'Coal availability key to rise in power generation in FY15'

India Ratings today said power generation could go up by 5-6.5 percent in FY15 in line with its GDP growth estimate of 5.6 percent but is mainly dependent on availability of coal. "Ind-Ra expects power generation to increase between 5-6.5 percent y-o-y over FY15, in line with our GDP growth estimate of 5.6 percent year-on-year," the rating agency said in a report issued here. The increased generation would be on the back of higher domestic coal availability post the government's initiatives in the coal sector and higher availability and acceptability of imported coal than before, it added.

Power generation could also improve on an easing of liquidity situation at the state power utilities (SPUs) level post financial restructuring package (FRP) implementation as it would lower back-down instructions and increase the ability to buy power.

Also Read: Is this the end of Tamil Nadu's dark days?

At the same time, the report said, cautious bank-lending to SPUs and moderate demand from the manufacturing segments could lead to the energy deficit at 4.5 percent in FY15, after declining to 4.5 percent in April to November from 8.7 percent in FY13. The report further said that with the general elections scheduled for mid-2014, many states could defer tariff finalisation or even consider reducing tariffs mainly through increasing subsidies.

Delhi, Haryana and Maharashtra have announced lowering of consumer tariffs through increasing subsidy. If state distribution utilities are not allowed cost-reflective tariffs or receive subsidies in a timely fashion, specially the states which have implemented a FRP, cash flows in the power sector value chain could be impacted. However, favourable tariff decisions could emerge in the second half FY15, after the general elections. India Ratings expects the sector to witness consolidation through asset buyouts by strategic investors.

The report pointed out that the sector would be driven by the government's initiatives to resolve key issues plaguing the sector. Depreciating rupee and de-leveraging plans of independent power producers have further fuelled investor interest.