Tariff relief for power projects is positive for the sector: ICRA

The Dollar Business Bureau

Less dependence on the imported coal and the relief in tariff for affected projects is a positive sign for the power sector, however, the timeline for tariff relief implementation is unclear yet, said independent ratings agency ICRA. 

“ICRA positively takes note of the order issued by the CERC (Central Electricity Regulatory Commission) approving tariff relief under force majeure for the imported coal-based power projects of Adani Power Ltd (APL) and Coastal Gujarat Power Ltd (CGPL), affected by the change in regulations in Indonesia,” the ratings agency said.

However, the implementation of tariff relief order is subject to the nod of the Supreme Court and therefore, timelines are not clear for its implementation, it said.

ICRA estimated that the tariff relief, as per the order, is to be less than the actual fuel cost under-recoveries. 

The rating agency further pointed out that though the growth in energy demand has been modest at 3-5% since financial year 2013-14, it is expected to revive gradually over the coming 2-3 years with improvement likely in the financial standing of the state-owned power distribution utilities (discoms) after the implementation of Ujwal Discom Assurance Yojana (UDAY) and thus in turn, leading to a better off-take and cut in load shedding.

“However, in ICRA’s view, any considerable pick-up in the average thermal plant load factor (PLF) level from the present 59.5% in FY2017 is unlikely in the medium-term, with the rising share of renewable energy in the entire consumption of energy on an all India basis and significant addition to thermal capacity already in place,” Sabyasachi Majumdar, Senior Vice President, ICRA Ratings said in a statement.

“In this context, the revival of industrial demand and improvement in the financial condition of discoms continue to be major drivers for energy demand,” he added.