India’s power demand to rise even as capacity additions remain sluggish: Fitch

India’s electricity demand is expected to rise by about 6% in the financial year ending March 2022 (FY22) after falling 1.2% in FY21, as the lockdown during the recent pandemic resurgence is less restrictive and more localized than in 2020, said Fitch Ratings in a report.

This resulted in the slower 1.4% power demand decline in April-May 2021 from pre-pandemic levels in April-May 2019 against the 18.8% year-on-year (y-o-y) fall in April-May 2020. However, a surge in covid-19 cases may worsen the restrictions on economic activity, raising the risk of further downside.

The increase in demand is likely to result in higher thermal power plant load factor (PLF) in FY22. Fitch expects coal import volume to increase slightly from rising coal-powered PLF as it expects a large part of the increased coal demand to be met through rising domestic production.

Also, renewable capacity addition could be slow during the year due to delays from the pandemic. Solar capacity, which has been driving overall renewable capacity additions in the past few years, has been under additional pressure from the recent reluctance of some distribution companies to sign power purchase agreements with the winning bidders after auctions for power generation in anticipation of a further drop in tariffs in future bids.

“We expect generation companies’ receivable position to improve gradually in FY22 as disbursements under the central government’s liquidity scheme progress, although risks remain from the pandemic’s resurgence,” said Fitch Ratings in its report.