NEW DELHI: The cash gap for distribution companies is likely to remain high at 30–33 paise per unit in the current financial year due to limited tariff hikes and increased power purchase costs amid the addition of relatively higher tariff-based capacities, ratings agency ICRA said on Thursday.
In the FY27 tariff orders issued in 17 states, tariff hikes approved for the fiscal year remain muted across most states despite the loss-making operations of discoms. This comes even as the gross debt for state-owned discoms remains at ₹7.1 trillion as of March 2025. “Such high debt levels are unsustainable for discoms, given their current revenues and profitability,” ICRA said.
Therefore, the agency’s outlook for the distribution segment remains negative. Smart metering, along with improvement in operating efficiency parameters and continued implementation of the fuel and power purchase cost adjustment framework, would play an important role in enhancing discom finances, it said.
ICRA also said that long-term power purchase bids were called by state distribution utilities after a long period of limited activity. “Over the last 12–15 months, the long-term bid discovered for thermal projects stood in the range of ₹5.0–6.5 per unit. As a result, project viability remains sensitive to factors such as capital outlay and cost of debt, given the fact that coal availability is ensured through the linkage route under the Scheme for Harnessing and Allocating Koyala Transparently in India (SHAKTI),” said Ankit Jain, vice president and co-group head, corporate ratings, ICRA.
Meanwhile, average tariffs for medium-term bids continued to decline in the past three years, with tariffs at ₹ 6/unit in 2025 and ₹5.5/unit in 2026 so far. Further, average spot power tariffs in the day-ahead market of the Indian Energy Exchange moderated to ₹3.8 per unit in FY26 from ₹4.4 per unit in FY25, owing to muted demand growth and a significant increase in supply.
For the current fiscal, the agency expects overall addition of power generation capacity to be around 50 GW, with thermal power contributing around 6 GW. The thermal segment has seen an increase in under-construction capacity over the past few quarters, currently at over 45 GW.
“Nonetheless, timely commissioning of the thermal projects under execution also remains key, given the long gestation period associated and the risk of delays from domestic boiler, turbine and generator (BTG) equipment manufacturers with their elevated order-book position,” Jain said.
The all-India thermal plant load factor level fell to 65–66 per cent in FY26 amid demand moderation and is expected to remain around 65 per cent in FY27.
Prospects for coal-based projects remain sensitive to demand growth and the emergence of renewables plus energy storage, ICRA said. Investment requirements for compliance with flexibilisation amid growing renewable energy generation, emission norms, and reducing water usage limit the prospects of these projects, as do their relatively higher cost of generation amid rising capital costs and escalation in fuel costs, it added.
For power demand projection, ICRA expects demand to rise by 5–5.5 per cent in the current fiscal, compared with a tepid nearly 1 per cent increase in FY26. Growth this year is likely to be supported by the agricultural and household sectors given the expectation of sub-par rainfall amid a potential El Nino, along with demand from industries as well as from emerging sources such as electric vehicles and data centres.
Source: Business Standard
