India Ratings & Research (Fitch Group): Higher Coal Inventory at Power Stations Keeps Short-Term Power Prices in Check

Mumbai: India Ratings and Research (Ind-Ra) has published the June 2019 edition of its credit news digest on India’s power sector. The report highlights the trends in the power sector, with a focus on capacity addition, generation, transmission, merchant power, deficit, regulatory changes and the recent rating actions.

In May 2019, the short-term power prices declined 28.6% yoy, although it rose to INR3.34/KWh (April 2019: INR3.22/KWh), due to higher demand in the northern region on account of the summer season. In May 2019, coal inventory at power plant rose 96.2% yoy to 29.1 million tonnes. This led to a reduction in the number of power stations with sub critical level of coal inventory to two in May 2019 from 25 in May 2018. The higher coal availability at power stations allowed the buyers to purchase more power from the existing long-term power purchase agreement, which decreased the volumes in day-ahead-market, leading to lower short-term power prices on a year-on-year basis.

The All-India electricity generation (excluding renewables) increased 5.6% yoy to 116.7 billion units (BUs) as thermal and hydro generation increased 3.2% yoy and 7.5% yoy, respectively, due to an increase in demand on account of election and the ongoing summer season. The renewable generation also increased 7.3% yoy in May 2019 to 9.9BUs, driven by higher capacity addition in the solar segment. The All-India thermal plant load factor (PLF) decreased marginally to 63.2% in May 2019 (May 2018: 64.0%), due to a decline in the central and state sector PLF by 580bp and 260bp, respectively. The decline in PLF was due to higher dependence on hydro and renewable segments on account of a lower variable cost per unit from these sources compared to thermal generation.

As a result, PLF of NTPC Limited (‘IND AAA’/Stable) fell 8% yoy leading to the overall decline in central sector PLFs. However, the private sector PLF increased 480bp to 61.15% on account of an increase in PLF of Adani Power Private Limited and Coastal Gujarat Power Limited to 81.77% and 93.7%, respectively, in May 2019 (May 2018: 31.76% and 68.36%), driven by higher coal availability.

In May 2019, no new capacity was added in the thermal and hydro power segments, although renewable capacity increased 9.4GW yoy. In May 2019, the transmission line addition slowed down to 977 circuit kilometres (May 2018: 1,343 circuit kilometres) as there was no addition from the central and private sectors due to issues such as Right of Way problem and clearances from various authorities.

Data Source: Central Electricity Authority (CEA), Indian Energy Exchange and Coal India Limited

Additional information is available at www.indiaratings.co.in.

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India’s most respected credit rating agency committed to providing India’s credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India’s fixed income market.

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies, and structured finance and project finance companies.

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank.

Ind-Ra is a 100% owned subsidiary of the Fitch Group.

For more information, visit www.indiaratings.co.in.

ALL CREDIT RATINGS ASSIGNED BY INDIA RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.INDIARATINGS.CO.IN/RATING-DEFINITIONS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE WWW.INDIARATINGS.CO.IN. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. INDIA RATINGS’ CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.

Source: indiaratings.co.in