Conventional power to lag, renewable and T&D to perform: CRISIL

CRISIL ResearchPower generation volumes are expected to grow moderately at 6% in the current fiscal year, due to tepid growth in power demand during the second and third quarters.Despite modest growth in generation, plant load factors (PLFs) of coal-based power plants are estimated to decline 200 bps to around 60% this fiscal, due to a strong capacity addition of about 23 GW each in 2014-15 and 2015-16 and weak offtake from discoms. Moreover, about 20 GW of capacity does not have long-term purchase agreements today.The Ujwal Discom Assurance Yojana (UDAY) is in different stages of implementation in 21 states/union territories, thereby covering states with almost 95% of the outstanding discom debt. We believe a timely and effective implementation of the scheme is critical. We expect the gap between the average cost of supply and the average revenue realised to decline significantly over the next five years.Given the stressed financials of the private sector generation companies and the lack of fresh power-purchase agreements expected from distribution companies, CRISIL Research expects conventional power-based capacity addition to slow down to 47 GW over 2017-21, led by central and state PSUs. Also, PLFs of coal-based plants are expected to be about 65% until 2020, beyond which these are expected to improve due to lower capacity addition, retirement of old plants and healthy power demand.On the other hand, capacity addition in the renewable space (wind and solar) is expected to increase significantly to 36 GW over 2017-19 compared with 17 GW over 2014-16, driven by strong government support, falling capital cost and an improvement in the execution ecosystem. However, aggressive bidding, evacuation and off-take issues would be key monitorables.Investments in the transmission segment are expected to grow at a robust pace, because of the government’s thrust on improving transmission infrastructure, augmentation of inter-state transmission capacity from 59 GW in 2015-16 to 91 GW by 2021-22, development of ‘Green Corridors’, and the rising private sector participation in transmission projects through ‘tariff-based competitive bidding (TBCB)’. Investments in the distribution segment are also expected to increase with the implementation of UDAY, as improved liquidity with discoms would be invested in strengthening the distribution infrastructure and reducing AT&C (aggregate technical and commercial) losses. The central government’s funding support through IPDS (Integrated Power Development Scheme) and DDUGJY (Deendayal Upadhyaya Gram Jyoti Yojana) would further assist investment growth in the distribution segment.