India Ratings and Research (Fitch group) – Thermal Capacity Addition to Remain Subdued over FY20-FY21
New Delhi: India Ratings and Research (Fitch Group) expects coal-based capacity addition in the Indian power sector, which fell to a low of 3.6GW in FY19, to remain subdued at 5GW-6GW per year in FY20 and FY21. This likely decline in thermal capacity addition is attributed to the following factors: i) the decommissioning of nearly 2GW annually as the plants complete their useful life; and ii) the stress in nearly 85% of the private under-construction capacity, given the issues with regards to availability of funds, coal, power purchase agreements and evacuation; and iii) decline in fresh project starts (FPS) across the central, state and private sectors.
During FY13-FY17, excess capacity in the thermal power sector had increased to an average of 42% on account of a significant increase in capacity and lower-than-expected growth in power demand. The excess capacity touched a peak of 45% in FY16, and then declined subsequently to around 42% at FYE19. Power demand is likely to see healthy growth during FY20-FY24, and only a part of the incremental demand can be met by existing and upcoming renewable capacities. Considering the absence of any major alternatives to meet the growth in demand, the proportion of excess capacity in the thermal power sector would decline further during FY20-FY24, in Ind-Ra’s opinion. The slowdown in new thermal capacity addition by the state and central thermal sectors would also support the absorption of the excess thermal capacity over this period.
Decline in Fresh Thermal Project Starts: Fresh project starts (FPS) for thermal projects declined steeply to a mere 1.6GW in FY19 from an average of 10GW per year over FY15-FY18. The private sector’s contribution to fresh projects was nil during FY19, signalling the private players’ lack of interest in the thermal sector. FPS by the state and central sector too have declined meaningfully owing to the gradual shift towards renewable capacity addition, given the single part tariff and the cost competitiveness of such tariffs.
85% of Private Sector Under-Construction Capacity Stressed: As of FYE18, of the total under-construction capacity of 24.7GW in the private sector, 14.4GW of capacity was uncertain/stressed/work on hold. This proportion increased to 20GW (85% of the private under-construction capacity) at FYE19, as the debt-servicing issues being faced by companies caused the supply of incremental credit from banks and equity markets to come to a standstill.
Decline in New Thermal Project Starts: The decline in FPS on a yearly basis during FY17-FY19 clearly points to the likely decrease in thermal capacity addition over the medium term. FPS declined sharply to a mere 1.6GW during FY19 from an average of 10GW over FY15 to FY18. Another interesting trend is the shift from private sector to the state and the central sectors, with the bulk FPS coming in from the state sector. However, the intensity of capacity addition by the public sector too is declining. Ind-Ra’s analysis suggests that even in the public sector, the central sector is shying away from FPS due to its increasing focus on renewable energy.
Decline in Under Construction Projects: The quantum of under-construction projects declined to 65GW in FY19 from 95GW in FY13. The decline was mainly driven by the private sector, which saw under-construction capacity falling to 24GW in FY19 from 63GW in FY13. Additionally, a bulk of the under-construction capacity in the private sector is stressed and is unlikely to be completed.
Excess Capacity to Reduce with Lower Capacity Addition: In view of the reduced capacity addition during the next few years and significant decline in FPS, Ind-Ra believes that the capacity gap with respect to the installed coal-based thermal capacity and the actual demand met by the coal-based thermal power plants would reduce in the coming years. The excess capacity increased to an average of 42% during FY13-FY17, as capacity additions outpaced power demand growth during this period. However, the excess capacity would reduce over FY20-FY24 due to decline in capacity addition intensity in FY18 and FY19 and Ind-Ra’s expectations of capacity addition remaining low over FY20-FY24.
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Source: indiaratings.co.in
