Empowering India: How the Power Sector is Driving Economic Development

India is the third-largest producer and consumer of electricity globally and has a significant need for infrastructure development to ensure reliable access to power for its large population. In this special report, we will discuss government initiatives aimed at empowering the power sector, prospects, and the top trending power companies which can yield electrifying returns to investors. 

Power is one of the most crucial infrastructure elements, essential to national well-being and economic development. India's power sector is among the most diverse in the world, with sources of power ranging from non-conventional sources like wind, solar, agricultural waste, and domestic waste to conventional sources like coal, lignite, natural gas, oil, hydro and nuclear power. India intends to make sure that everyone has reliable access to adequate power and that the transition to clean energy is accelerated by reducing its dependence on unclean fossil fuels and shifting toward cleaner, renewable energy sources. 

Indian manufacturers are stepping up their game in terms of facility capabilities for manufacturing, testing, and product design. Some of the leading companies in this industry include NTPC Ltd, Power Grid Corporation of India, Adani Transmission and Tata Power. India is the third-largest producer and consumer of electricity worldwide. Any developing country must have enough power generation, transmission, and distribution systems, and given the size and population of India, this requires significant infrastructure development. Although the country has enough capacity to generate electricity, a sizable section of the population still lacks access to suitable transmission and distribution systems.

Government Initiatives and Outlook

The goal of the ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana – Saubhagya’ is to accomplish universal household electrification in the country by supplying last-mile connectivity and electricity connections to all unconnected households in rural and urban regions. The government’s Pradhan Mantri Awas Yojana (Urban) and Smart City Project with a plan to build 100 smart cities is a prime opportunity for real estate as well as power companies. A favourable environment for the industry is being enabled by tailwinds like the government's emphasis on infrastructure, the real estate sector's revival, and healthy demand across end-user industries. 

In addition, the government has launched numerous initiatives to encourage the production and use of electric vehicles in the country. Surat, Pune, Ahmedabad, Bengaluru, Hyderabad, Delhi, Kolkata, Mumbai, and Chennai are among the first megacities on which the government has focused more intensely. Once the EV infrastructure in these megacities is fully developed, the government plans to gradually extend its coverage to other cities. The National Highways Authority of India (NHAI) is building EV charging stations and other wayside amenities along highways and expressways. The industry, as a result, has found a new market in semi-urban and rural India. 

Furthermore, the 100 per cent foreign direct investments (FDI) authorized in the power industry has driven up FDI inflows. A sizable amount was allotted for a PLI scheme to increase the production of high-efficiency solar modules, and the government announced the issuance of sovereign green bonds as well as the granting of infrastructure status to energy storage systems. The demand for power sector goods including electrical machinery will rise even more as power generation capacity expansion incentives are offered. The power sector's new domestic sourcing rules and the ‘Make in India’ initiative are giving the sector a much-needed boost. Additionally, the recent push to make India self-sufficient is encouraging for the industry. 

Making India a preferred location to produce electrical equipment is the goal of the Indian Electrical Equipment Industry Mission Plan (2012-2022). The Indian Energy Exchange Limited (IEX) is India's first and largest power exchange. The Central Electricity Regulatory Commission (CERC) has approved and regulated IEX, which has been in operation since June 2008. Initiating a trade with Nepal allowed IEX to pioneer cross-border electricity trade (CBET). The grid initially linked countries in South Asia like Bangladesh, Nepal, and Bhutan. The industry can be greatly aided in overcoming obstacles by expanding cross-border trade in electricity. Electricity trading can help reduce energy costs, safeguard against power surges, relieve shortages, speed up carbon reduction, and offer incentives for market expansion and integration.
 

Power Companies

In India, there are broadly three main types of companies listed in the power space. 

Generation Companies — These are companies that generate electricity by using various sources such as coal, gas, hydro, wind, and solar. They operate power plants and sell electricity to other companies, which distribute it to end-users. Examples: NTPC, Tata Power, JSW Energy etc. 

Transmission Companies — These are companies that transmit electricity from generation companies to distribution companies through transmission lines, transformers, and substations. They are responsible for maintaining the transmission infrastructure and ensuring that electricity is delivered reliably and efficiently. Examples: Adani Transmission, Kalpataru Power Transmission etc. 

Distribution Companies — These are companies that distribute electricity to end-users such as households, industries, and commercial establishments. They operate distribution networks that deliver electricity to consumers and are responsible for billing and collection. Example: Torrent power. 

Many of the companies mentioned above may be operating in multiple segments. It's worth For example, some generation companies may also operate transmission and distribution networks, while some distribution companies may also generate electricity. 

In addition to these three types of companies, some companies provide services and equipment related to the power sector, such as equipment manufacturers, engineering and construction firms, and power trading companies.

Tips To Analyse Power Companies 

There are several key factors to consider when analysing power sector companies before investing. Here are some of the important aspects to investigate: 

Financial Performance — First and foremost is to analyse the financial statements of the company, including revenue growth, profitability, and debt levels. Look for companies with consistent earnings growth, strong balance sheets, and manageable debt levels. Power companies do have higher debt levels and hence checking the interest coverage ratio will help you to understand how comfortable the company is in servicing them.
 

Regulatory Environment —The power sector remains one of the most heavily regulated sectors in India, and changes in regulations can have a significant impact on companies operating and financial performance in this sector. Investors should keep an eye on regulatory changes and their potential impact on the companies.
 

Fuel Availability — Despite all the efforts of going clean and green, the majority of power generation companies in India still rely on coal or gas as their primary fuel source. Companies that have reliable access to fuel sources may be more likely to maintain stable operations and profitability. Hence, understanding the fuel linkages is important to determine the company's future prospects. 


Power Purchase Agreements (PPAs) — PPAs are contracts between power generators and electricity distribution companies, outlining the terms of the sale of electricity. Investors should analyze the terms of the PPAs and assess the risk associated with the contracts. For example, recently The Ministry of Power is considering cutting the tenure of prospective long-term PPAs to 12-15 years from the extant 25 years to provide more flexibility to the power distribution companies (DISCOMs) and promote the power trading markets further.
 

Capacity Utilization — Companies that can maintain high levels of capacity utilization are more likely to generate stable cash flows and maintain profitability.
 

Expansion Plans — Analyze the expansion plans of the companies to assess their growth potential. Companies that are expanding their capacity and diversifying their revenue streams from various sources may be more attractive investment opportunities.
 

Valuation — Finally, evaluate the valuation of the company relative to its peers and the broader market. Look for companies that are trading at reasonable valuations and offer good value for money. 

The above factors will help you to analyse and select the right power companies.