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The power capacity addition in India is faster than the growth in electricity demand, said Crisil Research on Wednesday. The new capacity addition is happening at around 7 per cent, while demand grows at 6.2 per cent.
The power demand growth is expected to be tepid at 6.2 per cent due to slowing demand growth from the industrial and commercial segments on account of muted gross domestic product (GDP) growth.
In the Eleventh Five-Year Plan (2007-08 to 2011-12), the power demand to GDP growth ratio was 0.83. In the Twelfth Plan, this ratio is expected to improve to 0.9, based on our demand growth expectations of 6.2 per cent, the research firm said.
“In the past, demand growth has been restricted due to lack of generation capacities and constrained power offtake from state distribution companies on account of their weak financial position. However, in future, slow economic activity will restrict demand growth, despite an improvement in the financial position of state distribution companies with tariff increases and significant reduction in interest costs on implementation of the financial restructuring plan,” said Prasad Koparkar, Senior Director, Industry & Customised Research, at Crisil.
Crisil believes that the plant load factor (PLF) of new domestic coal-based plants will remain significantly lower, increasing only to 65-67 per cent by 2016-17. This is due to slower demand growth and aggressive bidding, which will restrict the use of high-cost imported coal.
“Lower PLFs will adversely impact returns for 18,000 MW of competitively bid plants that have levelised tariffs of less than Rs 3.1 per unit – a level needed to earn 15-16 per cent return on equity. Of this, close to 7,000 MW, which have been aggressively bid at levelised tariffs of below Rs 2.9 per unit, are at high risk of being unviable,” said Rahul Prithiani, Director, Industry Research, at Crisil.
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