Demand for electricity in India is expected to increase by 6% in 2021-22 compared to the previous fiscal year, according to rating agency ICRA. It has also forecasted a 17- 18 GW increase in power generation capacity for the current fiscal year. In addition, ICRA expects all-India power generation capacity additions to rebound to 17-18 GW this year, up 45% YoY from 12.8 GW in 2020-21, with the renewable energy (RE) segment leading the way with a strong pipeline of 38 GW projects under development. Over the next five years, the renewable energy segment will continue to be the primary driver of capacity addition, accounting for more than 60% of total capacity addition. Despite an expected improvement from 54.5% in 2020-21 due to higher electricity demand, the thermal PLF is expected to remain subdued at 57.0% in 2021-22. While certain thermal independent power producers (IPPs) have improved their liquidity position as a result of large payments made under the liquidity support scheme in March 2021, the sustainability of the scheme remains to be seen given the continued weakness in discom finances. The presence of long-term power purchase agreements (PPAs) under the cost-plus tariff structure, as well as strengths arising from sovereign parentage, support the credit profile of central thermal power generation utilities. The impact of Covid-19 on electricity demand and collections in 2020-21 has amplified this effect. While demand is expected to recover this fiscal year, the discom finances are expected to remain under pressure due to a lack of or inadequacy of tariff revisions, high distribution losses, and rising subsidy dependence. The median tariff revision for 2021-22, based on tariff orders issued so far, is less than 1%, and discoms' subsidy dependence for the year is estimated to be Rs. 1.3 lakh crore across India. Furthermore, the total debt on the books of state-owned utilities in India is expected to reach close to Rs 6 lakh crore in 2021-22. The government recently approved a new scheme to revitalise the distribution sector, with a total investment of Rs. 3.03 lakh crore. The scheme includes smart metering, distribution infrastructure upgrades, and solarization of agriculture feeders. ICRA's outlook for the RE sector is also stable, owing to factors such as the government's continued policy support, large growth potential, the presence of creditworthy central nodal agencies as intermediary procurers, and tariff competitiveness. The transmission segment's outlook is stable, thanks to availability-linked payments and the timely payment realisation for interstate projects, thanks to the central transmission utility's billing and collections. Image Source Also read: DERC asks govt to deallocate power from Dadri-I plant for Delhi