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MOSL: UTILITIES | UDAY-mixed trend in DISCOMs’ health improvement-Demand growth has improved, but LED, CPP and RE have taken a big bite

​Utilities | UDAY: mixed trend in DISCOMs’ health improvement; Demand growth has improved, but LED, CPP and RE have taken a big bite

• We attended the presentation by the Ujwal DISCOM Assurance Yojana (UDAY) team, Mr Piyush Goyal (Minister of State – Independent charge – for power, coal and mines) and various PSU/state DISCOMs’ heads on the progress of DISCOMs post implementation of the UDAY scheme.
• Demand growth improves post UDAY implementation, but LED, CPP and RE take a big bite of this: According to Mr Goyal, nearly 3% demand growth has either been crowded out by energy efficiency (e.g. LED lighting) or not counted due to increased use of CPP on improving domestic coal supply. If one were to compare apple to apple, demand growth is in double-digit v/s 6.4% CAGR over FY06-16. Although we are unable to quantify the impact of LED and CPP, the arguments are in line with our view on demand (link to our sector report). According to the Central Electricity Authority (CEA), demand has increased by 6.3% to 1,034bkwh during 10MFY17 (link to our monthly report). However, renewable energy (RE) generation has increased 27% to 70bkwh during the same period. As a result, conventional energy generation has increased by only 5%, which is perhaps a key reason behind the general perception that demand growth is sluggish.
  
• Overcapacity is the real culprit behind lower PLF: Huge capacity addition during the 12th plan on unrealistic expectations of demand growth is the key culprit behind low PLF. The Modi government has only fast tracked stranded projects immediately after assuming power in 2014.
  
• Bond issues driving major interest cost savings: INR2.3t i.e. 82% of the planned (75%) restructuring under UDAY of the total debt of 16 states (85% of all-India DISCOMs' debt) has been taken over by states and equivalent amount of bonds have been issued. INR120b of interest savings has been achieved since the issue of bonds. Rajasthan, UP, Haryana and Jharkhand accounted for savings of INR51b, INR33b, INR21b and INR5b, respectively.