New Delhi: India Ratings and Research (Ind-Ra) maintained a neutral outlook for India’s power sector in FY25, projecting that the plant load factor of thermal power plants would continue to improve, approaching 70 per cent due to higher power demand, increased domestic coal production, and slower thermal capacity additions. The continuation of coal-based generation remains crucial until substantial energy storage capacities are developed to facilitate the transition to renewable energy.
“Ind-Ra continues to see a demand-supply mismatch in the power market, which would lead to a continued uptick in plant load factors of thermal plants and elevated merchant tariffs,” said Bhanu Patni, Associate Director of Corporate Ratings, Ind-Ra. The agency noted that although solar capacity addition has accelerated following a drop in module prices, over 15GW of renewable capacity is expected to be added annually. “Effective storage options still need to be developed for the renewable capacities to provide round-the-clock power,” Patni added.
Merchant market prices are expected to remain high in FY25, driven by persistent higher demand and slower thermal capacity additions. However, Ind-Ra anticipates thermal capacity addition will accelerate over FY25-26, with an expected commissioning of 6-8GW each year. The new draft tariff norms released by the Central Electricity Regulatory Commission for FY25-FY29 aim to ensure stability by maintaining regulated returns for existing power plants.
The agency also expects renewable capacity additions to continue at a pace of 15-18GW annually over FY25-FY26, facilitated by lower equipment costs, continuous policy support, and liquidity availability. The execution timelines for these additions, however, will depend on the regulatory approach towards import duties on cells and modules, domestic manufacturing support, and a push for domestic equipment sourcing.
Energy transition efforts towards renewable capacity will largely depend on the development of energy storage capacities. “Pumped storage hydro power projects are emerging as a viable solution, especially as battery storage remains economically less viable,” stated the report. The draft CERC regulations have increased the return on equity for pumped hydro storage to 17 per cent from 16.5 per cent.
Improvements in the debtor’s position for generating companies continue, driven by improved liquidity in distribution companies due to timely tariff hikes, successful implementation of the Late Payment Surcharge scheme, and ongoing reductions in aggregate technical and commercial losses. “The improvement in payment behavior of state distribution companies continues to result in better sector financials,” Ind-Ra observed.
Ind-Ra also notes a shift in the business model of large corporates, predominantly in the thermal sector, moving increasingly towards non-regulated activities with additional renewable capacity. The agency takes comfort from their execution capabilities and ability to secure low-cost funding.
With a stable rating outlook on 84 per cent of its rated sector entities and a positive outlook on 5 per cent at the end of March 2024, Ind-Ra anticipates that credit metrics for these companies will remain stable in FY25, supported by additional EBITDA from new capacities and deleveraging, despite ongoing capital expenditure plans. The agency confirmed adequate liquidity buffers for most rated issuers in the ‘A’ and above categories, maintaining a stable rating outlook for FY25.
