Synopsis
- After growing at 9.5% and 6.4% in FY23, the base and peak demand are expected to increase by 5.5% and 6%, respectively, in FY24.
- While the base deficit may remain near 0.5% for FY24, the peak deficit is expected to remain elevated. After spiking at 4% in FY23, CareEdge Ratings predicts it will be above 1% in FY24.
- Coal/lignite fired thermal plants saw a reduction in plant load factor (PLF) during the Covid-19 lockdown periods, but have rebounded. PLF is estimated to be 63.8% in FY23 and 64.8% in FY24. • Thermal power generation accounted for approximately 73% of total generation in India during FY22, and similar levels are expected for FY23. The contribution is likely to be around 72% in FY24. With a substantial increase in renewable capacity and higher output from wind farms (due to improved wind speeds) and better availability of gas at competitive prices by FY25, the contribution of coal/lignite-fired plants is expected to decrease from current levels but likely to remain above 68% in FY25.
- Coal dispatch to the thermal power sector, expected to peak at around 85% of total dispatch in FY23, is anticipated to continue at similar levels during FY24. Improved captive mine production during FY23 and going forward alleviates some concerns about Coal India Ltd and The Singareni Collieries Company Limited (CIL/SCCL) production ability, transportation bottlenecks, and increasing dependence on imported coal.
Demand Growth to Remain Above Long-term Average in Medium Term
Base energy demand increased by 8.1% in FY22 and is estimated to grow by 9.5% in FY23 due to the rebound of economic activities after Covid-19 lockdowns eased, leading to increased consumption. While CareEdge Ratings expects a moderation in the growth rate for FY24 and FY25 due to the base effect, it is still expected to surpass the Compound Annual Growth Rate (CAGR) witnessed in the ten-year period of FY12 to FY22, which was 3.9%.
Peak demand remained unaffected by Covid-19 lockdowns and increased by 6.74% in FY22. CareEdge estimates that year-on-year growth will be 6.4% in FY23, 6% in FY24, and 5% in FY25. A similar trend of surpassing the 10- year Compound Annual Growth Rate (CAGR) during the FY12 to FY22 period, which was 4.6%, is likely to be witnessed (refer to Exhibit 2).
Peak deficit sharply increased in FY23 to 4%, attributable to the early onset of summer and sizeable thermal capacity undergoing scheduled maintenance in Q1FY23. Furthermore, higher imported coal prices, lower coal availability, and transportation-related constraints also contributed to the deficit.
This calendar year, the Ministry of Power has better planning in place with the early invocation of Section 11 of the Electricity Act 2003. Additionally, trading of electricity from plants having high input costs (including gas-based plants) in the recently introduced High Price Day Ahead Market (HP-DAM) has also been allowed. Hence, the peak deficit in FY24 is expected to be slightly lower than the FY23 level.
Rebound in Thermal PLF with Anticipated Sustenance
Over the years, coal/lignite fired capacity has played a central role in meeting energy demand in India. In FY17, 78% of total power was sourced from coal/lignite fired capacity, which moderated to 73% in FY22. CareEdge expects this trend to continue, with coal/lignite fired capacity accounting for 73% and 72% of total power sourced during FY23 and FY24, respectively. This is significant considering the rapidly increasing capacity of renewable sources over the years and the projected additions going forward.
In terms of Plant Load Factor (PLF), the all-India thermal PLF was 58.9% in FY22 and is estimated to rise to 63.8% in FY23 and 64.8% in FY24. However, the PLF may moderate to the level of 62% in FY25 due to a significant increase in renewable, hydro, and nuclear capacity.
The coal/lignite fired PLF in the medium term is directly related to power demand and is also sensitive to the extent of addition of renewable capacity and availability of adequate gas at competitive price. However, the PLF may be also adversely impacted in case there is delay in commissioning of new thermal capacity and /or lag in execution of medium-term power purchase agreements (PPAs) for IPPs, subdued coal production and its transportation.
Coal Production and Transportation will be a Key
To ensure a high plant load factor (PLF), uninterrupted coal supplies to thermal power stations are essential. However, coal production has not kept pace with the increase in power demand over the last two years in India. As a result, the Government of India has taken supportive measures to ensure a higher availability of coal for thermal plants. Consequently, the allocation of coal production to the sector has steadily increased. In FY18, the allocation for the power sector was 78% of the total coal dispatched. This allocation increased to around 83% in FY22 and is estimated to reach around 85% in FY23. CareEdge Ratings predicts that coal allocation to the power sector will remain high in FY24, as the sector’s requirement has not peaked yet. While CIL/SCCL production has risen in FY23, it remains to be seen whether a healthy dispatch rate can be maintained. Furthermore, the production of coal from captive mines will also be critical. Higher CIL/SCCL and captive production going forward will help to reduce dependence on high-cost imported coal.
CareEdge Ratings’ View
Sudhir Kumar, Director at CareEdge Ratings, commented on the power situation in India, saying that while the country has consistently added higher capacity, especially in the renewable space, the ability to meet peak power demand needs to be strengthened. In FY23, the peak deficit sharply increased to 4% due to factors such as the early onset of summer, machine and coal availability issues during Q1FY23. In the short term, better planning initiatives for FY24, including the continuation of blending imported coal and scheduling high-cost gas-based plants at an elevated tariff, are expected to curb the peak deficit. However, the peak deficit is still expected to be higher than 1% during FY24. In the medium term, coal-fired thermal power capacity is likely to remain relevant in meeting the country’s power requirements. For this, the roll-out of new medium-term power purchase agreements, commissioning of pipeline capacity, as well as capacity augmentation in coal production and logistics will be crucial.
Additionally, Kumar noted that the base load meeting ability of the country has been tested, with the base deficit remaining less than 1% since FY17.
