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Renewable Projects Leap Ahead of Thermal

Renewable Projects Leap Ahead of Thermal

Private thermal projects are staring at muted power demand, which is the effects of non-remunerative tariffs partly due to aggressive bids and some adverse perception due to falling renewable tariff, says India Ratings and Research (Ind-Ra). Ind-Ra believes that private developers are facing more challenges in operating thermal power projects than renewable energy projects.

In contrast, the large target by the government for renewable capacity addition and the focus on renewable purchase obligation along with falling tariffs in competitive bidding regime have led to an increase in demand for renewable energy. Strong counterparties for solar companies including Solar Energy Corporation of India and NTPC Limited (‘IND AAA’/Stable) are providing comfort to developers on payment security. However, an improvement in the financial profile of distribution utilities is important for power projects to have stable revenue receipts.

For some states, particularly Uttar Pradesh and Bihar, which houses a significant proportion of population, the average per capita supply of electricity is lower than the national average. Also, a reliable and continuous supply is yet to be ensured in most states. Electricity demand is likely to grow across the country, driven by industrialisation.  In FY16, 44% of electricity demand nationally was attributed to industrial demand, while around 23% was domestic demand (Source: Central Electricity Authority of India; CEA). Per capita supply was 1,075kWh in FY16.

In a falling electricity deficit scenario and excess energy tie-ups by distribution utilities, even amid high demand growth, projected generation capacity is well placed to meet the demand. In the scenario of electricity replacing diesel in applications including diesel generators, agricultural implements and railways, the additional electricity demand can be addressed by a 6 percentage point increase in the plant load factor of thermal plants. Ind-Ra in its estimates considers the amount of electricity that would have been required if all vehicles had become electric in FY17, to indicate the quantum of demand that can arise from the electrification of road transport.

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