Electricity demand in India to grow at 6% in FY2022

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India will see electricity demand grow by 6% in FY2022 on a year-on-year (Y-o-Y) basis, owing to a favorable base effect, relatively lesser impact of the second Covid wave on electricity demand, and vaccination pick-up, according to ICRA Ratings.

Any resurgence in Covid infections leading to lockdown restrictions, however, remains a key downside risk for the demand, it stated. 

The ratings agency expects the power generation capacity addition in FY2022 to rebound to 17-18 GW, compared to 12.8 GW in FY2021. The capacity addition will be mainly led by the renewable energy (RE) segment, which, at annual addition of 10.5-11 GW, will form around 60% of the overall power capacity addition.

The aggregate 10.5-11 GW of renewable capacity addition in FY 2022 will comprise 8.5 GW solar, about 2 GW wind, and the rest from small hydro, biomass, etc.

ICRA expects the RE segment to remain as the main driver of capacity addition with a more than 60% share over the next five years.

Negative thermal outlook

The outlook for the thermal generation segment is negative, despite the electricity demand growth prospects remaining favorable.

Girishkumar Kadam, Co-Group Head-Corporate Ratings, ICRA, said, cited subdued thermal plant load factors (PLFs), lack of visibility in the signing of new long-term or medium-term power purchase agreement (PPAs) for thermal independent power producers, modest tariffs in the short-term power market, and continued payment delays by the state distribution utilities as the reasons. 

The thermal PLF is expected to remain subdued at 57.0% in FY2022, despite the expected improvement from 54.5% in FY2021 led by higher electricity demand. 

Distribution

While the demand is expected to recover in FY2022, the discom finances are likely to remain under pressure owing to the lack or inadequacy of the tariff revisions, high distribution losses, and rising subsidy dependence. The median tariff revision based on the tariff orders issued so far for FY2022 is less than one percent and the subsidy dependence for discoms at all India level is estimated at Rs. 1.3 lakh crore for FY2022.

Vikram V, Sector Head-Corporate Ratings, ICRA, said, “The gap between the average cost of supply and average tariff for state-owned discoms at the all-India level is estimated to remain high at 70-75 paise per unit in FY2022, though declining from FY2021. As a result, the discom losses at the all-India level would remain high at more than Rs. 750 billion. Further, the debt on the books of state-owned discoms at all India level is estimated to reach close to Rs. 6 trillion in FY2022. Such a high level of liabilities (debt plus dues to Gencos) is unsustainable for the discoms. In this context, the rapid implementation of reforms in the distribution segment is essential for the power sector.”

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