Plant load factors (PLFs) of coal-based power plants in India will improve to ~65% this fiscal despite record renewable¹ energy (RE) capacity addition. Healthy PLFs along with lower receivables and encouraging fuel supply will support the credit profiles of private coal-based generating companies (gencos).

Over the past two fiscals, demand for electricity has seen a robust 8-9% annual growth, driven by the post-pandemic economic rebound. During this period, 34 gigawatt (GW) of capacity has been added with 90% of it in RE.

In GW terms, this is a 9% growth in power capacities but on normative terms this was only 4-5% growth as capacities operates at varying PLFs² and in this incremental supply, coal-based power plants remain an important cog, accounting for 69-71% of total power generation because of the intermittent nature of RE with lower PLFs³.

Says Ankit Hakhu, Director, CRISIL Ratings, “The trend will likely continue this fiscal. Power demand is seen growing 5-6%, and a part of the incremental requirement will be met by the newly added RE capacities - including 18 GW in wind and solar, the highest ever. That said, a good portion of the incremental generation will be met by existing coal-based power plants. This will prove beneficial for thermal PLFs, which are likely to improve by 100 basis points (bps) to over 65% in fiscal 2024, as no material⁴ coal-based capacity is envisaged this fiscal and relatively low-capacity addition of hydro, biomass and nuclear.”

The higher PLFs will continue to be supported by conducive fuel supply as domestic coal production⁵, building upon its record high of 893 million tonne (MT) last fiscal, is on track to achieve 11-13% growth projected for this fiscal. Moreover, coal allocation under various e-auction modes has notably improved⁶. Evacuation infrastructure has also witnessed augmentation with railway rakes for coal transportation 8%⁷ higher on-year.

In addition, cash flows will be supported by release of receivables under the Late Payment Surcharge (LPS)⁸ scheme notified by the government in June 2022. Receivables of private gencos⁹ rated by CRISIL Ratings are estimated to reduce from 82 days as of March 2022 to 55-60 days by the end of this fiscal.

Says Mithun Vyas, Team Leader, CRISIL Ratings, “Overall, we expect coal-based power plants rated by us to witness over 20% on-year rise in cash flow from operations (CFO)¹⁰ this fiscal. Consequently, CFO to total debt for these power plants will improve from 11% as on March 31, 2023, to an estimated ~15% as on March 31, 2024.”

This improvement is in making since last couple of years after a period of distress, plagued by lower PLFs, limited coal access, and stuck receivables. While these parameters are on a better footing now, their sustainability and the pace of rollout of RE capacities will bear watching over the medium term.

Till then, utilization of surplus cash flows towards deleveraging will benefit the credit profiles of those coal-based power plants, which create balance-sheet cushions.

¹ This includes solar and wind
² Normative PLFs varies basis type of capacity - Solar & Wind: 20-21%, Hydel: 35-40%, thermal: 65%, and Nuclear: 70%
³ 1 GW of solar capacity operates at ~21% PLF and generates ~1.8 billion units (BUs), while 1 GW of thermal capacity operating at ~65% PLF generates ~5.7 BUs.
⁴ 1.4 GW coal-based capacity addition till October 31, 2023 as per central electricity authority
⁵ Domestic coal production meets over 90% of power demand, while imports meet the rest
⁶ 24.7 MT of coal auctioned during April-July 2023 vis-à-vis 12.4 MT during the corresponding period of the previous year
⁷ ~251 rakes during September 2023 vis-à-vis ~232 rakes during September 2022, based on data published by the Ministry of Coal
⁸ Electricity (Late Payment Surcharge and Related Matters) Rules, 2022
⁹ CRISIL Ratings rates 35 GW of private gencos, which is 50% of privately held coal-based capacities in India
¹⁰ CFO, i.e., net cash accrual adjusted for working capital changes