Power demand up, but engines aren’t humming
The demand for electricity is stronger this fiscal, with coal consumption rising even in July, when hydro power flooded the market. But the generation till July, which grew by a mere 4 per cent growth, is not significant enough to signal a revival in industrial demand.
The improved prospects for the sector are apparent even in Coal India Ltd’s (CIL) performance during April-July this year vis-a-vis last year.
In 2016-17, the state-owned miner reported only 1.7 per cent growth in volume sales. Offtake rose by 2.9 per cent in the peak summer months of April-June 2016 before falling flat in July. This was despite the lower availability of hydro power during the same period last year.
Indicatively, between April 1 and July 19, 2016, hydro power generation was down 9 per cent. In July alone, hydro power availability was down 1 per cent, and total generation was up by only 2 per cent.
The story is dramatically different in 2017-18, as coal-based generation is up 6 per cent in July 2017, despite 5.7 per cent higher availability of hydro power.
Good rains have resulted in significantly higher supply of hydro power this summer. Till July 19, hydro electricity supplies were up 15 per cent. If meteorological predictions prove correct, hydro power supplies will increase faster for the remaining monsoon months. The Central Electricity Authority does not provide details of daily renewable energey (RE) generation . However, considering India’s 32 GW wind power capacity — the fourth-largest in the world — RE contribution will almost certainly be higher this year. Wind-based generation peaks in the monsoon months of July to August. Over all, CEA says, total generation is up by 5.7 per cent in July, which is almost three times the growth in July 2016. Stronger fundamentals, indeed, but not enough to predict a return of good times. “The demand for electricity has improved marginally,” says Kameswara Rao, Partner, PwC. “While it is hard to attribute it to one single factor, growth appears to have come from rural electrification, construction and commercial sectors.”
Rao adds that the “demand growth still lags economic growth, which suggests that an improvement in manufacturing can significantly boost the plant load factor (PLF) of power plants.” Coal plant PLF was as low as 60 per cent last year, down from about 79 per cent at the end of the past decade.
It also means that CIL is not yet out of the woods. The miner witnessed a slide in net profit last year despite selling more coal.
There were primarily two reasons for this. The company reported higher profits in the past, riding on sales to non-power customers who pay 20 per cent more than power utilities.
Though this segment accounted for only 20 per cent of coal sales, it makes a higher contribution to profits.
However, CIL is losing this opportunity due to the government’s ‘power-first’ approach and the lukewarm growth in demand from the sector.
Open-market sales are another major contributor to the profits of the past, but they too are suffering from low prices due to a glut in the global market and the lukewarm demand.