Only 10% of the 40GW of financially distressed coal power plants have been able to resolve their outstanding debt, an analysis by credit rating agency ICRA shows. Besides this, the resolution of 12 GW of gas-based capacity continues to remain uncertain, given the inadequate availability of domestic gas.

“The resolution of stressed thermal assets remains slow despite the various measures undertaken by the government and lenders, with only about 10% of the 40 GW stressed coal-based capacity achieving resolution, mainly through acquisition by a new sponsor," the report by ICRA said. “The balance capacity is under various stages of resolution, including through Insolvency and Bankruptcy Code (IBC). In natural gas, the absence of any policy measures for use of imported R-LNG (re-gasified liquefied natural gas) with subsidy support makes the resolution for the sector uncertain."

All-India electricity demand growth slowed down to 4.4% in the first six months of FY2020, from 6.0% growth witnessed in the corresponding period of previous year. This, coupled with healthy growth in generation from hydro, nuclear and renewable sources in the first six months of FY20, resulted in a decline in all-India thermal PLF (plant load factor) to 57.7% from 59.5% in 6M FY2019. The supply of coal to the power sector by Coal India Ltd also declined by 7% in the first half of the fiscal on a year-on-year basis, because of lower production and due to an extended monsoon season and the labour issues, the note said.

Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, said in the report: “The progress on stressed asset resolution (in the thermal sector) remains slow, because of the time taken to achieve sustainable resolution, regulatory challenges in securing approvals for projects with existing competitively bid-based power purchase agreements (PPAs), still limited progress in signing of new long-term PPAs and subdued thermal capacity utilization levels. Also, the improvement in the discoms’ financial position on all-India level remained lower than expected, which can hamper the sustainability of demand growth and signing of new long-term PPAs."

A lack of interest in acquiring stressed thermal assets comes at a time when thermal PLFs are falling. The decline in thermal PLF is a reversal of improvement witnessed over the past two years. The decline in PLF was sharpest for the central sector coal utilities from 70.8% in 6M FY2019 to 64.2% in 6M FY2020. Apart from energy demand growth, the increase in production and supply of domestic coal also remains critical to improve the thermal PLF level in the second half of FY2020 and thereafter, ICRA said.