CARE Ratings, the power sector is expected to have ample availability of electricity from thermal, gas, wind, and solar sources. The assurance lies in the willingness of distribution companies to pay for the power they receive. The current season is particularly favorable for wind and solar power generation. Unlike the supply constraints seen in CY21 and CY22, the upcoming year is anticipated to have a sufficient supply of electricity without absolute constraints. This positive outlook is a welcome change for the energy sector.

Give us a sense as to what the overall outlook for the sector and the country as a whole given that we understand that peak power demand is expected to hit 260 megawatts this summer. Are we prepared for it?
Sabyasachi Majumdar: We have a peak demand of 260 gigawatts. On the supply side, we have close to 250 gigawatts of thermal capacity which includes both coal as well as gas. In addition, we have about 17 gigawatts of capacity, about seven to eight gigawatts of nuclear and about 10 gigawatts of biomass and cogen and these are all capable of running as baseload stations.

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Unlike in the past, where there used to be a coal constraint typically at the start of the financial year which would lead to the thermal power projects struggling to operate at full capacities, but this time, because of proactive steps being taken by the governments as well as by the distribution companies, we are much better placed.

We started the year with about 50 million tonnes of coal which given that the thermal coal segment takes about 800-850 million tonnes of coal, that is roughly 20 to 22 odd days of average coal supply with thermal power plants. Coal imports are continuing, which basically means that we would be in a position to flog our thermal power projects to meet the peak demand.

In addition, we have some 20 odd gigawatts of gas-based generation and the government has given a directive for them to remain open for the peak season. Obviously, these power from the gas-based stations are obviously going to be very expensive given the current gas-based prices of RLNG, the variable cost itself will be more than Rs 7.

As long as the discoms are willing to pay for the power that they offtake, absolute availability of power from the thermal and gas-based segment is not going to be an issue. In addition to this, we have a fairly significant amount of wind and solar capacity as well and for both wind and solar this is a very good season for generation. So, overall, unlike in the past couple of years, for instance, in CY21 and CY22, when we saw a lot of supply constraints, at least for the current year, I do not foresee an absolute supply constraint for the current coming year.

The power demand in India is growing in the range of 8-9%. If one looks at the fact that summers have come early, temperatures are going to be above normal, how much do you think would be the pent-up power demand only in these three months?
Sabyasachi Majumdar: You are talking about the next three months?

Yes, because there is going to be a surge. 8-9% is for normal times.
Sabyasachi Majumdar: No, actually if you see we are expecting the GDP to grow at about 7%. Typically, power is often taken as a ballpark of about 0.9x of the GDP. If we have to go by that formula, the year-round average would be about 6-6.5%, but at the same time as you have rightly pointed out what we have seen over the last two to three years is that since most of the households are now connected and fairly regular supply is also provided to the agriculture segment, weather-related considerations can often very much influence the generation.

For instance, in the first quarter of the last financial year, where there was a lot of apprehension that the capacity, the demand would be very high but because of unusually mild summer particularly April and the first part of May because of unseasonal rain the demand was impacted, but at the same time, during the monsoon we saw that because of weak monsoons since hydro generation was less and the agricultural demand was picking up a lot of power, there was a very unusual peak in the months of August to September. So, we can look at about 6% to 6.5% demand growth. But again, there will be peaks based on how the extreme weather conditions, very hot summers or very cold winters or prolonged breaks in monsoon can have temporary spikes in the demand.

So, you have a bit of a moderate growth target in terms of the electricity demand, just around 6.5-7%; but that is what we are talking about, those intermittent spikes that are likely to happen. Do you think on account of that, merchant tariff rates will continue to be quite high in the summer season? What is your own expectation around that?
Sabyasachi Majumdar: Even if we exclude the peaks, the fact is our overall PLFs have been fairly robust. If you look at the full year, PLF was close to 69-70%. Although, of course, we have seen in the past very high 70% PLFs also. The fact is that in the past four to five years the PLFs have been in the low to mid-60 range. But the fact that we have already reached about 70% PLF and there is not that much of a spare capacity apart from gas.

Obviously, the overall supply-demand balances will be there, particularly in the peak. So, we do expect the short-term tariffs also to remain on the higher side. Plus, we must remember this is an election year and none of the discoms would want to have load shedding because of that and because of that the pickup of power is going to be robust from the discoms. So, at least in the near term, we are expecting the short-term tariffs to remain elevated.

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