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Are Power Generators' Dark Days Behind Them?
Wed, 9 Mar Pre-Open

Electricity generation clocked the highest growth in almost a decade. Generation grew by 12% YoY in the month of February; led by massive capacity addition along with easing of congestion in regional transmission lines. Electricity flow to the southern region has improved, facilitating new trading opportunities.

However, does this mean good times for power sector are back?

Too early to comment on this we believe.

Despite of rising generation, the plant load factor (PLF) has not shown a drastic recovery. PLF indicates the capacity utilisation of power plants.

PLFs have fallen from the levels of 81.1% a decade ago, to about 65% at present. This only goes on to suggest the poor demand at this juncture.

Owing to government mandate, SEBs collected lower tariff from the consumers. In fact, in some cases tariffs are even lower than their actual input costs. Despite rising input costs, SEBs are finding it difficult to increase tariffs given it's a politically sensitive matter.

As of today, power tariffs are nowhere close to where they should be. This leads to poor finances of the SEBs, which dampens their ability to purchase electricity from generators.

For utilisation levels to improve, the sector needs sustained improvement in electricity generation.

When it comes to capacity addition, National Thermal Power Company (NTPC), India's largest power utility has around 23,000 MW of plants under construction. This accounts for 51% of its existing capacity, signifying huge capacity addition plans of the company.

Further, the government wants to invite bids for ten Ultra Mega Power Projects (UMPPs). UMPPs have a capacity of 4000 MW or above. Using the ‘Plug and Play' model, the winner of the bids can start implementing projects immediately - with the government putting in all the regulatory clearances.

Building capacities is the way to go, considering the low per capita consumption of electricity in India. However, it needs to be seen whether there will be any takers for it considering the poor state of the SEBs. The only way SEBs can revive is that they engage in annual tariff hikes. Unless this step is taken, there will be no respite for the entire sector.

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May 26, 2017 (Close)

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