Investments into power sector reined in

by Mahesh Vyas

During the investment boom years between 2006-07 and 2010-11, the power sector accounted for a third of all new investment proposals. This ratio fell to about a quarter between 2011-12 and 2015-16. But, in 2016-17, the contribution of power projects to total new investment proposals fell to an all-time low of 12.5 per cent. The share of power projects in total outstanding projects has fallen from 40 per cent in 1999-00 to 28 per cent in 2016-17.

Do entrepreneurs see difficult times in the years to come for them to be so reticent in proposing new power projects? Or, has our need for power declined because we have overcome the massive shortages we saw in earlier years?

Power shortage had peaked at 11 per cent in 2008-09, the last year of the 9 per cent real GDP growth years. As economic growth slowed down, power shortages also declined. In 2015-16 power shortage was a mere 2.1 per cent and peak shortage was down to 3.2 per cent. During April-February 2016-17 peak shortage was even lower at 1.6 per cent.

Power shortages are fast vanishing even as power plants lie idle. Plant load factor is down to 60 per cent from 79 per cent in 2007-08.

It is quite likely that the slowdown in economic growth has had an impact upon shortages. Power plants have sufficient head-room to meet demand if growth picks up again. Given this excess-supply situation, power distribution companies are not very enthusiastic to pay a good price for future supplies of electricity.

The recent fall in solar power auction price to Rs.3.15 per unit has caused much flutter. Tariffs were of the order of Rs.16-18 per unit in 2009-10. The general expectation is that solar power tariffs will fall further to less than Rs.3 per unit. Coal power tariffs are also declining. In 2016-17 it fell below Rs.2 per unit for NTPC.

Swaminathan Anklesaria Aiyar has expressed concern about the way things may pan out in the future. In his April 16 Swaminomics column in Times of India he warns: “If average PLF falls below 48 per cent and that of merchant plants fall even more - as is likely if solar capacity soars to 40,000 MW by 2020 - then many coal-based power projects will go bust.”

According to the CapEx database, 3,513 mw of solar power was commissioned in 2016-17. In 2017-18, 8,983 mw of solar power is scheduled to be commissioned and another 5,002 mw is scheduled to be commissioned in 2018-19. Solar power capacity additions scheduled to be completed by 2020 would be of the order of 14,000 mw, according to the CapEx database. The total solar power capacity under implementation is of 23,648 mw spread over 189 projects.

Even if we assume that all of these will indeed get commissioned as scheduled, we would not hit the 40,000 mw target that Swaminathan fears.

The total additional electricity generating capacity under implementation is 334,912 mw. This includes conventional power plants based on coal, gas, hydro and nuclear and also non-conventional power plants such as solar and wind. Of this, 38,569 mw is scheduled to be completed in 2017-18, 31,448 mw is scheduled to be completed by 2018-19 and 48,689 mw by 2019-20.

Apparently, a total of 118,706 mw capacity will be completed by 2020. But, in reality, many of these will not be completed as scheduled. It is likely that only about two-thirds will be completed. Even that would imply the addition of over 78,000 mw of additional power generating capacity by 2020.

It is quite likely that such capacity creation could create a situation of substantial surplus and lead to a further fall in the plant load factor. Unless economic activity shoots up extra-ordinarily, it is unlikely that the demand for power would run far ahead of supplies in the foreseeable future.

Entrepreneurs see the low demand for power, the low capacity utilisation levels their plants face, falling prices of power sold by power producers to distributors and the substantial pipeline of new capacities in the works. So, they have pulled back on investments. New investments proposed in the electricity generation sector fell from Rs.2.7 trillion in 2014-15 to Rs.1.7 trillion in 2015-16 and then to Rs.0.9 trillion in 2016-17.

This slowing down of investments is not a bad thing at least for some time, till demand picks up.

CMIE STATISTICS
Unemployment Rate
Per cent
3.8 +0.1
Consumer Sentiments Index
Base September-December 2015
99.7 +0.2
Consumer Expectations Index
Base September-December 2015
100.0 0.0
Current Economic Conditions Index
Base September-December 2015
99.1 +0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 16 Sep 16 Dec 16 Mar 17
New projects 1.45 2.40 1.40 2.87
Completed projects 0.90 2.20 0.88 1.65
Stalled projects 1.40 0.64 1.01 0.32
Revived projects 0.40 0.51 0.17 0.62
Implementation stalled projects 0.50 0.37 0.80 0.27
Updated on: 23 May 2017 8:20PM
Quarterly Financials of Listed Companies
(% change) Jun 16 Sep 16 Dec 16 Mar 17
All listed Companies
 Income -0.9 2.1 6.3 10.3
 Expenses -0.3 1.9 6.6 9.5
 Net profit -4.0 14.6 37.8 37.5
 PAT margin (%) 6.9 6.9 6.1 7.3
 Count of Cos. 4,499 4,479 4,449 1,114
Non-financial Companies
 Income -2.5 0.6 6.1 12.7
 Expenses -2.9 -0.2 7.6 17.3
 Net profit 9.7 26.7 22.2 -7.0
 PAT margin (%) 7.4 6.9 6.2 10.0
 Net fixed assets -9.2 8.0
 Current assets 8.1 5.1
 Current liabilities 11.6 7.7
 Borrowings 3.1 7.1
 Reserves & surplus 8.4 12.7
 Count of Cos. 3,502 3,485 3,468 884
Numbers are net of P&E
Updated on: 23 May 2017 8:29PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.4 9.9 4.9 1.0
 Expenses 12.6 9.7 5.0 1.1
 Net profit 1.2 -3.1 2.1 -12.4
 PAT margin (%) 3.6 3.2 3.2 3.1
 Assets 14.3 12.2 9.3 8.1
 Net worth 9.5 9.6 8.6 7.4
 RONW (%) 6.8 6.1 6.1 5.5
 Count of Cos. 24,399 21,813 20,887 16,947
Non-financial Companies
 Income 11.7 9.6 4.0 0.0
 Expenses 12.0 9.2 4.1 -0.8
 Net profit -8.4 -3.8 -4.0 12.5
 PAT margin (%) 2.4 2.2 2.2 2.8
 Net fixed assets 12.9 11.6 13.0 12.4
 Net worth 7.7 8.6 7.2 6.7
 RONW (%) 5.5 5.0 4.9 5.8
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 1.9 1.9 2.1
 Net working capital cycle (days) 72 69 67 66
 Count of Cos. 18,910 17,264 16,595 13,776
Numbers are net of P&E
Updated on: 21 May 2017 10:44AM