The report noted that in the first half of this fiscal, the demand witnessed a year-on-year growth of 7.1% on the back of robust industrial activity.

“The strong power demand should keep the average thermal power plant load factor (PLF) above 60%,” it said. In the past three month power demand has grown around 20% every month, compared to the corresponding month of last year.

The Fitch report noted that thermal coal inventory fell to around 8.4 days at end-September 2023, against around 18 days normative. This was despite government efforts to maintain adequate coal stock through increased local supply and encouraging higher coal imports in the past six months.

In the wake of high power demand, the power ministry recently directed mandatorily blend 6% imported coal till March next year and also asked all imported coal-based power plants to operate at full capacity by the end of this fiscal.

The report also noted that the regular payments under the central government’s late payment surcharge (LPS) rules have lowered total dues from distribution companies (discoms) to power generation companies (gencos) to around ₹700 billion, from ₹1.3 trillion in June 2022, when LPS was launched.

“We expect receivable days for Fitch-rated gencos to further shorten in the near term, although at a slower rate than the sharp improvement in FY23,” it said.

The long-term sustainability of gencos’ better receivables position depends on structural changes to boost the operational and financial profiles of discoms, Fitch said adding that it includes timely and adequate tariff adjustments, state subsidies and greater operational efficiency.

The central government’s Revamped Distribution Sector Scheme (RDSS), together with restricted access to the short-term exchange-traded power market in case dues to gencos are delayed under the LPS, should help, but implementation risk remains.

“We believe improved billing and revenue collection from the installation of prepaid smart-metres under the results-linked RDSS could reduce losses at discoms, which reached ₹590 billion in FY22. The scheme provides financial support to install 250 million smart metres by FY26, with 210 million smart metres approved and 2 million installed across India by mid-September 2023,“ it said.

The RDSS will also facilitate the upgrade of distribution infrastructure to accommodate rising power demand and reduce technical losses. The scheme will outlay ₹3 trillion in FY22-FY26 to cut aggregate technical and commercial losses to 12%-15% and aims to bridge the gap between the average cost of power supply for discoms and the average revenue realized by 2025, among other items.