India may produce surplus power in FY18 even as outages continue: Fitch

11 Sep 2017 Evaluate

Global rating agency, Fitch ratings in its latest report has said that India could actually produce surplus power in the financial year 2017-18, with an energy deficit of just 0.6 percent in the first three months of this fiscal year- a period of usually high seasonal electricity demand. It noted that a combination of subdued demand growth, consistent capacity additions along with relatively better networks is driving a widening surplus at energy exchanges. Though, it also said that sporadic outages continue to plague the country. At the same time, it pointed out that about 24 percent of households are yet to be electrified in India.

The ratings agency observed that the inability of financially stressed power distribution companies to purchase power, along with the absence of adequate network coverage, exerts significant downward pressure on India's thermal power utilisation. It noted that the cost-revenue gap remains at Rs 0.42 per kilowatt hour (kWh) along with aggregate technical and commercial (AT&C) losses of 20.6 per cent (for 24 states). It expects that improving these operational inefficiencies will drive any sustainable improvement.

On the other hand, the report stated that the government exceeded its target of setting up transmission lines again in 1H17, helping addressing power woes. It highlighted that electricity prices at exchanges declined by another 11 percent to Rs 2.4 per unit (kWh) in 2016-17. It also mentioned that tariffs are taking a hit mainly from the prevailing electricity demand-supply dynamics, lower coal costs and a decline in renewable tariffs.

As per the report, distribution utilities are shying away from signing new long-term power purchase agreements (PPAs) for both thermal and wind capacity - while awaiting clarity on the auction route for wind power, supported by the availability of cheaper spot electricity. It said that the new tariff-based auction for wind power yielded prices of Rs 3.5 per kWh (or unit) in February 2017, down from the lowest regulatory tariff of Rs 4.2. It also noted that solar tariffs also hit a new low of under Rs 3 a unit in May 2017 – making solar the cheapest source of electricity in the country.

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