Power Sector- Q4FY14 Preview

During the first two months of Q4FY14, a total capacity of 3,411 MW was added, registering a growth of more than 13.88 per cent as compared to the same period of previous year. While in the thermal power, the total capacity addition was 3091 MW against 2885 MW during the first two months of the last quarter of fiscal year 2013. On the other hand, the total capacity addition in hydro sector was 320 MW as against 110 MW, registering growth of more than 190 per cent during the first two months of Q4FY14. 

On the plant load factor (PLF) front, the central power companies have shown better performance in the month of February, up by 84 basis points at 83.16 per cent as against the same month of previous year. The private sector companies have reported a decline of 188 basis points in the PLF during February 2014 as compared to the same month of the previous year, while the state power companies PLFs have reduced by 475 basis points during February 2014 as compared to the same month of previous year. The low PLF depicts low load factor which means less output and a higher cost per unit. This means that the electricity producer will sell electricty at low spark spread,  which means that the margins from sale and production cost will be less.

The thermal coal prices is expected to fall in fiscal year 2014-15. This is because of the increase in minning output in the international market and strenghtening of rupee against dollar. Indonesia is the biggest sub bituminous coal supplier to India (around 50% market share), now exports coal at three per cent lower at $ 59.57 per tonne as against the price of January 2014. This will help the power companies in reducing input costs. 

On the power trading front, the volume of power traded on the exchange has grown from 22.3 billion units (BU) during 2012-13 to 29 BU during last fiscal 2013-14. The price has declined sharply from Rs 3.67 in 2012-13 to Rs 2.8 per unit during FY13-14. The fall in power price is due to drop in demand.

In the meanwhile, there is some positive news for the Mundra ultra mega power plant (UMPP) of Adani Power and Tata Power. CERC has allowed to hike the tariff rate to recover its losses which they suffered due to escalation of prices of imported coal from Indonesia. Adding to their worry,  Rajasthan and Gujarat have filed petition to Appelate Tribunal of Electricity against the order of CERC. 

From the above it is clear that on one hand the tariff is reducing due to low demand and in other hand the volume of power traded on exchange is increasing.  This depicts that the demand of power is going to increase in the upcoming quarters but the improvement will not be significant.