Booming Power Sector can create only Winners

With over 1.4 billion people to serve, the cake remains big for all the players, be it coal-based power plants, renewables and power sector finance companies  

India’s appetite for power consumption is only growing which is a brilliant news for the sector and for the health of its balance sheets. The development is not surprising as India remains the world’s fastest growing major economy and the testimony was two sets of data that exemplifies this view.

The country not only posted a 7.6 per cent growth in its September quarter GDP (gross domestic product) but a double-digit October core sector growth at 12.1 per cent which was up from 9.2 per cent posted in September. Not surprisingly, the core sector growth was led by electricity generation which saw a whopping 20.3 per cent rise during the month.

The government is now scrambling to up the capacity to meet the growing demand. It is not to say that it was not already on the job but to put across the point that the sense of urgency is expected to go up. Under the current plans, India is expected to add 17 gigawatts of coal-based power generation capacity in the next 16 months. This is its fastest pace in recent years.

The country has been adding an annual average of 5 gigawatts of coal-based electricity generation capacity during the last five years, going by industry reports. Over the course of next four months, India plans to add nearly 3 gigawatts of coal-fired generation, while the following fiscal year, starting from April 1, 2025, will see it add 14 gigawatts, a Reuters report said.

in order to ensure completion of projects, New Delhi has begun a review of 38 coal generation plants whose construction has been held up for years, moving to resolve issues over equipment and land acquisition delays, this report said.

India’s total installed capacity as in May 2023 stood at 417,668 MW out of which 100,055 MW or 24 per cent is contributed by the central government while 25.3 per cent or 105,726 MW is contributed by the state governments. Private sector accounted for 50.7 per cent or 211,887 MW. A lion’s share of the total 417,668 MW installed capacity is accounted by coal-based power plant at 205,235 MW or 49.1 per cent.

Among other fossil fuel power plants, lignite-based plants account for 6,620 MW or 1.6 per cent; 24,824 MW or 6 per cent by gas-based plants while 589 MW or 0.1 per cent by diesel-powered plants. The total production by fossil fuel plant is 56.8 per cent.

The rest is contributed by renewable and nuclear viz. hydro (46,850 MW or 11.2 per cent); Wind, Solar & Other RE (125,692 MW or 30.2 per cent); Wind (42,868 MW or 10.3 per cent); Solar (67,078 MW or 16.1 per cent), BM Power/Cogen (10,248 MW or 2.5 per cent), Waste to Energy (554 MW or 0.1 per cent) and Small Hydro Power (4,944 MW or 1.2 per cent). The contribution from nuclear is 6,780 MW or 1.6 per cent.
While the coal-based power generation remains a mainstay for meeting the demand, India is also ramping up renewable energy in view of its commitment towards becoming net zero by 2070. Share of electricity produced from renewables accounted for one third this year and is up from nearly 20 per cent from last year. The renewable energy capacity is expected to go up to 500 gigawatts by 2030.    

The government knows that it needs to up the ante and is unapologetic of enhancing its coal-fired power plants in view of the growing energy needs and its goal of taking electricity to every household.

By virtue of being the most populous nation, providing electricity to a large population for any country worth its salt could be daunting. But India is up to the challenge. India is already the third largest power consumer in the world but it falls way shorter in terms of the per capita consumption. As the country aims to become the third largest economy, it is mindful of what it will take to reach there. It has to fire on all cylinders i.e. manufacturing, services and human development index.     

This presents a great opportunity for the sector to grow. Not just the power producers, but the distribution companies and power sector finance companies have the opportunity to grow.  
The fortunes of the power sector are closely linked with many other sectors like coal, cement and steel. These are among the eight core sectors and the October 2023 growth registered by these were 18.4 per cent, 17.1 per cent and 11 per cent) respectively. Cement recorded a contraction in the corresponding month of the last fiscal year at 4.2 per cent.

The government has been undertaking reforms in the sector not just to improve the reach of electrification but also revive the books of state-owned units. This has resulted in significant investment finding a way to the sector.

One such scheme is UDAY or Ujwal DISCOM Assurance Yojana which intends to improve the financial health of discoms. Moreover, real-time market platforms and green energy corridor projects reinforces transmission and renewables sectors.

Earlier by allowing discoms to buy electricity at market rates was a shot in the arm.

The government is also encouraging public-private partnerships (PPPs) to improve efficiencies and widen the reach. The government is also taking steps to mitigate operational losses.  The government is also bringing in innovative financing models like the green bonds and Infrastructure Investment Trusts (InvITs).

India consuming more electricity is also an indicator that its manufacturing activity is going up. This was reflected in the core sector growth of the October month. In October 2022, it was just 0.7 per cent.

It is expected that the Index of Industrial Production (IIP) will also see expansion this time. Data released by the Ministry of Statistics and Programme Implementation last month showed that IIP growth fell to a three-month low of 5.8 per cent in September, which was much lower than the estimated 7.4 per cent.

The sector is in an interesting phase and it appears there are only winners as the size of the cake remains very large. The country must work with the same zeal of the last many years and we can be sure it will.

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