India Ratings assigns positive outlook for thermal power plants

New Delhi: India Ratings and Research has assigned a positive rating outlook for thermal power plants on improving plant load factor (PLF) and adequate liquidity.

The rating agency said generators may be affected by supply issues and rising demand from time to time, but projects can maintain availability using imported coal, as clarity has emerged on the full coal cost shift imported during short domestic supply. Adequate liquidity and working capital limits are critical to managing an increase in costs or some delay in receivables, he said.

“The positive outlook is based on the expected plant load factor above 65% for FY24 and FY25, better visibility of coal cost pass-through and adequate liquidity,” he said in a statement.

Despite the focus on green energy, demand for coal-fired power plants is back as power demand this year has reached record levels and the Center has ordered all power plants including imported coal-based plants to operate at full capacity. Recently, power minister RK Singh said that 12 GW of thermal power capacity would be set up in the country by March 2024.

For the energy infrastructure as a whole, India Rating has observed a significant moderation in the receivables cycle across counterparties following the implementation of the LPS, 2022 rules, leading to an improvement in the liquidity profile of projects with weak counterparties. Internal liquidity position compared to the strength and diversification of counterparties continues to be a key rating factor for all generating assets, he said.

“Renewable energy bidding activity has picked up and the capacity auctioned in 1HFY24 is already higher than the total capacity auctioned in FY23. However, execution challenges remain with land acquisition and transmission connectivity critical, as commodity prices ease,” he said.

It continued with the stable rating outlook, for solar power projects as they continue to have stable operations, sound debt service coverage and comfortable internal liquidity. “The significant drop in module prices over the past six months is positive for under-construction projects; however, timely completion of projects is critical given the slowdown in capacity addition observed in 1HFY24 compared to the previous year,” the statement said.

However, he assigned a negative rating outlook for wind power projects while still being managed by generation diversity. India Ratings expects wind power generation in FY24 to be at levels similar to FY23.

He noted that the end of reverse auction is likely to allow developers to bid with a better return risk profile and improve overcapacity in the medium term.

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Updated: 09 November 2023, 08:15 PM IST

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