Between 2012-13 to 2016-17, excess capacity in the thermal power sector had increased to an average of 42 per cent on account of a significant increase in capacity and lower-than-expected growth in power demand. The excess capacity touched a peak of 45 per cent in FY16, and then declined subsequently to around 42 per cent at FYE19.
Power demand is likely to see healthy growth during FY20-FY24, and only a part of the incremental demand can be met by existing and upcoming renewable capacities. Considering the absence of any major alternatives to meet the growth in demand, the proportion of excess capacity in the thermal power sector would decline further during FY20-FY24, said Ind-Ra.
The slowdown in new thermal capacity addition by the state and central thermal sectors will also support the absorption of excess thermal capacity over this period.
Fresh project starts for thermal projects declined steeply to a mere 1.6 GW in FY19 from an average of 10 GW per year over FY15-FY18. The private sector's contribution to fresh projects was nil during FY19, signalling the private players' lack of interest in the thermal sector.
Fresh project starts by the state and central sector too have declined meaningfully owing to the gradual shift towards renewable capacity addition, given the single part tariff and the cost competitiveness of such tariffs.
As of FYE18, of the total under-construction capacity of 24.7 GW in the private sector, 14.4 GW of capacity was uncertain or stressed or work-on-hold. This proportion increased to 20 GW (85 per cent of the private under-construction capacity) at FYE19, as the debt-servicing issues being faced by companies caused the supply of incremental credit from banks and equity markets to come to a standstill.
The decline in fresh project starts on a yearly basis during FY17-FY19 clearly points to the likely decrease in thermal capacity addition over the medium term. Fresh project starts declined sharply to a mere 1.6 GW during FY19 from an average of 10 GW over FY15 to FY18.
Another interesting trend is the shift from private sector to the state and the central sectors, with the bulk fresh project starts coming in from the state sector. However, the intensity of capacity addition by the public sector too is declining. Ind-Ra's analysis suggests that even in the public sector, the central sector is shying away from fresh project starts due to its increasing focus on renewable energy.
The quantum of under-construction projects declined to 65 GW in FY19 from 95 GW in FY13. The decline was mainly driven by the private sector, which saw under-construction capacity falling to 24 GW in FY19 from 63 GW in FY13. Additionally, a bulk of the under-construction capacity in the private sector is stressed and is unlikely to be completed.
In view of the reduced capacity addition during the next few years and significant decline in fresh project starts, Ind-Ra believes that the capacity gap with respect to the installed coal-based thermal capacity and the actual demand met by the coal-based thermal power plants will reduce in coming years.
The excess capacity increased to an average of 42 per cent during FY13-FY17 as capacity additions outpaced power demand growth during this period. However, the excess capacity will reduce over FY20-FY24 due to decline in capacity addition intensity in FY18 and FY19 and Ind-Ra's expectations of capacity addition remaining low over FY20-FY24.