India’s power sector recovers during second quarter of FY21: ICICI Securities

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Power demand in India recovered significantly in Q2FY21 resulting in improved thermal plant load factor (PLFs) and subsequently higher offtake from Coal India (CIL), says a report by ICICI Securities. Power generation during the first six months was lower, only 8.7 per cent y-o-y, compared to -16.4 per cent in the first quarter of FY21.

The report claims that thermal PLFs improved by 300bps from Q1FY21 to 49.6 per cent. Peak demand reached 176.6GW on 18th September 2020 (lower only 3.9 per cent from FY20 levels of 183.8GW). Consequently, CIL too registered 9.6 per cent y-o-y growth in Q2FY21.

Opening up of the economy helped improve collections for discoms and further disbursal through PFC/REC scheme is expected to ease the receivables situation in coming months. This, combined with two other eagerly awaited developments – passing of Electricity Amendment Act and National Tariff Policy – are expected to result in sector re-rating. 

The government has taken several initiatives to support the sector, the report says. Fiscal support to the tune of Rs 900 billion has been provided as PFC/REC loans to discoms. The government has also approved privatization of electricity distribution in union territories like Chandigarh, Puducherry and Daman & Diu to be completed within FY21. Coal gasification / liquefaction projects worth Rs 400 billion has also been approved.

Additionally, the government is also set to release a National Tariff Policy shortly, which will address most of the prevailing issues in the sector. These measures are in addition to the National Infrastructure Pipeline, which envisages investments of Rs 25 trillion in the sector over FY20-FY25, and the Electricity Act amendment, expected to be tabled in the winter session of Parliament.

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