Fitch Ratings has predicted that a slew of factors, including pricier fuel and higher interest rates, will result in a slowdown in the launch of new power generation projects in 2012.

In its ’2012 Outlook: Indian Power’ report, global ratings agency Fitch said the power sector would remain exposed to both fuel availability and price risks during 2012.

‘Launch of new generation projects will slow down in 2012 because of lower investor interest over fuel availability, softening of merchant power prices, higher fuel costs, higher interest rates and slow progress on reforms at distribution level,’ Fitch said. About 8,000 to 10,000 MW of new capacity is expected to be added this year.

‘Fresh investment is unlikely to pick up (power sector) in 2012,’ Salil Garg, the director of ratings agency Fitch’s Asia-Pacific Utilities team, said.

Furthermore, access to capital would be ‘restricted’ for weaker entities, including State Power Utilities (SPUs) and greenfield projects, the report said.

According to the report, domestic fuel availability would be low compared to the rising demand from power projects on account of environmental and land issues faced by Coal India.

Against this backdrop, power project developers would be increasingly dependent on imported coal.
‘… However, the cost of imported coal and boiler design will play an important role in deciding the overall use of imported coal and hence, the overall capacity that can be commissioned,’ the report noted.

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