Power Demand Expected to Increase by 7%: Fitch Reports

As per Fitch Ratings, domestic power demand is expected to increase by 7 percent year-on-year in 2023-24 due to strong industrial activity. According to a report by the rating agency, it anticipates the receivable days (payment cycle) to continue to decrease in the near future. It anticipates a 7% increase in India's power demand for FY24, following a 7.1% rise in the first half of FY24, driven by strong industrial activity. This is equivalent to a 9.5% increase in FY23. The report stated that the strong demand for power is expected to maintain the average thermal power plant load factor (PLF) at or above 60 percent.

The report also mentioned that consistent payments made under the central government's late payment surcharge (LPS) regulations have reduced the overall amount owed by distribution companies (discoms) to power generation companies (gencos) to approximately Rs 70,000 crore. This is a significant decrease from the Rs 1.3 lakh crore owed in June 2022 when the LPS was first implemented.

Fitch anticipates that the amount of time it takes for Fitch-rated gencos to collect receivables will continue to decrease in the near future, albeit at a slower pace than the significant improvement seen in FY23.

Nevertheless, the continued improvement of Gencos' receivables position relies on implementing structural changes to enhance the operational and financial capabilities of Discoms in the long term. This comprises promptly adjusting tariffs, government subsidies, and improved operational efficiency.

As of the end of September 2023, the thermal coal inventory has dropped to approximately 8.4 days compared to the usual 18 days. Despite the government's efforts to sustain sufficient coal stock by boosting local supply and promoting increased coal imports over the past six months, this was still the case.