Electricity Demand to Grow at 6-7% in FY22; Discom Finances Likely to Remain Challenged: ICRA

The all India electricity demand is expected to witness a growth of 6 per cent to 7 per cent in FY2022 against an estimated decline of 2 per cent to 2.5 per cent in FY2021, driven by a favourable base effect and likely recovery in demand from the commercial and industrial (C&I) segments, said the credit rating agency ICRA.

January 07, 2021. By Manu Tayal

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The all India electricity demand is expected to witness a growth of 6 per cent to 7 per cent in FY2022 against an estimated decline of 2 per cent to 2.5 per cent in FY2021, driven by a favourable base effect and likely recovery in demand from the commercial and industrial (C&I) segments, said the credit rating agency ICRA.

As a result, the all-India thermal PLF is likely to improve to 57 per cent to 58 per cent in FY2022 from the estimated level of 53 per cent to 54 per cent in FY2021, although it still remains subdued.

Commenting on the sector outlook, Sabyasachi Majumdar, Group Head & Senior Vice President - Corporate ratings, ICRA, said that, “given the subdued thermal PLF, lack of visibility in signing of new power purchase agreements (PPAs) for thermal IPPs and modest tariffs in the short term power market, the credit outlook on the thermal power segment continues to remain negative. As a result, the resolution of the stressed thermal assets in the private segment remains slow, with over 80 per cent of the 40 GW stressed coal-based projects unresolved. On the other hand, the credit profile of the Central power generation utilities is supported by the presence of long-term PPAs under the cost-plus tariff structure, and strengths arising out of sovereign parentage.”

The credit rating agency also predicted that, the credit outlook also remains negative for the distribution segment, given the continued weakness in financial position of most state distribution utilities (discoms).

The discom finances have been further constrained by the sharp decline in revenues from the C&I customers in H1 FY2021 following lockdown restrictions. Notwithstanding a demand recovery in FY2022, the discom losses are likely to remain at greater than Rs 750 billion, given the inadequate tariff revisions, high distribution losses and additional interest cost on the loans availed under the liquidity support scheme.

On the other hand, the credit outlook for the renewable energy is stable because of factors such as continued policy support from the Government, presence of creditworthy central nodal agencies as intermediary procurers in addition to the improving tariff competitiveness. These factors are likely to result in continued strong investment prospects.

Thus, ICRA estimated an improvement in capacity addition to 11-12 GW in FY2022 from the estimated level of 7.5 GW in FY2021, backed by a healthy project pipeline of about 50 GW and easing of the supply chain challenges.

“The renewable segment would remain the main driver of capacity addition in the power sector, with a share of 65 per cent to 70 per cent over the next 5-year period. While the sector is facing execution headwinds for under-construction projects, regulatory challenges, mainly in Andhra Pradesh related to tariff renegotiation and risk of grid curtailments, the credit profile of majority of the ICRA-rated wind and solar power IPPs has remained stable, supported by the presence of long-term PPAs, implementation of must-run status across majority of the states, satisfactory operating performance, adequate liquidity buffer and a strong sponsor profile. Further, the realisation of payments from discoms under the liquidity scheme has also improved the liquidity profile of some of the wind and solar IPPs,” said Girish kumar Kadam, Sector Head & Vice President, ICRA Ratings.

Meanwhile, the outlook for the transmission segment remains stable with the presence of availability-linked payments and timely realisation of payments for the inter-state projects as the billing and collections are handled by the Central transmission utility under point of connection mechanism. 

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