ICRA raises power demand growth outlook to 8.5 per cent in FY 2021-22

Analysts at rating agency ICRA have revised the country’s energy demand growth outlook for the ongoing fiscal upward to 8.5 per cent on a year-on-year (y-o-y) basis, from 6 per cent estimated earlier.

The expectation of higher power demand growth is based on electricity requirement rising 12.7 per cent y-o-y in the first six months of the fiscal. Power demand in April-September 2021 was 2.9 per cent higher than the corresponding period in FY20, when there was no impact of Covid-19.

Higher power demand signals an increase in commercial and industrial activities, with businesses gradually resuming operations after the lifting of lockdown curbs in recent months. Domestic demand also increased due to higher use of cooling devices amid rising temperatures.

However, ICRA cautioned that the rise in demand will not necessarily improve the utilisation levels of thermal power plants, which have been running at 58.6 per cent plant load factor (PLF) in April-August 2021, lower than the 59.2 per cent recorded in the same period in FY20.

The rating agency said the sector outlook for thermal power generation, with sub-60 per cent PLF levels, is negative. Lack of visibility in signing of new power purchase agreements for thermal independent power producers, strengthening in fuel prices and tighter environmental compliance requirements are adding pressure on the sector.

Thanks to the expanding installed capacity, renewable energy-based power generation in April-September increased from 78.7 billion units (BU) in FY21 to 92.8 BU in FY22, it said.

State-run power distribution companies (discoms) are seen facing more pressure with rising power demand, owed to irregular and inadequate tariff hikes and operating inefficiencies. Financial losses of the discoms had decreased 37.8 per cent annually to `38,093 crore in FY20 due to improved subsidy disbursal by the state governments and efficient billing.

Experts have said revenue of discoms may have significantly dropped in FY21 with demand from high-paying industrial and commercial consumer segments disrupted during the lockdowns. A report released by ICRA in March had indicated that discom losses have increased to Rs 90,000 crore in FY21. However, the power ministry has termed such estimates as “grossly inflated”.  

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