The resolution of stressed thermal assets remains slow despite various measures undertaken by the government and lenders, with only about 10% of the 40 GW stressed coal-based capacity achieving resolution, mainly through acquisition by a new sponsor, ICRA Ratings said on Wednesday.
The balance capacity is under various stages of resolution, including through Insolvency and Bankruptcy Code (IBC). Further, the resolution of 12 GW gas-based capacity continues to remain uncertain, given the inadequate availability of domestic gas and absence of any policy measures for use of imported R-LNG with subsidy support as well as the measures to incentivize such projects to meet the peaking / ancillary power demand, it said.
“The progress on stressed asset resolution thus remains slow, because of the time taken to achieve sustainable resolution, regulatory challenges in securing approvals for projects with existing competitively bid-based power purchase agreements (PPAs), still limited progress in signing of new long-term PPAs and subdued thermal capacity utilization levels. Also, the improvement in the discoms’ financial position on all India level remained lower than expected, which can hamper the sustainability of demand growth and signing of new long-term PPAs,” Girishkumar Kadam, sector head and vice president, ICRA Ratings said.
In one such instance, the Uttar Pradesh Electricity Regulatory Commission issued a tariff order in case of a stressed asset which had been subject to partial debt write-down, directing the acquiring entity to offer tariff discount under the existing PPA. However, this order has now been set aside by the Appellate Tribunal for Electricity (APTEL), ICRA Ratings said.
The all India electricity demand growth slowed down to 4.4% in the first six month of FY2020, from 6.0% growth witnessed in the corresponding period of previous year. The slowdown in electricity demand was primarily witnessed in the months of August 2019 and September 2019, despite a healthy growth of 7.4% in Q1 FY2020.
The slowdown can be attributed to lower demand from household and agriculture segments following heavy rains in August 2019 and September 2019 and moderation in demand from industrial segment. This in turn, coupled with healthy growth in generation from hydro, nuclear and renewable sources in 6M FY2020, resulted in a decline in all India thermal PLF to 57.7% from 59.5% in 6M FY2019.
The decline in thermal PLF is a reversal of improvement witnessed over the past two years. The decline in PLF was sharpest for the central sector coal utilities from 70.8% in 6M FY2019 to 64.2% in 6M FY2020.
“Nonetheless, thermal PLF levels on all India level is expected to show modest improvement to about 62-63% in FY21, driven by limited capacity addition (< 6 GW per year) in thermal segment, renewable capacity addition of about 10-12 GW per year and annual energy demand growth of about 5%”, said Vikram ., Associate Head & AVP, Corporate Ratings, ICRA Ltd.
The supply of coal to power sector by Coal India Limited declined by 7.0% in H1 FY2020 on a YoY basis, because of lower production due to extended monsoon season and the labour issues. Apart from energy demand growth, the increase in production and supply of domestic coal also remains critical to improve the thermal PLF level in the second half of FY2020 and thereafter, the rating firm said.
