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India's overall electric power demand is expected to grow between 6 and 7 per cent in FY23, due to a higher base, according to India Ratings and Research (Ind-Ra).

It said that the impact of third Covid wave on power demand remains lower, given the less stringent curbs imposed by state governments.

"Although any stringent lockdowns in case of the emergence of any strong Covid wave could derail the growth in power demand," the agency said in a report.

On the other hand, Ind-Ra pointed out that coal availability could pose a risk to the overall demand and thus, PLF (plant load factor) recovery, given the higher reliance on domestic coal as international prices remain high.

"The domestic coal availability to the power sector would remain dependent on an improvement in the domestic coal production and its allocation to the power sector, both of which improved in 9MFY22."

Furthermore, it said that weak financial profile of distribution companies (discoms), reflected in increasing overdues even after liquidity injections by the government, is likely to keep power producers' debtors elevated and may pose a risk to the overall demand.

"The government assistance of Rs 3.05 trillion for improving discoms infrastructure including smart metering and upgradation of systems should result in reduction in aggregate, technical and commercial losses, although implementation remains key for discoms as observed in the past."

Consequently, India Ratings has maintained a neutral outlook for the power sector for FY23, as it believes the overall plant load factor (PLF) of thermal power plants would continue to improve and reach closer to 60 per cent in FY23.

"This is given the consistent growth in power demand and continued dependence on coal-based generation in the absence of any major increase in the capacity additions in any other sector except renewables."