Date: 8th May, 2013.
POWER SECTOR ASSURING GROWTH MOMENTUM
The Indian power sector is one of the most diversified sectors in the world. Power in India is generated from commercial sources like coal, lignite, natural gas, oil, hydro and nuclear power as well as other viable non-conventional sources like wind, solar, and agriculture and domestic waste. The demand for electricity in the country has been growing at a rapid rate and is expected to increase further in the years to come. India has been one of the top performing clean energy economies in the 21st century, registering the fifth highest five-year rate of investment growth and eighth highest in installed renewable energy capacity.
Market Size
India is the fifth largest producer and consumer of electricity in the world after US, China, Japan and Russia. Electricity production in India stood at 876.4 terra watt hour (TWh) in FY12, a growth of 8.1 per cent over the previous fiscal. Over FY06-12, electricity production has expanded at a CAGR of 6 per cent.
India's installed power generation capacity was 199.9 gigawatt (GW) at the end of March 2012. India is set to become a global manufacturing hub with investments across the value chain. About 82 GW worth of generation capacity is set to be added during FY11-FY15; future investments will benefit from strong demand fundamentals, policy support, and increasing government focus on infrastructure.
Investments
The investment climate is very positive in the power sector. Due to surge in the sector, the power sector has witnessed higher investment flows than envisaged. The power ministry has set a target for adding 76,000 MW of electricity capacity in the 12th Plan and 93,000 MW in the 13th Five-Year Plan (2017-2022).
The Working Group on Power for formulation of the 12th Five Year Plan has estimated total fund requirement of Rs 1,372,580 crore (US$ 252.4 billion) for the power sector. The main sources of financing are commercial banks, public financial institutions, dedicated infrastructure/power finance institutions, insurance companies, overseas markets, bilateral/multilateral credit, bond markets and equity markets. In addition, steps have been taken by the Government to make available funds through Credit Enhancement Schemes and Infrastructure Debt Fund etc.
The industry attracted foreign direct investment (FDI) worth Rs 36,084.54 crore (US$ 6.64 billion) during April 2000 to January 2013. Most of the SEB's have increased a power tariff by 25-30%. This step of Government has provided huge relief to power generation companies. According to sources, the price may again see a hike of 20-25% in a year time.
Some of the major investments made into the Indian power sector are as follows:
· PowerGrid is likely to get an Rs 5,000-crore line of credit (Loc) from the State Bank of India (SBI). This is part of the Navratna Company's target of investing Rs 1 lakh crore during the 12th Plan period (2012-17) to increase transmission network by over 60,000 circuit km to around 1.5 trillion circuit km.
- NHPC is currently having an installed capacity of more than 5,300 MW with 14 operational power stations and has a cash surplus of over Rs.4,000 crore. The state-run major is engaged in the construction of 11 projects at various locations in the country, going to have an additional capacity of 4,502 MW. It is planning to develop two hydro projects in Myanmar, and Bhutan. Ministry of power is increasing Return on Investment (ROI) to attract investments in Hydropower projects.
· Rural Electrification Corporation Limited a Power sector-specific financial institutions will meet greater part of the sector's debt requirements. Near 100% historical recovery rates lend stability to credit profiles of REC despite their high sector concentration risk. With a strong sanctions pipeline (INR 1, 60,000 Crore), loan growth is likely to be healthy at 36% CAGR in the coming years.
· Neyveli Lignite Corporation Ltd (NLC) now elaborated its project to Rajasthan also in mining as well as thermal stations, 3 big mines also supplies a huge amount of sweet water to Chennai. The Tamil Nadu electricity board has a JV with the Neyveli Lignite Corporation Ltd (NLC) for two projects – A 1000-MW coal-based project at Tuticorin in south Tamil Nadu at the cost of Rs.4000 crore and the Jayamkondam lignite power project at a cost of Rs.5000 crore for 1000 – MW power plant. The company announced its plans to invest about Rs.36,900 crore on power generation and mining capacity augmentation by 2017. The company has also planned to develop clean coal technologies like extraction of coal bed methane (CBM) and Underground coal gasification for which several steps have been taken. It is developing power projects using other fuel feed. Neyveli's strength is its ownership of lignite mines. With increase in coal price, Neyveli is bound to be benefited with emphasis on lignite. The company is also planning to invest Rs.40,200 crore to build power plants in Tamil Nadu, Rajasthan and Uttar Pradesh.
Government Initiatives
The Government has initiated several policies to promote and garner investments in the power sector. To accelerate capacity addition, several policy initiatives have been. According to Jyotiraditya Scindia, The Union Power Minister sees a major growth in power sector, especially hydropower sector which has a longer gestation period and plan has been placed accordingly.
In order to attract foreign investments in the power sector, FDI up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading.
Conculsion
We expect further significant growth in the industry, and maintain our belief that Powergrid, NHPC, REC & Neyveli Lignite to report healthy set of results on the back of higher capitalization and higher capacity addition and present significant investment opportunities in coming 3-4 years.
DISCLAIMER: - Smart Profit has taken due care and caution in compilation of data for its reports. The market view and investment tips expressed on Smart Profit are in no way a guarantee either express or implied. However, Smart Profit does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.
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Email: mansingh.rai@smartprofit.in
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