Coal fired thermal power capacity addition likely to remain subdued during FY20-FY21: India Ratings

The coal-based capacity addition in the Indian power sector, which fell to a low of 3.6 GW in FY19, is likely to remain subdued at 5GW-6GW per year in FY20 and FY21.

According to India Ratings and Research of the Fitch Group, This likely decline in thermal capacity addition is attributed to the decommissioning of nearly 2GW annually as the plants complete their useful life, due to the stress in nearly 85% of the private under-construction capacity, issues with regards to availability of funds, coal, power purchase agreements and evacuation and decline in fresh project starts 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 FY19.

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. Fresh project starts for thermal projects declined steeply to a mere 1.6 GW in FY19 from an average of 10 GW 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.

As of FY18, of the total under-construction capacity of 24.7 GW in the private sector, 14.4 GW of capacity was uncertain/stressed/work on hold. This proportion increased to 20 GW (85% of the private under-construction capacity) at FY19, 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.

The quantum of under-construction projects declined to 65 GW in FY19 from 95 GW in FY13. The decline was mainly driven by the private sector, which saw under-construction capacity falling to 24 GW in FY19 from 63 GW in FY13. Additionally, a bulk of the under-construction capacity in the private sector is stressed and is unlikely to be completed.