Peak deficit falls to historic lows on lack of demand
India’s bleeding power sector—all power utilities, the PFC report points out, had a negative net worth of R32,000 crore in FY12—just got another huge shock. According to the latest data available with the Central Electricity Authority, the peak power shortage has come down dramatically, from 10% in December 2012 to as low as 4.2% in December 2013—for the April to December period, it fell from 9% in 2012 to 4.2% in 2013. And since the peak deficit in the power-starved southern region is also down dramatically, from 18.9% in December 2012 to a mere 3.7% in December 2013, the integration of the southern grid into the all-India one isn’t going to help much either in terms of creating a new source of demand. Indeed, in the April-December 2013 period, demand grew by just 0.7% as compared to over 6% in the last five years. Which means that credit rating agency Crisil’s demand forecast of a 5.9% growth over the next 5 years also looks optimistic.
Though the financial restructuring programme (FRP) that has been agreed to by Rajasthan, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Haryana, Jharkhand and Bihar, has ensured money has started flowing back into the system, power suppliers are stuck in a bind. At present, the gap between aggregate costs and aggregate realisations could be around R1.2-3 per unit (it was R1.07 for FY12), but this can’t be reduced too much in the face of muted demand.
Meanwhile, with costs of raw materials going up, especially those of imported coal, the industry is hard pressed to deliver at the aggressive prices it contracted to sell power at—according to Crisil, around 7,000 MW of power projects are particularly at risk as they were the most aggressively bid. While these projects will get some relief now that the government has told the state electricity regulators to consider hiking tariffs for projects due to increased input costs, the larger problem is that of new projects that have been planned. For one, these projects were planned with a much higher power demand in mind and, as a natural corollary, with higher tariffs. While it is difficult to prophesy demand so many years into the future, industrial growth is next to negligible at the moment and, equally important, overall PLF of coal-based plants is around 70% right now, which means these plants have enough scope to meet increased demand. That’s bad news for both the promoters setting up new plants right now as well as the bankers funding them.