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Capacity addition in thermal power generation to go down

The Crisil report estimates that power demand will escalate to a compound annual growth rate (CAGR) of 6.5 to 6.8 percent in the next five years

New Delhi: Capacity addition in the thermal power sector is slated to go down to less than half the current pace over the next five years, rating agency Crisil said in a report.

While India added 88 GW of capacity in the last five years, the period from 2019-2023 is expected to witness the addition of only about 35 gigawatts (GW) of new coal-fired power plants to India’s power generation portfolio, the report said. The figures refer to thermal power and not renewable energy, where India has set a target of adding 100 GW over the same five-year period.

Reasons behind the slowdown

According to Crisil, the slowdown can be attributed to two factors: firstly, in the private sector, large capacities that are under construction are stuck because of the financial mess that the promoters are caught in. Secondly, a limited number of new projects have been announced as players with the wherewithal to add more capacity to the sector are choosing to buy out some of the bankrupt assets that are available at reasonable valuations. “Crisil Research expects approximately 85 percent of the total 35GW capacity additions between fiscals 2019 and 2023 to be coal-based, led by a large number of planned projects that are at advanced stages of completion and have some sort of fuel supply and off-take arrangements already in place,” the report said. “In spite of this, all these projects are expected to face ambiguity over fuel supply as well as power offtake on account of the supply surplus situation prevailing in the sector. There will not be any significant gas-based capacity additions over the next five years on account of severe constraints in domestic gas availability,” it said.

What does the future look like?

The sector’s growth curve is likely to see a surge only if there’s a rise in power demand. Over the last five years, power demand registered an annual growth rate of 3.8 percent, riding on improvement in energy efficiency and reduction in transmission and distribution losses, but it was also plagued by cuts and load shedding because of the weak financial health of distribution companies and lack of intensive electrification. The report, however, estimated that power demand will escalate to a CAGR of 6.5-6.8 percent in the next five years, riding on the back of high latent demand, rapid urbanization, and the government’s thrust on rural electrification.