Power producers face profit worries as demand lags supply

The power sector is facing a problem of plenty. Power demand is not growing as anticipated and capacity utilisation of coal-fired power plants is rapidly falling so much so that they are now worried about profitability. The situation has been worsened by the Centre’s plan to aggressively add new thermal generation capacity and Coal India’s move to stock all thermal power plants with several days of fuel.


The government had anticipated overall capacity utilisation to touch 73% during December 2015 but it declined 5 percentage points to 62% from that of a year ago. During April-December 2015, the target was 70% but the sector managed to achieve 61% after declining 4 percentage points. Private players who do not have long-term power purchase agreements (PPAs) will be worst hit by low levels of plant load factors, followed by state-run generators. Low volumes of generation will result in low return on investment, experts said.


The sector missed targets by 10 percentage points. Plant load factor, the technical term used for capacity utilisation by thermal power engineers, during April-December 2015 declined 8 percentage points to 62% against a target of 65%. The central sector, which primarily includes NTPC, saw PLF decline to 71%, with a 5 percentage point fall during December 2015, while the target was 76%. During April-December 2015, the central sector witnessed a 2 percentage point fall in plant load factor to 71% against a target of 74%.

Recently, a number of power plants have experienced cost overruns of 35-38%. Some of these plants have recently achieved commercial operations and they will be hit hard. These companies, mostly without PPAs, are likely to see an increase in debt costs while they will not be able to generate much to increase returns on their investment.