Higher capacity utilisation at thermal power plants signals better days ahead

Shishir AsthanaMoneycontrol Research

It is widely known that power generation has been on the rise for a while now. This has been captured in various official data points like the Index of Industrial Production (IIP), and the GDP.

But for the first time in a decade, the average capacity utilisation of thermal power plants--as measured by plant load factor (PLF)--has reversed a declining trend and crossed 65 percent in this fiscal so far. This level was last seen in 2013-14. PLF of thermal power plants had been falling from a peak of 78.5 percent in 2007-08, all the way to a decade low of sub-60 percent in 2016-17.

The trend reversal in thermal power plant PLF is significant for multiple reasons. One is that the improvement in thermal PLF is despite a sharp growth in renewable power capacity in the country. Thermal power plants have, of late, also faced coal shortage, and still managed to report higher utilisation. The improvement was visible across central, state and private generation.

Growth in electricity generation has a multiplier effect on the economy. It is one of the lead indicators of vibrancy in the economy.

The government’s drive to electrify every village has helped increase consumption. Also, with the health of state electricity boards (SEBs) showing signs of improvement, consumption by states has increased.

The positive trend in PLF suggests that economy has been able to absorb the incremental renewable power capacity and at the same time also the higher electricity generated by thermal plants.

A revival in power sector is important to the economy because of the direct and indirect benefits the sector offers. In a recent article Vinit Goenka, member governing council CRIS, Ministry of Railways pointed out that with 1,160 billion units of power production in the current fiscal year, the country is creating around the quarter of a million jobs in the energy sector. This in turn is expected to pull around two million people out of poverty.

As the economy gathers steam, demand for power is expected to grow. Importantly, 2018 will see completion of last mile connectivity in many parts of the country on account of the reforms of the last few years.

The Saubhagya scheme is expected to provide electricity connections to over 40 million families by December 2018.  Quoting power ministry data, Goenka says around 26.3 million below poverty line households will be electrified under the Deen Dayal Upadhyay Gram Jyoti Yojana, by end of the next year.

A growing economy will help PLF improve further as industrial consumption will complement increased demand from households. Not long back, the power sector had been staring down the barrel. Now, it could be looking at the future with renewed hope.