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Thermal PLF Uptrend To Continue In FY2024, With Demand Growth Of 5.0-5.5%

The cash gap per unit is likely to remain high at over 60 paise per unit for state-owned discoms at the all-India level in FY2024, says Icra

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The rating agency Icra has projected the all-India thermal plant load factor (PLF) level to improve to 65.1 per cent in FY2024 from 64.2 per cent in FY2023, led by the growth in electricity demand and limited thermal capacity addition.

The rating agency stated that the outlook for the thermal power segment is stable, supported by the healthy improvement in the thermal PLF, coupled with the reduction in dues from state distribution utilities (discoms), following the implementation of the late payment surcharge (LPS) scheme. 

Amid marginal tariff hikes approved for the discoms for FY2024, Icra’s outlook for the power distribution segment remains negative, it added.

The rating agency projects the full-year demand growth for FY2024 at a modest 5.0 to 5.5 per cent, slightly lower than its expectation for the GDP growth for this fiscal (6.0 per cent), with unseasonal rains having dampened demand over the past two-and-a-half months. 

However, demand is expected to recover from the second half of May 2023. Moreover, the likelihood of El Nino in FY2024 may have a positive impact on electricity demand.

"While the estimated demand growth for FY2024 is higher than the historical average seen over the past 10 years, it is lower than the peak of 9.6 per cent reported in FY2023, which was supported by a severe heat wave, favourable base, and a revival in economic activity," it stated.

The rating agency expects sustained growth in electricity demand to improve the visibility of the signing of new power purchase agreements (PPAs) for the thermal IPPs. 

The average spot power tariffs in the day ahead market (DAM) of the Indian energy exchange remained high at Rs. 5.9 per unit in FY2023, owing to the sharp demand growth, coal supply constraints and high open market coal prices. 

While the prices are expected to moderate in FY2024, with improved coal supply and moderation in demand growth, the tariffs are likely to remain higher at Rs 4.5/unit against a long-term average of Rs 3.0-3.5/unit. 

Further, the coal stock level for the domestic power plants is satisfactory at 13 days as on 15 May 2023, against eight days in the corresponding period of the previous year.

Vikram V, Vice President and Sector Head- Corporate Ratings, Icra said, “ICRA expects the RE capacity addition to rebounding to 20 GW in FY2024 from 15 GW in FY2023, considering the time extension provided by the Ministry of Power for solar and hybrid projects till March 2024, the relaxation of the ALMM1 requirement and the likely moderation in the solar PV cell & module prices, as seen recently."

He stated that the solar power segment witnessed a slowdown in bidding activity in FY2023 amid elevated module prices, challenges associated with the ALMM, and the imposition of duties on imported modules. 

"While there is visibility on RE capacity addition in the near term, a significant scale-up in tendering activity is required to meet the notified renewable purchase obligation (RPO) targets over the medium term,” he explained.