According to the rating agency ICRA, thermal power plant capacity utilization would improve by one percentage point to 69 percent in 2024-25, driven by rising electricity demand and restricted thermal capacity expansion.

ICRA’s outlook for the thermal power segment is ‘Stable’, supported by a healthy improvement in the thermal plant load factor (PLF), as well as a reduction in dues from state distribution utilities (discoms) following the implementation of the Late Payment Surcharge (LPS) scheme in August 2022, according to a statement.

The current under-construction thermal capacity is about 30 GW, which is primarily in the central and state-owned generation segments and is expected to be commissioned over the next two to four years,” Girishkumar Kadam, Senior Vice President & Group Head – Corporate Ratings, ICRA, said in a statement. “He noted that there is a definite need for more capacity beyond this pipeline if yearly power demand growth continues to surpass 6.0 percent until 2030, even after accounting for renewable capacity additions.”

He claimed that if yearly demand growth continues at 7.5 percent until 2030, the new thermal capacity required will be as much as 70 GW. Coal has remained a dominant fuel source for meeting the country’s baseload power demand, and its share of the overall energy generation mix is expected to fall from 73% in FY2023 to 58-60% in FY2030, assuming a 200 GW renewable capacity addition scenario between FY2024 and FY2030, according to ICRA estimates.

Nonetheless, coal’s part of the generating mix is anticipated to remain considerable until 2030, the report added. The average spot electricity pricing in the Indian Energy Exchange’s day-ahead market (DAM) remained high at Rs 5.4 per unit in YTD FY2024, owing to a significant demand increase.

Spot rates are expected to stay expensive at roughly Rs 4.5-5.0/unit in the short future, compared to a long-term average of Rs 3.0-3.5/unit. Furthermore, the coal stock level for domestic power plants remained small at roughly 12 days as of December 2023, which was below than the normative need. Nonetheless, this is consistent with the same period last year, according to the report.

ICRA’s prognosis for renewable energy remains ‘Stable’, driven by robust governmental support, good demand expectations, and excellent tariff competitiveness. Furthermore, the realization of past dues and the consistent payment of continuing bills by discoms under the LPS plan are still positives for the industry.

In a press release, Kadam said that “the sharp decline in solar PV cell and module prices, abeyance of the order on Approved List of Models and Module Manufacturers (ALMM) till March 2024, and the timeline extension approved for solar and hybrid projects, are expected to lead to an improvement in RE capacity addition to 18-20 GW in FY2024 from 15 GW in FY2023.” This, he added, together with the rising project pipeline, is projected to sustain a capacity increase of around 25 GW in FY2025, mostly driven by the solar power segment.

However, he added that obstacles exist on the execution front, such as delays in land acquisition and transmission connectivity, which might jeopardize capacity expansion chances.